Chapter 2. Nature and Effect of Obligations.

1. **Case Summary: Orient Freight International v. Keihin-Everett Forwarding**

**Facts:**
- Keihin-Everett entered into a Trucking Service Agreement with Matsushita,
subcontracting services to Orient Freight.
- A tabloid reported a truck interception involving stolen goods owned by Matsushita,
subcontracted to Orient Freight.
- Keihin-Everett terminated its agreement with Matsushita, citing loss of confidence due
to the handling of the incident.
- Keihin-Everett demanded indemnity from Orient Freight for lost income, alleging
misrepresentation, malice, negligence, and fraud.
- Trial court ruled in favor of Keihin-Everett, affirmed by the Court of Appeals.

**Issue:**
- Whether Article 2176 (culpa aquiliana or quasi-delict) is applicable, considering the
pre-existing contractual relation.

**Ruling:**
- Culpa aquiliana or quasi-delict may arise from negligence. Article 2176 governs quasi-
delicts when no pre-existing contractual relation exists.
- However, in this case, the duty to investigate and report arose subsequent to the
Trucking Service Agreement.
- Petitioner's negligence did not create a quasi-delict relationship with respondent;
rather, it stemmed from the obligation created during the contract.
- The act breaking the contract may also be a tort doctrine is inapplicable.
- Articles 1170, 1172, and 1173 of the Civil Code on negligence in the performance of
an obligation should apply.
- The Court of Appeals' decision is affirmed, denying the petition.

**Conclusion:**
The court ruled that the negligence leading to the termination of the agreement was not
a quasi-delict but a breach of contractual obligation, applying specific articles of the Civil
Code related to negligence in the performance of an obligation. The decision favored
Keihin-Everett, affirming the lower court's ruling.

2. **Case Summary: Cabantiang v. BPI Family Savings**

**Facts:**
- Cabantiang bought a Mitsubishi Adventure from Diamond Motors on an installment
basis.
- Executed a Promissory Note with Chattel Mortgage stipulating that failure to pay
makes the entire sum due without the need for notice or demand.
- Diamond Motors assigned the note to BPI Bank.
- BPI filed a case for Replevin and damages when Cabantiang failed to pay.
- RTC and CA ruled in favor of BPI.

**Issues:**
- Whether prior demand by the bank is necessary before Cabantiang's obligation
becomes due and demandable.

**Ruling:**
- No. The Supreme Court affirmed the CA decision, stating that no prior demand was
necessary.
- The stipulation in the Promissory Note with Chattel Mortgage waived the necessity of
notice and demand, making the obligation immediately due and payable.
- Cited Agner v. BPI Family Savings Bank, where a similar stipulation was held valid.
- The contract expressly stated that in case of failure to pay, the entire sum becomes
due and payable without prior notice or demand.

**Conclusion:**
The court held that the stipulation in the Promissory Note waiving the necessity of notice
and demand was valid. Cabantiang was bound by this stipulation, making the obligation
immediately due and payable without the need for prior demand. The decision of the CA
was affirmed.

3. **Case Summary: Poon v. Prime Savings**

**Facts:**
- Petitioners leased a commercial building to Prime Savings Bank for 10 years, with
fixed monthly rental and advance payment.
- Contract allowed termination and forfeiture of advance rentals if the leased premises
were closed, deserted, or vacated by the lessee.
- Prime Savings Bank, under receivership by PDIC, vacated the building.
- PDIC demanded return of advance rentals; petitioners refused.
- Prime Savings initiated a case for rescission of contract and recovery of the sum of
money.

**Issues:**
1. Whether Prime Savings can avail of the remedy of rescission.
2. Whether the closure of Prime Savings' business is a fortuitous event.
3. Whether the forfeiture of advance rentals was a penal clause.
4. Whether the penalty may be equitably reduced.

**Held:**
1. Yes. Prime Savings is entitled to rescission under Art. 1191. The alleged abuse of
petitioner’s right to forfeit advance rentals constitutes bad faith.
2. No. The closure was not a fortuitous event; it was in accordance with the law, and
Prime Savings was partially accountable.
3. Yes. The forfeiture clause is penal, providing for liquidated damages.
4. Yes. A 50% reduction of the penalty is justified under Art. 1229 due to PDIC's role in
recovering assets for depositors and creditors.

**Conclusion:**
The court affirmed rescission, rejecting the argument of a fortuitous event. It deemed
the forfeiture clause as penal and allowed a 50% reduction in the penalty, considering
the PDIC's role in protecting the interests of depositors and creditors. The decision
aimed to balance the rights of the parties with the broader considerations of justice and
fairness.

4. Marquez v. Elisan, G.R. No. 194642, April 06, 2015;

Facts: Marquez obtained from Elisan Credit Corporation a loan payable in weekly
installments and subject to annual interest with monthly penalties and attorney’s in case
of nonpayment. A chattel mortgage was also executed stipulating that “the motor
vehicle shall stand as a security for all other obligations of every kind already incurred or
which hereafter may be incurred”. The payment of that loan was acknowledged by both
parties. Subsequently, Marquez obtained another loan evidenced by a promissory note
with the same terms and conditions as the first loan. When the second loan matured,
there still remained an unpaid balance. Marquez requested the creditor to pay the
unpaid balance by daily installments until the loan is paid; the creditor agreed. Thus,
several months after the maturity of the loan, Marquez had already paid a total amount
which is greater than the amount of the principal. Despite such, the creditor filed a
complaint for foreclosure of the CM on the ground that Marquez allegedly failed to pay
the principal of the second loan despite demand. It was also prayed that the unpaid
balance plus accrued penalties and interests be paid because, allegedly, Marquez’
failure to pay upon maturity triggered the imposition of monthly penalties and attorney’s
fees. Marquez, citing Art 1176 and 1235 of the Civil Code, insists that his daily
payments should be deemed to have been credited against the principal, as the official
receipts issued by the creditor were silent with respect to the payment of interest and
penalties.
Issue 1: W/N the creditor waived the payment of the interest

No. The fact that the official receipts did not indicate whether the payments were made
for the principal or the interest does not prove that the creditor waived the interest.
There is no presumption of waiver of interest without any evidence showing that the
creditor accepted the daily instruments as payments for the principal.
Issue 2: W/N the daily payments made by the debtor be applied to the interest

Yes. Notwithstanding the fact it was not indicated in the receipts whether the payments
were applied to the principal or the interest, such failure should not be taken against the
creditor. Under Article 1253 of the Civil Code, if the debt produces interest, payment of
the principal shall not be deemed to have been made until the interests have been
covered. Thus, the creditor in this case has a right to credit the payments to the interest
first.

Issue 3: W/N an order for foreclosure is proper

No. Foreclosure in this case is without legal and factual basis because the chattel
mortgage was already extinguished when the obligation under the first loan was duly
paid. A CM can only cover obligations existing at the time the mortgage is constituted.
For a CM to cover debts yet to be contracted, a fresh chattel mortgage may be
executed or the old contract be amended conformably to the form prescribed by the CM
Law. Here, since there was no showing that a new agreement was executed, the
security can no longer apply to the second loan. The chattel mortgage was already
extinguished because being merely an accessory in nature, it cannot exist
independently of the principal obligation. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding commitment
that can be compelled upon, the security itself, however, does not come into existence
or arise until after a chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part
of the borrower to execute the agreement so as to cover the after incurred obligation
can constitute an act of default on the part of the borrower of the financing agreement
whereon the promise is written, but the remedy of foreclosure can only cover the debts
extant at the time of constitution and during the life of the chattel mortgage sought to be
foreclosed. The Chattel Mortgage Law requires the parties to the contract to attach an
affidavit of good faith and execute an oath that – “… the mortgage is made for the
purpose of securing the obligation specified in the conditions thereof, and for no other
purposes, and that the same is a just and valid obligation, and one not entered into for
the purposes of fraud.” It is obvious therefore that the debt referred to in the law is a
current, not an obligation that is yet merely contemplated. The only obligation specified
in the chattel mortgage contract was the first loan which the petitioner later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage terminated; the chattel mortgage had
ceased to exist upon full payment of the first loan. Being merely an accessory in nature,
it cannot exist independently of the principal obligation. The parties did not execute a
fresh chattel mortgage nor did they amend the chattel mortgage to comply with the
Chattel Mortgage Law which requires that the obligation must be specified in the
affidavit of good faith. Simply put, there no longer was any chattel mortgage that could
cover the second loan upon full payment of the first loan. The order to foreclose the
motor vehicle therefore had no legal basis. Relevant Laws Article 1176, Civil Code: The
receipt of the principal by the creditor, without reservation with respect to the interest,
shall give rise to the presumption that said interest has been paid. Article 1235, Civil
Code: When the obligee accepts the performance of an obligation, knowing its
incompleteness or irregularity, and without expressing any protest or objection, the
obligation is deemed fully complied with. Article 1253, Civil Code: If the debt produces
interest, payment of the principal shall not be deemed to have been made until the
interests have been covered.
5. Surviving Heirs versus Lindo, et al., G.R. No. 208232, March 10, 2014
Facts:

Alfredo R. Bautista (Bautista), petitioner’s predecessor, inherited in 1983 a free-patent

land located in Davao Oriental and covered by OCT No. (1572) P-6144.A few years
later, he subdivided the property and sold it to several vendees, herein respondents, via
a notarized deed of absolute sale dated May 30, 1991. Two months later, OCT No.
(1572) P-6144 was canceled and Transfer Certificates of Title (TCTs) were issued in
favor of the vendees.

On August 1994, Bautista filed a complaint for repurchase against respondents before
the RTC, anchoring his cause of action on Section 119 of Commonwealth Act No. (CA)
141, otherwise known as the “Public Land Act,” which reads:
“SECTION 119. Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his widow, or
legal heirs, within a period of five years from the date of the conveyance.”

During the pendency of the action, Bautista died and was substituted by petitioner,
Efipania. Respondents, Sps. Lindo entered into a compromise agreement with
petitioners, whereby they agree to cede to Epifania 3,230 sq.m..portion of the property
as well as to waive, abandon, surrender, and withdraw all claims and counterclaims
against each other. RTC approved the compromise agreement in January 2011.

Other respondents filed a Motion to Dismissed in February 2013 alleging lack of

jurisdiction of the RTC on the ground that the complaint failed to state the value of the
property sought to be recovered and alleges that the total value of the properties in
issue is only P16,500 pesos. RTC ruled in favor of the respondent dismissing the case.

Issue:
Whether the action filed by petitioners is one involving title to or possession of real
property or any interest therein or one incapable of pecuniary estimation.

Ruling:
The Court rules that the complaint to redeem a land subject of a free patent is a civil
action incapable of pecuniary estimation.

It is a well-settled rule that jurisdiction of the court is determined by the allegations in the
complaint and the character of the relief sought. In this regard, the Court, in Russell v.
Vestil, wrote that "in determining whether an action is one the subject matter of which is
not capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is primarily for the
recovery of a sum of money, the claim is considered capable of pecuniary estimation,
and whether jurisdiction is in the municipal courts or in the RTCs would depend on the
amount of the claim." But where the basic issue is something other than the right to
recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in terms of money, and,
hence, are incapable of pecuniary estimation.

6. William C. Louh and Irene Louh, Petitioner, -versus- Bank Of The Philippine
Islands, Respondent. G.R. No. 22562, March 8, 2017
Facts: Bank of the Philippine Islands (BPI) issued a credit card in William's name, with
Irene as the extension card holder. The card imposed a 3.5% finance charge and 6%
late payment charge on unpaid credit availments. The Spouses Louh failed to pay BPI,
leading to a complaint for collection of money. BPI filed a motion to declare the Spouses
Louh in default, but the Spouses Louh filed an answer more than three months after the
prescribed period. The RTC declared the Spouses Louh in default and ordered them to
pay BPI, including 12% finance and 12% late payment annual charges, 25% attorney's
fees, ₱l,000.00 per court hearing, ₱8,064.00 as filing or docket fees, and costs of suit.
The RTC found the charges iniquitous and unconscionable, reducing them to 1%
monthly. The Spouses Louh filed a Motion for Reconsideration, which the RTC denied.
The CA affirmed the RTC's judgment, finding BPI had provided ample evidence,
including delivery receipts, authentic copies of SOAs, and demand letters sent by BPI.

Issue:
Ruling: The Court affirms the herein assailed decision and resolution, but modifies the
principal amount and attorney's fees awarded by the RTC and the CA.

The Spouses Louh reiterate that the RTC wrongly declared them in default since by
reason of William's sickness, they were entitled to a relaxation of the rules. Moreover,
BPI had failed to offer preponderant evidence relative to the actual amount of the
Spouses Louh's indebtedness.
7. Rivera v. Chua, G.R. 184458, Jan. 14, 2015;

FACTS: The parties were friends and kumpadres for a long time already. Rivera
obtained a loan from the Spouses Chua evidenced by a Promissory Note. The relevant
parts of the note are the following:

(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses

SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty
Thousand Philippine Currency (_120,000.00) on December 31, 1995.

(b) It is agreed and understood that failure on my part to pay the amount of
(_120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995. I agree
to pay the sum equivalent to FIVEPERCENT (5%) interest monthly from the date of
default until the entire obligation is fully paid for.

Three years from the date of payment stipulated in the promissory note, Rivera, issued

and delivered to Spouses Chua two (2) checks drawn against his account at Philippine
Commercial International Bank (PCIB) but upon presentment for payment, the two
checks were dishonored forthe reason “account closed.” As of 31 May 1999, the
amount due the Spouses Chua was pegged at P366,000.00 covering the principal of
P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May
1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit before the MeTC, Branch 30, Manila.

The MeTC ruled against Rivera requiring him to pay the spouses Chua P120,000.00
plus stipulated interest at the rate of 5% per month from 1 January 1996, and legal
interest at the rate of 12% percent per annum from 11 June 1999 and was affirmed by
the RTC of Manila. The Court of Appeals further affirmed the decision upon appeal of
the two inferior courts but with modification of lowering the stipulated interest to 12% per
annum. Hence, a petition at the Supreme Court.

ISSUES:

1. Whether or not the Promissory Note executed as evidence of loan falls under
Negiotiable Instruments Law.

2. Whether or not a demand from spouses Chua is needed to make Rivera liable.

3. Whether or not the stipulated interest is unconscionable and should really be

lowered.

Held: 1. NO, the Promissory Note executed as evidence of loan does not fall under
Negotiable Instruments Law. The instrument is still governed by the Civil Code as to
interpretation of their obligations. The Supreme Court held that the Instrument was not
able to meet the requisites laid down by Section 1 of the Negotiable Instruments Law as
the instrument was made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.

cals not a negotiable instrument and therefore outside the coverage of Section 70 of the
NIL which provides that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the Promissory Note that
he issued. Article 1169 of the Civil Code explicitly provides that the demand by the
creditor shall not be necessary in order that delay may exist when the obligation or the
law expressly so declare. The clause in the Promissory Note containing the stipulation
of interest (letter B in the above facts) which expressly requires the debtor (Rivera) to
pay a 5% monthly interest from the “date of default” until the entire obligation is fully
paid for. Theparties evidently agreed that the maturity of the obligation at a date certain,
31 December 1995, will give rise to the obligation to pay interest.
3. YES, the stipulated interest is unconscionable and should really be lowered. The
Supreme Court held that as observed by Rivera, the stipulated interest of 5% per month
or 60% per annum in addition to legal interests and attorney’s fees is, indeed, highly
iniquitous and unreasonable and stipulated interest rates if illegal and are
unconscionable the Court is allowed to temper interest rates when necessary. Since the
interest rate agreed upon is void, the parties are considered to have no stipulation
regarding the interest rate, thus, the rate of interest should be 12% per annum
computed from the date of judicial or extrajudicial demand. However, the 12% per
annum rate of legal interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v.
Gallery Frames,30 BSP Circular No. 799 is prospectively applied from 1 July 2013.

8. Tumibay v. Spouses Lopez, G.R. No. 171692, June 3, 2013;

FACTS Respondent Rowena Gay T. Visitacion-Lopez (Rowena) is the daughter of
Reynalda T. Visitacion (Reynalda) who is the sister and Attorney-in-fact of Petitioner
Aurora T. Tumibay (Aurora). Petitioner Delfin (who acquired American citizenship) is the
husband of petitioner Aurora (who remained a Filipina). Petitioners live in the USA.
Petitioners-Spouses Delfin and Aurora Tumibay were the owners of the subject land
covered by TCT No. T-25334 in the name of petitioner Aurora. On December 12, 1990,
Petitioners, as principals and sellers, executed an SPA in favor of Reynalda, as agent,
to, among others, offer for sale the subject land provided that the purchase price thereof
should be approved by the former. Sometime in 1994, petitioners and respondent
Rowena agreed to enter into an oral contract to sell over the subject land for the price of
₱800,000.00 to be paid in 10 years through monthly installments. On January 25, 1995,
respondent Rowena paid the first monthly installment of $1,000.00 to petitioner Aurora
which was followed by 22 intermittent monthly installments of $500.00 spanning almost
three years. Sometime in 1997, after having paid a total of $10,000.00, respondent
Rowena called her mother, Reynalda, claiming that she had already bought the subject
land from petitioners. Using the aforesaid SPA, Reynalda then transferred the title to the
subject land in respondent Rowena’s name through a deed of sale dated July 23, 1997
without the knowledge and consent of petitioners. In the aforesaid deed, Reynalda
appeared and signed as attorney-in-fact of petitioner Aurora, as seller, while respondent
Rowena appeared as buyer. After which, a new title, i.e., TCT No. 62674,20 to the
subject land was issued in the name of respondent Rowena. Petitioners deny that they
agreed to sell the subject land to respondent Rowena for the price of ₱800,000.00
payable in 10 years through monthly installments. The prevailing market value of
subject land was more than ₱2,000,000.00. They claim that the payments received from
respondent Rowena were for safekeeping purposes only pending the final agreement
as to the purchase price of the subject land. The RTC ruled in favor of the petitioners.
However, the CA ruled in favor of the respondents. Hence, this petition for certiorari. II.

ISSUE
W/N Petitioners and respondent entered into a contract to sell over the subject land
W/N respondent Rowena was in breach of the contract to sell W/N the sale of the
subject land is void. W/N the Petitioners are entitled to moral damages and attorney’s
fees.

HELD The Court, speaking through Justice del Castillo, ruled that: A. YES. The Court
gives credence to the claim of the respondents that there is a contract to sell over the
subject land for the amount of ₱800,000.00 for the following reasons: First, the payment
of 23 monthly installments over the span of almost 3 years was duly established by the
evidence on record consisting of money orders and checks payable to petitioner Aurora.
As of the last monthly installment (November 30, 1997), the payments already totaled
$12,000.00.

9. Gaisano v. Insurance Company of North America, G.R. No. 147839, June 8,

2006;
FACTS:

● Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.

while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co
● IMC and LSPI separately obtained from Insurance Company of North America
fire insurance policies for their book debt endorsements related to their ready-
made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines which are unpaid 45 days
after the time of the loss
● February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City,
owned by Gaisano Cagayan, Inc., containing the ready-made clothing materials
sold and delivered by IMC and LSPI was consumed by fire.
● February 4, 1992: Insurance Company of North America filed a complaint for
damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their
claims under their respective fire insurance policies which it paid thus it was
subrogated to their rights
 ○ Gaisano Cagayan, Inc: not be held liable because it was destroyed due to
fortuities event or force majeure
● RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it
must bear the loss (res perit domino)
● CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil
Code to res perit domino

ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan
for the debt that was isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

● insurance policy is clear that the subject of the insurance is the book debts and
NOT goods sold and delivered to the customers and dealers of the insured
● ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the ownership therein
is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of
such delivery;
● IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is
not determined by concept of title, but whether insured has substantial economic
interest in the property
● Section 13 of our Insurance Code defines insurable interest as "every interest in
property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same Code, an insurable
 interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
● Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.
○ it is sufficient that the insured is so situated with reference to the property
that he would be liable to loss should it be injured or destroyed by the peril
against which it is insured
○ an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject
○ matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest
● insurance in this case is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the fire - obligation is
pecuniary in nature
○ obligor should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in
case of fortuitous event
● Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish the obligation
(Genus nunquan perit)
● The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the
amount paid to settle the insurance claim
● Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract.
● As to LSPI, no subrogation receipt was offered in evidence.
○ Failure to substantiate the claim of subrogation is fatal to petitioner's case
for recovery of the amount of P535,613
10. Phil. Export v. V.P. Eusebio Const., G.R. 140047, Jul. 13, 2004;

FACTS:
State Organization of Buildings (SOB) of Iraq awarded the construction of the Institute
of physical Therapy-Medical Rehabilitation Center in Iraq to Ayjal Trading and
Contracting Company. 3-Plex International, Inc., a local contractor engaged in the
construction business, entered into a joint
venture agreement with Ayjal where the former would undertook the execution of the
entire project, while Ayjal would be entitled to 4% commission. Since 3-Plex was not
accredited by the Phil. Overseas Construction Board (POCB), it assigned and
transferred all its rights to V.P. Eusebio Const. Inc (VPECI). The SOB then required the
submission of a performance bond. To comply with this requirement, 3-Plex and VPECI
applied for a guarantee with Philguarantee, a government financial institution
empowered to issue guarantee for qualified Filipino contractors.
VPECI and the Ayjal Trading and Contracting Co. (joint venture) entered into a service
contract with the SOB for the construction of the Institute of Physical Therapy Medical
Center Phase 2 to be completed within a period of 18 months. Under the contract, the
joint venture would supply manpower and materials, and SOB would refund to the
former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange
rate of 1 Dinar to 3.37777 US Dollars.
The construction delayed in commencing due to some setbacks and difficulties. Upon
foreseeing the impossibility of meeting the deadline, the joint venture contractor worked
for the renewal of the Performance Bond up to December 1986. As of March 1986, the
status of the Project was 51% accomplished, meaning the structures were already
finished. The remaining 47% consisted in electro-mechanical works and the 2%,
sanitary works, which both required importation of equipment and materials.
On October 1986, Al Ahli Bank of Kuwait Sent a telex to Philguarantee demanding full
payment of its performance counter-guarantee. Upon receipt, VPECI requested Iraqi
government to recall the telex for being in contravention of its mutual agreement that the
penalty will be held in abeyance until completion of the project. It also wrote a protest to
the SOB since the Iraqi government lacks foreign exchange to pay VPECI and the non-
compliance with the 75% billings in US dollars.
Philguarantee received another telex from Al Ahli stating that it already paid to Rafidian
Bank. The Central Bank then authorized the remittance to Al Ahli Bank representing the
full payment of the performance counter-guarantee for VPECI’s project. Philguarantee
then sent letters to VPECI
demanding the full payment of the amount it paid pursuant to Al Ahli pursuant to their
joint and solidary obligation under the deed of undertaking and surety bond. VPECI
failed to pay prompting Philguarantee to file the case.
The RTC ruled against Philguarantee and held that it had no valid cause of action
against VPECI. Also, the joint venture contractor incurred no delay in the execution of
the Project. Considering the Project owner’s violations of the contract which rendered
impossible the joint venture contractor’s
performance of its undertaking, no valid call on the guarantee could be made.
Furthermore, the trial court held that no valid notice was first made by the Project owner
SOB to the joint venture contractor before the call on the guarantee. The CA affirmed
the RTC’s decision.

ISSUE:
Whether or not VPECI defaulted in its obligation that would justify resort to guaranty.

RULING:
No, VPECI is not in default of its obligation that would justify resort to guaranty.

Article 1169, last paragraph, of the Civil Code, provides: “In reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to comply
in a proper manner with what is incumbent upon him.” Default or mora on the part of the
debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to
the former. It is the non-fulfillment of an obligation with respect to time.
It is undisputed that only 51.7% of the total work had been accomplished. The 48.3%
unfinished portion consisted in the purchase and installation of electro-mechanical
equipment and materials, which were available from foreign suppliers, thus requiring US
Dollars for their importation.
As found by lower courts, the delay or the non-completion of the Project was caused by
factors not imputable to the respondent contractor. It was rather due mainly to the
persistent violations by SOB of the terms and conditions of the contract, particularly its
failure to pay 75% of the
accomplished work in US Dollars.
Indeed, where one of the parties to a contract does not perform in a proper manner the
prestation which he is bound to perform under the contract, he is not entitled to demand
the performance of the other party. A party does not incur in delay if the other party fails
to perform the obligation incumbent upon him.
SOB cannot yet demand complete performance from VPECI because it has not yet
itself performed its obligation in a proper manner, particularly the payment of the 75% of
the cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in
delay. Even assuming that there was delay and that the delay was attributable to
VPECI, still the effects of that delay ceased upon the renunciation by the creditor, SOB,
which could be implied when the latter granted several extensions of time to the former.
Besides, no demand has yet been made by SOB against the respondent contractor.
Demand is generally necessary even if a period has been fixed in the obligation. And
default generally begins from the moment the creditor demands judicially or extra-
judicially the performance of the obligation. Without such demand, the effects of default
will not arise.

11. Tanguilig v. CA, G.R. 266 SCRA 78;

FACTS:
Petitioner, doing business under the name and styleJ.M.T. Engineering and General
Merchandising, proposed to respondent to construct a windmill system for him
(respondent). They agreed on the construction of the windmill for a consideration of
P60,000.00 with a one-year guaranty from the date of completion and acceptance by
respondent of the project. Pursuant to the agreement, respondent paid petitioner a
down payment of P30,000.00 and an installment payment of P15,000.00, leaving a
balance of P15,000.00.
On 14 March 1988, due to the refusal of respondent to pay the balance, petitioner filed
a complaint. In his Answer, respondent denied the claim saying that he had already paid
this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed
the deep well to which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system, the payment he tendered to
SPGMI should be credited to his account by petitioner.
Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be
offset by the defects in the windmill system which caused the structure to collapse after
a strong wind hit their place.
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation. He also disowned any obligation to repair the
system and insisted that he delivered it in good condition to respondent who accepted
the same without protest. Besides, its collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project and that “there is no clear and convincing proof that the
windmill system fell down due to the defect of the construction. “
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term “deep well” was
mentioned in both proposals. It also rejected petitioner’s claim of force majeure and
ordered the latter to reconstruct
the windmill in accordance with the stipulated one-year guaranty.

ISSUES:
1) Whether or not the agreement to construct the windmill system included the
installation of a deep well.
2) Whether or not petitioner is under obligation to reconstruct the windmill after it
collapsed.

RULING:
1) No, the installation of a deep well was not included in the proposals of petitioner to
construct a windmill system for respondent. Nowhere in either proposal is the
installation of a deep well mentioned, even remotely. Neither is there an itemization or
description of the materials to be
used in constructing the deep well. There is absolutely no mention in the two (2)
documents that a deep well pump is a component of the proposed windmill system. The
contract prices fixed in both proposals cover only the features specifically described
therein and no other.
While the words “deep well” and “deep well pump” are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely describe the type of
deep well pump for which the proposed windmill would be suitable. Since the terms of
the instruments are clear and leave no doubt as to their meaning, they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of
the parties shall be accorded primordial consideration and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. An
examination of such contemporaneous and subsequent acts of respondent as
well as the attendant circumstances did not persuade the SC to uphold him.
2) Yes. In order for a party to claim exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code the event should be the sole and proximate cause of
the loss or destruction of the object of the contract.

12. Chavez v Gonzales, 32 SCRA 547

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

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

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

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

13. Mackay v. Caswell (2014)

FACTS: For defective and incomplete requirements in the electrical installation system,
the respondents sued the petitioner for Estafa. Petitioner, in turn, filed a complaint for
Collection of sum of money plus Damages for the remining unpaid balance for his
installation work.
ISSUE: Whether or not Caswells are entitled to actual damages.
HELD: The Supreme Court held that because of the substandard work done, the
Caswells necessarily incurred expenses by purchasing materials to finally get a supply
of electricity in their home. In the case at bar, we give credence to the documents relied
upon by the CA and the MTC in arriving at the rectification cost, i.e., a) Engr. Pulangco’s
handwritten receipt of ₱15,400.00, to which he had testified before the court that he had
indeed received such amount and b) the Sales Invoice No. 2029 issued by Peter A.
Eduria Enterprises reflecting the total cost of ₱53,805.00.00. Concepts, Doctrines &
Principles: 1. Under Article 1715 of the Civil Code, if the work of a contractor has
defects which destroy or lessen its value or fitness for its ordinary or stipulated use, he
may be required to remove the defect or execute another work. If he fails to do so, he
shall be liable for the expenses by the employer for the correction of the work. The
demand required of the employer under the subject provision need not be in a particular
form. 2. One is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. "To justify an award of actual damages, there
must be competent proof of the actual amount of loss, credence can be given only to
claims which are duly supported by receipts." The claimant must prove the actual
amount of loss with a reasonable degree of certainty premised upon competent proof
and on the best evidence obtainable.
14. Woodhouse v Halili, 93 Phil 526 (1953)
FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with
defendant Halili stating among others that: 1) that they shall organize a partnership for
the bottling and distribution of Missionsoft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing the capital necessary therefore;
2) that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net
profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation
of Los Angeles, California, that he had interested a prominent financier (defendant
herein) in the business, who was willing to invest half a milliondollars in the bottling and
distribution of the said beverages, and requested, in order that he may close the deal
with him, that the right to bottle and distribute be granted him for a limited time under the
condition that it will finally be transferred to the corporation. Pursuant to this request,
plaintiff was given “a thirty days’ option on exclusive bottling and distribution rights for
the Philippines”. The contract was finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that
the partnership papers be executed. Defendant Halili gave excuses and would not
execute said agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits
and 3)share thereof of 30 percent with 4) damages in the amount of P200,000. The
Defendant on the other hand claims that: 1) the defendant’s consent to the agreement,
was secured by the representation of plaintiff that he was the owner, or was about to
become owner of an exclusive bottling franchise, which representation was false, and
that plaintiff did not secure the franchise but was given to defendant himself 2) that
defendant did not fail to carry out his undertakings, but that it was plaintiff who failed
and 3)that plaintiff agreed to contribute to the exclusive franchise to the partnership, but
plaintiff failed to do so with a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that
the 2) execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t
proved

ISSUES
1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission
beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership

HELD

1. Yes. Plaintiff did make false representations and this can be seen through his letters
to Mission Dry Corporation asking for the latter to grant him temporary franchise so that
he could settle the agreement with defendant. The trial court reasoned, and the plaintiff
on this appeal argues, that plaintiff only undertook in the agreement “to secure the
Mission Dry franchise for and in behalf of the proposed partnership.” The existence of
this provision in the final agreement does not militate against plaintiff having
represented that he had the exclusive franchise; it rather strengthens belief that he did
actually make the representation. The defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed
upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff
did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s
participation in the net profits to one half of that agreed upon. He could not have had
such a feeling had not plaintiff actually made him believe that he(plaintiff) was the
exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of
(civil) fraud, the causal fraud, which may be ground for the annulment of a contract, and
the incidental deceit, which only renders the party who employs it liable for damages
only. The Supreme Court has held that in order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo incidente) inducement to
the making of the contract.
The record abounds with circumstances indicative of the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle
and distribute for the defendant or for the partnership. The original draft prepared by
defendant’s counsel was to the effect that plaintiff obligated himself to secure a
franchise for the defendant. But if plaintiff was guilty of a false representation, this was
not the causal consideration, or the principal inducement, that led plaintiff to enter into
the partnership agreement. On the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in exchange for the share
of 30 per cent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was transferring
his exclusive franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may
the agreement be carried out or executed? The SC finds no merit in the claim of plaintiff
that the partnership was already a fait accompli from the time of the operation of the
plant, as it is evident from the very language of the agreement that the parties intended
that the execution of the agreement to form a partnership was to be carried out at a later
date. , The defendant may not be compelled against his will to carry out the agreement
nor execute the partnership papers. The law recognizes the individual’s freedom or
liberty to do an act he has promised to do, or not to do it, as he pleases.

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

FACTS: Petitioner Lydia Geraldez came to know about respondent Kenstar Travel
Corp. through numerous advertisements found in newspapers regarding tour packages
in Europe. She then contacted Kenstar Travel to avail of a European tour package. She
chose the “Volare 3” package for her and her sister, Dolores, which covers a 22-day
tour of Europe worth $2,990. Petitioner alleges in this complaint against Kenstar Travel
that she was very disappointed and uneasy throughout the duration of the European
tour because things turned out contrary to what was stated and promised in the
brochure for the Volare 3 package: there was no European tour manager who appeared
for their group of tourists, the hotels they stayed in were substandard when they were
expecting to stay in first-class hotels, the UGC Leather Factory (which was specifically
made a highlight of the tour) was not visited, and the tour guide provided was a Filipina
first-timer in Europe.
ISSUE: Whether or not respondent Kenstar Travel acted with fraud by making
misrepresentations amounting to bad faith to the prejudice of petitioner Lydia and the
other members of the Volare 3 package tour group [YES].
HELD: The Court ruled in the affirmative, holding that the actions of respondent Kenstar
Travel evidently show that it committed fraudulent misrepresentations when it failed to
comply faithfully to its commitments under the Volare 3 tour package. Firstly, this was
manifested by Kenstar Travel providing an inexperienced and first-timer Filipino tour
guide. Such a person cannot effectively perform the duties of a tour guide because she
herself is new to the place. She could neither properly acquaint the group with the
interesting sites and places, nor render the necessary assistance. The Court finds that
this was a deliberate and conscious choice on the part of Kenstar Travel in order to give
the said tour guide an on-the-job training so as to qualify her later on as an
“experienced” tour guide and eventually become an asset of respondent Kenstar Travel.
Secondly, Kenstar Travel failed to provide a European tour manager, contrary to its
promise to provide a local European tour manager who was supposed to accompany
the Filipino tour guide. The Court holds that Kenstar Travel was obligated to do so.
Thirdly, Kenstar Travel again committed another grave misrepresentation when it
assured the members of its Volare 3 tour package group that the chosen hotels were all
first-class with complete amenities as well as being located conveniently near the
places in the group’s itinerary. However, this all proved to be false. None of the hotel
they stayed in were first-class, and worse, some hotels lacked even the basic facilities
such as soap, bath towels, and even toilet paper. Some hotels were described to even

have dilapidating floors and cabinets. They were also located far away from the places
they were supposed to visit in the tour. Fourth, one of the highlights of the tour was the
visit to the UGC Leather Factory. However, they were not able to visit it because the
group arrived too late in the day and the factory was already closed. This manifests the
neglect and ineptness of the supposed Filipino first-timer tour guide who accompanied
the group. It is clear from the foregoing considerations that respondent Kenstar Travel
has committed dolo causante o r dolo incidente by making misrepresentations in its
contracts with petitioner Lydia and the the other members of the tour group. This fraud
or dolo which is present at the birth of a contract may either be dolo causante or dolo
incidente. The former is causal fraud which is found in Art. 1338 and it refers to those
deceptions or misrepresentations of a serious character employed by one party and
without which the other party would not have entered into the contract. The latter is
incidental fraud which is found in Art. 1344 and it refers to those not of a serious
character and without which the other party would still have entered into the contract.
DISPOSITION: Assailed decision of the CA is set aside, and respondent Kenstar Travel
is ordered to pay petitioner Lydia for damages.
16. Metropolitan v. Prosperity, G.R. No. 154390, March 17, 2014
FACTS: Metropolitan Fabrics Inc. (MFI) owned a 5.8 ha industrial compound in Quezon
City. Pursuant to a P2M, 10-year loan agreement with Manpil Investment Corporation
(Manpil) dated April 6, 1963, the lot was subdivided into 11 lots, with Manpil retaining
four lots as mortgage security while the remaining seven lots were released to MFI. In
July 1984, MFI obtained a loan from PCRI in the amount of P3.5M, represented by
herein respondents Domingo and Caleb Ang. The blank loan forms had no entries
specifying the rate of interest and schedules of amortization. In order to return the trust
and gesture of early release of the loan by the respondents, herein petitioner Enrique
Ang, together with his daughter Vicky Ang, entrusted to the respondents their seven (7)
titles covering an aggregate area of 3.36 ha and left it to said respondents to choose
from among the 7 titles those which would be sufficient to secure the P3.5M loan. An
appraisal report put the value of four(4) of the said properties at P6.8M. Vicky also
stated that it was agreed that once PCRI had chosen the lots to be covered by the
mortaged, the respondents would return the remaining titles to the petitioners.
Thereafter, twenty-four(24) checks, bearning no dates and amounts and signed in blank
by Enrique and Natividad, were deliverd to PCRI to cover the amortization payments. In
September 1984, the first amortization check bounced for insufficient fund due to MFI’s
continuing losses. It was then that the petitioners learned that PCRI had filled up the
said checks with dates and amounts reflected at 35% interest rate per annum, instead
of just 24%, and a two-year repayment period, instead of 10 years. It was only upon
such time that PCRI finally furnished MFI with its copy of the loan documents.
Petitioners found the terms to be prohibitive, burdensome, and unconscionable, and
further averred that had they known them they would have either negotiated or rejected
the terms of the loan and withdrew the application. Due to losses, petitioners’ business
operations stopped. An offsetting agreement was executed by the parties to cover the
loan obligation amounting to P4.1M. Thereafter, Vicky furnished respondents a copy of
the appraisal report prepared by Integrated Appraisal Corporation. However, PCRI’s
statement showed that all seven(7) titles were placed as collateral for their P3.5M loan.
Petitioners averred that as per the appraisal report, the value of the properties covered
by the said titles were largely in excess of the loan obligation. In September 1986,
petitioner Enrique received a Notice of Sheriff's Sale announcing the auction of the
seven lots due to an unpaid indebtedness of P10.5M. Vicky insisted that prior to the
notice, they never received any statement or demand letter from the defendants to pay
the said amount, nor did the respondents inform them of the intended foreclosure. The
auction was then reset to a later date after petitioners assured PCRI that they had found
a serious buyer for the lots. In the meeting held between the parties and the said buyer,
Winston Wang, it was agreed that the mortgage was to be released upon payment of
P3.5M with an initial down-payment of P500,000.00 to be paid by MFI to PCRI as partial
settlement of the P3.5M loan. Thereafter, Winston Wang confronted Vicky about the
sale agreement and PCRI’s refusal to accept the P3M payment because according to
the respondent Caleb, the three lots had been foreclosed. However, the said
foreclosure was executed before the lapse of the agreed 60-day period for the payment
of the balance. At the auction, PCRI was the sole bidder. Subsequent agreements were
further held for the release of the disputed three lots involving all three parties. Upon
failure to raise the required money for the payments on account of such agreements,
MFI was ultimately forced to vacate the lots. The RTC ruled in favour of the petitioners.
However, the CA reversed the decision and dismissed the complaint.
ISSUE: Whether or not the action to assail the mortgage already prescribed
HELD: YES. The Court held that in order to resolve the issue of prescription, it is
important to first determine if the mortgage was void or merely voidable. As held by the
CA, the petitioner’s contention of absence of consent which would make the mortgage
void was untenable. Herein petitioners failed to prove that they had been forced or
coerced to enter into the mortgage. Where consent was given through fraud alone, the
contract was voidable, not void ab initio. With the contract being voidable, petitioners’
action to annul the real estate mortage already prescribed. Article 1390, in relation to
Article 1391 of the Civil Code, provides that if the consent of the parties was obtained
through fraud, the contract is considered voidable and may be annulled within four(4)
years from the time of the discovery thereof. The discovery of said document was
reckoned from the time the document was registered in the Register of Deeds in view of
the rule that registration was notice to the whole world. Thus, because the mortgage
involving the seven lots was registered on September 5, 1984, they had until September
5, 1988 within which to assail the validity of said mortgage. But their complaint was
instituted in the RTC on October 10, 1991. Hence, the action had already prescribed.
17. NPC v. CA, 161 SCRA 334;

FACTS:
On August 4, 1964, Engineering Construction, Inc. (ECI)executed a contract with the
National Waterworks and Sewerage Authority (NAWASA), whereby ECI undertook to
furnish all tools, labor, equipment, and materials (not furnished by Owner), and to
construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to
complete said works within eight hundred (800) calendar days from the date the
Contractor receives the formal notice to proceed.
The project involved two (2) major phases: the first phase comprising the tunnel work
covering a distance of seven (7) kilometers, passing through the mountain, from the Ipo
river, a part of Norzagaray, Bulacan, where the Ipo Dam of the National Power
Corporation (NPC) is located, to Bicti; the other phase consisting of the outworks at both
ends of the tunnel.

By September 1967, the ECI already had completed the first major phase of the work,
namely, the tunnel excavation work. As soon as the ECI had finished the tunnel
excavation work at the Bicti site, all the equipment no longer needed there were
transferred to the Ipo site where some projects
were yet to be completed.
Record shows that on November 4, 1967, typhoon ‘Welming’ hit Central Luzon, passing
through NPC’s Angat Hydro-electric Project and Dam at Ipo, Norzagaray, Bulacan.
Strong winds struck the project area, and heavy rains intermittently fell. Due to the
heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the
rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam,
NPC caused the opening of the spillway gates.
The appellate court sustained the findings of the trial court that the evidence
preponderantly established the fact that due to the negligent manner with which the
spillway gates of the Angat Dam were opened, an extraordinary large volume of water
rushed out of the gates, and hit the
installations and construction works of ECI at the Ipo site with terrific impact, as a result
of which the latter’s stockpile of materials and supplies, camp facilities and permanent
structures and accessories were either washed away, lost or destroyed.

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

RULING:
No, the destruction and loss of the ECI’s equipment and facilities were not due to force
majeure.
It is clear from the appellate court’s decision that based on its findings of fact and that of
the trial court’s, NPC was undoubtedly negligent because it opened the spillway gates
of the Angat Dam only at the height of typhoon “Welming” when it knew very well that it
was safer to have opened the
same gradually and earlier, as it was also undeniable that NPC knew of the coming
typhoon at least four days before it actually struck. And even though the typhoon was
an act of God or what we may call force majeure, NPC cannot escape liability because
its negligence was the proximate cause of the loss and damage.

18. PHILCOMSAT v. Globe Telecom, G.R. 147324, May 25, 2004;

FACTS:
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe
Telecom, Inc. (Globe),had been engaged in the coordination of the provision of various
communication facilities for the military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and
Subic Naval Base in Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense Communications
Agency (USDCA), and for security reasons, were operated only by its personnel or
those of American companies contracted by it to operate said facilities. The USDCA
contracted with said American companies, and the latter, in turn, contracted with Globe
for the use of the communication facilities. Globe, on the other hand, contracted with
local service providers such as the Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.
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 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.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to
discontinue the use of the earth station in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-US Military Bases
Agreement.
Philcomsat sent a reply letter to Globe, stating that “we expect [Globe] to know its
commitment to pay the stipulated rentals for the remaining terms of the Agreement even
after [Globe] shall have discontinue[d] the use of the earth station after November 08,
1992.”
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter
demanding payment of its outstanding obligations. However, Globe refused to heed
Philcomsat’s demand.
Philcomsat insists that since the expiration of the RP-US Military Bases Agreement, the
nonratification of the Treaty of Friendship, Cooperation and Security and the withdrawal
of US military forces and personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into the Agreement, such
events cannot exempt Globe from performing its obligation of paying rentals for the
entire five-year term thereof.

ISSUE:

Whether or not the termination of the RP-US Military Bases 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.

RULING:
Yes, the termination of the RP-US Military Bases 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.
Article 1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable, but also
to those which are foreseeable, but inevitable.
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events
shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of
the parties. There is nothing in the enumeration that runs contrary to, or expands, the
concept of a fortuitous event under Article 1174.
Article 1159 of the Civil Code also provides that “obligations arising from contracts
have the force of law between the contracting parties and should be complied
with in good faith.” 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 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.
In order that Globe may be exempt from non-compliance with its obligation to pay
rentals under Section 8, the concurrence of the following elements must be established:
(1) the event must be independent of the human will;
(2) the occurrence must render it impossible for the debtor to fulfill the obligation
in a normal manner; and
(3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor.
The SC agreed with the CA and the trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had no control over the non-renewal
of the term of the RP-US Military Bases Agreement when the same expired in 1991,
because the prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent withdrawal of the US
military forces and personnel from Cubi Point in December 1992.
The CA 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.

19. Victorias Planters v. Victorias Milling, G.R. No. L-6648, July25, 1955;
Facts: Several sugarcane farmers in Negros Occidental entered into a contract with the
North Negros Sugar Co. In. and Victorias Milling Co. Inc. wherein said corporation will
construct a sugar central or mill with the capacity of milling 300 tons of sugar every 24
hours. In the said contract it is stipulated that the sugar cane planter’s produce will be
milled by the said corporation for the period of 30 years. During the World War II
comprising of 4 years and the post war period comprising of 2 years the petitioners was
not able to produce sugarcane and the sugar central is destroyed. The North Central
Sugar Co. Inc. did not reconstruct its destroyed mill but rather made an arrangement
with the planters that their produce will be milled by Victorias Milling Co. Inc. herein
respondent. In view of the 30-year period of the milling contract the petitioner contended
that the contract is deemed terminated. On the other hand the respondent stated that
the contract speaks of “30 years milling period” not “30 years in time” and in view of the
failure of the petitioners to produce sugarcane during the war and post war they still
have 6 years milling period. The trial court ruled in favor of the petitioners
Issue: Is the occurrence of war (fortuitous event ) relieved the petitioners from their
obligation?
Held: Yes, It is impossible in this case for the petitioner to produce crops (Nemo
tenetor ad impossibilia) and the fulfillment of that impossible, if granted will amount to
the extension of the contract. Therefore the judgment appealed is affirmed. Fortuitious
event relieves the obligor from fulfilling a contractual obligation. 1 The fact that the
contracts make reference to "first milling" does not make the period of thirty years one
of thirty milling years. The term "first milling" used in the contracts under consideration
was for the purpose of reckoning the thirty-year period stipulated therein. Even if the
thirty-year period provided for in the contracts be construed as milling years, the
deduction or extension of six years would not be justified. At most on the last year of the
thirty-year period stipulated in the contracts the delivery of sugar cane could be
extended up to a time when all the amount of sugar cane raised and harvested should
have been delivered to the appellant's mill as agreed upon. 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 — the planters from delivering sugar cane and the central from milling it. In order
that the central, the herein appellant, may be entitled to demand from the other parties
the fulfillment of their part in the contracts, the latter must have been able to perform it
but failed or refused to do so and not when they were prevented by force majeure such
as war. 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. The obligee not being entitled to demand from the obligors the
performance of the latters' part of the contracts under those circumstances cannot later
on demand its fulfillment. The performance of what the law has written off cannot be
demanded and required. The prayer that the plaintiffs be compelled to deliver sugar
cane to the appellant for six more years to make up for what they failed to deliver during
those trying years, the fulfillment of which was impossible, if granted, would in effect be
an extension of the term of the contracts entered into by and between the parties.

20. SBTC v. CA, 249 SCRA 206;

FACTS:
Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security
Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the building of
SBTC in Davao City for the price ofP1,760,000.00. Respondent Ferrer was able to
complete the construction of the building within the contracted period but he was
compelled by a drastic increase in the cost of construction materials to incur expenses
of about P300,000.00 on top of the original cost. The additional expenses were made
known to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising
Architect Rudy de la Rama. Respondent Ferrer made timely demands for payment of
the increased cost. Said demands were supported by receipts, invoices, payrolls and
other documents proving the additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative
of an architectural firm consulted by SBTC, verified Ferrer’s claims for additional cost. A
recommendation was then made to settle Ferrer’s claim but only for P200,000.00.
SBTC, instead of paying the recommended additional amount, denied ever authorizing
payment of any
amount beyond the original contract price. SBTC likewise denied any liability for the
additional cost based on Article IX of the building contract.
SBTC argued that under Article IX of the building contract, any increase in the price of
labor and/or materials resulting in an increase in construction
cost above the stipulated contract price will not automatically make petitioners liable to
pay for such increased cost, as any payment above the stipulated contract price has
been made subject to the condition that the “appropriate adjustment” will be made “upon
mutual agreement of both
parties.” It is contended that since there was no mutual agreement between the parties,
petitioners’ obligation to pay amounts above the original contract price never
materialized.
Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial
court ruled for Ferrer. The Court of Appeals affirmed the trial court decision.

ISSUE:
Whether or not petitioners are liable to pay for the increased construction cost.

RULING:

Yes, petitioners are liable to pay for the increased construction cost.
It is not denied that private respondent incurred additional expenses in constructing
petitioner bank’s building due to a drastic and unexpected increase in construction cost.
In fact, petitioner bank admitted liability for increased cost when a recommendation was
made to settle private
respondent’s claim for P200,000.00. Private respondent’s claim for the increased
amount was adequately proven during the trial by receipts, invoices and other
supporting documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its
fulfillment depends upon the sole will of the debtor.
In the present case, the mutual agreement, the absence of which petitioner bank relies
upon to support its non-liability for the increased construction cost, is in effect a
condition dependent on petitioner bank’s sole will, since private respondent would
naturally and logically give consent to such an agreement which would allow him
recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private
respondents completed the construction even at an increased cost.
Hence, to allow the petitioner bank to acquire the constructed building at a price far
below its actual construction cost would undoubtedly constitute unjust enrichment for
the bank to the prejudice of private respondent. Such unjust enrichment is not allowed
by law.

21. Khe Hong Cheng v. CA, G.R. No. 144169, March 28, 2001, 355 SCRA 701

FACTS:
The Philippine Agricultural Trading Corporation shipped on board the vessel M/V
PRINCE ERIC, of Butuan Shipping Lines, owned by petitioner Khe Hong Cheng, 3,400
bags of copra at Masbate, for delivery to Dipolog City, Zamboanga del Norte. The
shipment was covered by a marine insurance policy issued by American Home
Insurance Company.
M/V PRINCE ERIC, however, sank, resulting in the total loss of the shipment. Because
of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of
the copra) to the consignee.
Having been subrogated into the rights of the consignee, American Home instituted Civil
Case No. 13357 to recover the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, petitioner Khe Hong Cheng
executed deeds of donations of parcels of land in favor of his children.
The trial court rendered judgment against Cheng, four years after the donations were
made and the TCTs were registered in the donees’ names.
A writ of execution was forthwith issued. However, it was not served. After an alias writ
of execution was issued, and despite earnest efforts, the sheriff found no property under
the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish
for the satisfaction of the trial court’s decision. It was discovered that petitioner Khe
Hong Cheng no longer had any property and that he had conveyed the subject
properties to his children.
Respondent Philam filed a complaint for the rescission of the deeds of donation
executed by petitioner Khe Hong Cheng in favor of his children and for the nullification
of their titles, alleging, inter alia, that petitioner Khe Hong Cheng executed the aforesaid
deeds in fraud of his creditors, including respondent Philam.
Petitioners moved for its dismissal on the ground that the action had already prescribed.
They posited that the registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint a quo was filed only on February
25, 1997, or more than four (4) years after said registration, the action was already
barred by prescription.
The trial court denied the motion to dismiss. It held that respondent Philam’s complaint
had not yet prescribed.
On appeal, the CA affirmed the trial court’s decision in favor of respondent Philam.
Their motion for reconsideration was likewise dismissed.
Petitioners now assail the aforesaid decision and resolution of the CA.

ISSUE:
Whether Philam’s action for rescission of the subject deeds of donation has already
prescribed.

RULING:
The petition is without merit.
Article 1389 of the Civil Code simply provides that, “The action to claim rescission must
be commenced within four years.” Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e, from the moment the cause
of action accrues, therefore, applies.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have
been proven futile.
An accion pauliana accrues only when the creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the debtor other than an accion pauliana.
The accion pauliana is an action of a last resort. For as long as the creditor still has a
remedy at law for the enforcement of his claim against the debtor, the creditor will not
have any cause of action against the creditor for rescission of the contracts entered into
by and between the debtor and another person or persons. Indeed, an accion pauliana
presupposes a judgment and the issuance by the trial court of a writ of execution for the
satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the
debtor.
An accion pauliana thus presupposes the following:
1) A judgment;
2) the issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and
3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires
that the creditor has exhausted the property of the debtor.
The date of the decision of the trial court is immaterial.
In this case, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff
to Butuan City to attach the properties of petitioner Khe Hong Cheng. There they found
that he no longer had any properties in his name. It was only then that respondent
Philam’s action for rescission of the deeds of donation accrued because then it could be
said that respondent Philam had exhausted all legal means to satisfy the trial court’s
judgment in its favor.
Since respondent Philam filed its complaint for accion pauliana against petitioners on
February 25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng
had no other property to satisfy the judgment award against him, its action for rescission
of the subject deeds clearly had not yet prescribed.

22. Manila Banking Corp. v. Silverio, G.R. 132887, Aug. 11, 2005;
Facts :Purificacion Ver was the registered owner of two parcels of land located at La
Huerta, Paraaque City. Purificacion Ver sold the properties to Ricardo C. Silverio, Sr.
(Ricardo, Sr.) but the absolute deed of sale evidencing the transaction was not
registered; hence, title remained with the seller, Purificacion Ver The Manila Banking
Corporation (TMBC), filed a complaint with the RTC of Makati City for the collection of a
sum of money with application for the issuance of a writ of preliminary attachment
against Ricardo, Sr. and the Delta Motors Corporation. The RTC issued a notice of levy
The trial court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the
Delta Motors Corporation. Edmundo S. Silverio (Edmundo), the nephew, requested
TMBC to have the annotations on the subject properties cancelled as the properties
were no longer owned by Ricardo, Sr. TMBC having failed to take action to cancel the
annotations, Edmundo filed in the RTC of Makati City a case for Cancellation of Notice
of Levy on Attachment and Writ of Attachment RTC rendered a decision dismissing the
Edmundo’s petition CA reverses the decision of RTC
Issue Whether or not the contract of sale between Ricardo Silverio and Edmundo
Silverio is valid?
Ruling No. The contract of sale between Ricardo Silverio and Edmundo Silverio is not
valid The Supreme Court ruled that an absolutely simulated contract, under Article 1346
of the Civil Code, is void. It takes place when the parties do not intend to be bound at
all. The characteristic of simulation is the fact that the apparent contract is not really
desired or intended to produce legal effects or in any way alter the juridical situation of
the parties. Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself
of his title and control of the property; hence, the deed of transfer is but a sham.
Lacking, therefore, in a fictitious and simulated contract is consent which is essential to
a valid and enforceable contract
23. Siguan v. Lim, G.R. No. 134685, November 19, 1999, 318 SCRA 725
Facts:
1. On 25 and 26 August 1990, Rosa Lim (respondent, LIM) issued two
Metrobank checks to satisfy her debts to Maria Antonia Siguan
(petitioner, SIGUAN).
2. Upon presentment by SIGUAN with the drawee bank, the checks
were dishonoured for the reason account closed.
3. Criminal case for violation of BP 22 was filed by SIGUAN against
LIM.
4. On December 29 1992, RTC convicted LIM as charged. The case is
pending before this Court for review.
5. On August 10, 1989, LIM executed a Deed of Donation in favour of
her children, and the same was registered with the Office of the
Register of Deeds on July 2, 1991.
6. June 23, 193, SIGUAN filed an accion pauliana against LIM and her
children, to rescind the questioned Deed of Donation and to declare
as null and void the new transfer certificates of title.
 Issue/s:

1. Whether or not the questioned Deed of Donation was made in fraud

of petitioner and, therefore, rescissible.

Ruling:

1. No. The rescission required the existence of creditors at the time of

alleged fraudulent alienation, and this must be proved as one of the
bases of the judicial pronouncement setting aside the contract.
Without prior existing debt, there can neither be injury nor fraud.
While it is necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial.

Since LIMs indebtedness to SIGUAN was incurred in August 1990, or a year

after the execution of the Deed of Donation, the first requirement of accion
pauliana was not met.

Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not
fare well because the third requisite was not met. It is essential that the party
asking for rescission prove that he has exhausted all other legal means to
obtain satisfaction of his claim. SIGUAN neither alleged nor proved that she
did so. On his score, her action for rescission of the questioned deed is not
maintainable even if the fraud charged actually did exist.

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

24. Boysaw v Interphil Promotions, 148 SCRA 364 (1987)

Facts: Solomon Boysaw (P), signed with Interphil Promotions, Inc. (D), a contract to
engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight
championship of the world. Thereafter, Interphil (D) signed Gabriel "Flash" Elorde to a
similar agreement—that is, to engage Boysaw in a title fight.

The managerial rights over Boysaw (P) was assigned and eventually reassigned to
Alfredo Yulo, Jr. (P) without the consent of Interphil (D) in violation of their contract.
When informed of the change, Interphil (D) referred the matter to the Games and
Amusement Board culminating to a decision by the board to approve a new date for the
match. Yulo (P) protested against the new date even when another proposed date was
within the 30-day allowable postponements.

Boysaw (P) and Yulo (P) filed for breach of contract when the fight contemplated in the
original boxing contract did not materialize.

Issues: May the offending party in a reciprocal obligation compel the other party for
specific performance?

Ruling: No. Evidence established that the contract was violated by Boysaw (P) when,
without the approval or consent of Interphil (D), he fought a boxing match in Las Vegas.
Another violation was the assignment and transfer of the managerial rights over Boysaw
(P) without the knowledge or consent of Interphil (D).

While the contract imposed no penalty for such violation, this does not grant any of the
parties the unbridled liberty to breach it with impunity. Our law on contracts recognizes
the principle that actionable injury inheres in every contractual breach.

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

The power to rescind obligations is implied, in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
—Article 1191, Civil Code.

The contract in question gave rise to reciprocal obligations.

Reciprocal obligations are those which 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. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other.
—Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.
The power to rescind is given to the injured party.
Where the plaintiff is the party who did not perform the undertaking which he was bound
by the terms of the agreement to perform, he is not entitled to insist upon the
performance of the contract by the defendant, or recover damages by reason of his own
breach.
—Seva vs. Alfredo Berwin, 48 Phil. 581.

Under the law, when a contract is unlawfully novated by an applicable and unilateral
substitution of the obligor by another, the aggrieved creditor is not bound to deal with
the substitute. However, from the evidence, it is clear that the Interphil (D), instead of
availing themselves of the options given to them by law of rescission or refusal to
recognize the substitute obligor, really wanted to postpone the fight date owing to an
injury that Elorde sustained in a recent bout. That Interphil (D) had justification to
renegotiate the original contract, particularly the fight date is undeniable from the facts.
Under the circumstances, Interphil's (D) desire to postpone the fight date could neither
be unlawful nor unreasonable.

25. Vda. de Mistica v Sps. Naguiat, 418 SCRA 72 (2003)

FACTS: - Eulalio Mistica, Fidela’s predecessor-in-interest, is the owner of a parcel of
land in Malhacan, Meycauayan, Bulacan. A portion thereof was leased to Bernardino
Naguiat (Naguiat) sometime in 1970. - On 5 April 1979, Eulalio entered into a contract
to sell with Naguiat over a portion of the aforementioned lot containing an area of 200
m2. This agreement was reduced to writing in a document entitled Kasulatan sa
Pagbibilihan. `Na ang natitirang halagang LABING WALONG LIBONG PISO
(P18,000.00) Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10)
taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito. `Sakaling hindi
makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay
magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang
sa ito'y mabayaran tuluyan ng Bumibili - Naguiat gave a downpayment of P2,000.00. He
made another partial payment of P1,000.00 on 7 February 1980. He failed to make any
payments thereafter. - Eulalio Mistica died sometime in October 1986. - On 4 December
1991, Fidela filed a complaint for rescission alleging: that Naguiats’ failure and refusal to
pay the balance of the purchase price constitutes a violation of the contract which
entitles her to rescind the same. - Naguiats contended that the contract cannot be
rescinded on the ground that it clearly stipulates that in case of failure to pay the
balance as stipulated, a yearly interest of 12% is to be paid. Naguiat likewise alleged
that sometime in October 1986, during Eualalio’s wake, he offered to pay the remaining
balance to Fidela but the latter refused and hence, there is no breach or violation
committed by them and no damages could yet be incurred by the late Eulalio, his heirs
or assigns pursuant to the said document. - RTC disallowed rescission. CA affirmed. It
held that the conclusion of the ten-year period was not a resolutory term, because the
Contract had stipulated that payment with interest of 12% could still be made if Naguiats
failed to pay within the period. Fidela did not disprove the allegation of Naguiats that
they had tendered payment of the balance of the purchase price during her husband's
funeral, which was well within the ten-year period. Moreover, rescission would be unjust
to Naguiats, because they had already transferred the land title to their names. The
proper recourse, the CA held, was to order them to pay the balance of the purchase
price, with 12% interest.
Before SC, Fidela claimed that she is entitled to rescind the Contract under A1191,
because Naguiats committed a substantial breach when they did not pay the balance of
the purchase price within the 10-year period.
ISSUES: WON there is a breach of obligation that warrants rescission under A1191

RULING: NO. The transaction between Eulalio and Naguiats, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in
nature when there is neither a stipulation in the deed that title to the property sold is
reserved to the seller until the full payment of the price; nor a stipulation giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. o In a contract of sale, the remedy of an unpaid seller is either
specific performance or rescission. Under A1191, the right to rescind an obligation is
predicated on the violation of the reciprocity between parties, brought about by a breach
of faith by one of them. Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation. o Naguiats’ failure to pay
the balance of the purchase price within 10 years from the execution of the Deed did not
amount to a substantial breach. In the Kasulatan, it was stipulated that payment could
be made even after ten years from the execution of the Contract, provided the vendee
paid 12 percent interest. The stipulations of the contract constitute the law between the
parties; thus, courts have no alternative but to enforce them as agreed upon and
written. o Moreover, it is undisputed that during the ten-year period, Fidela and her
deceased husband never made any demand for the balance of the purchase price.
Fidela even refused the payment tendered by Naguiats during her husband's funeral,
thus showing that she was not exactly blameless for the lapse of the ten-year period.
Had she accepted the tender, payment would have been made well within the agreed
period.
26. Fil-Estate v Vertex, G.R. No. 202079, June 10, 2013
FACTS: FEGDI is a stock corporation primarily engaged in the development of golf
courses. As developer of the Forest Hill Golf and Country Club and in consideration of
its financing support, FEGDI was issued several shares of stock of Forest Hill. FEGDI’s
Forest Hills stocks were later sold to, RSACC (a third party), which prior to full payment
sold the shares to Vertex (respondent). 17 months after the sale and after the full
payment of Vertex, the share remained in the name of FEGDI. Vertex made a final
demand which remained unheeded, thus a complaint for rescission (with damages)
against FEGDI, FELI and Forest Hill was filed, alleging that they defaulted in their
obligations as sellers. During the pendency of this case, a certificate of stock was
issued in Vertex’s name but the latter refused to accept it. Position of Petitioner - FEGDI
argued that the delay cannot be considered a substantial breach because Vertex was
unequivocally recognized as a shareholder of Forest Hills. Position of Respondent -
Vertex alleged that the fulfillment of its obligation to pay the purchase price called into
action the petitioners’ reciprocal obligation to deliver the stock certificate. Since there
was delay in the issuance of a certificate for more than three years, then it should be
considered a substantial breach warranting the rescission of the sale.

ISSUE:

W/N the delay in the issuance of stock certificate can be considered a substantial
breach as to warrant rescission of the contract of sale.

HELD:
YES, delay in issuance constitutes a substantial breach because physical delivery is
necessary to transfer ownership of stocks as previously held in Raquel-Santos v. Court
of Appeals. o There’s no valid transfer of shares where there is no delivery of the stock
certificate, under the Corp Code o Corp Code - SEC. 63 “Certificate of stock and
transfer of shares. – xxx Shares of stock so issued are personal property and may be
transferred by delivery of the certificate … No transfer shall be valid, except as between
the parties, until the transfer is recorded in the books of the corporation…” In this case,
Vertex fully paid the purchase price by February 1999 but the stock certificate was only
delivered on January 2002 after Vertex filed an action for rescission against FEGDI. o
FEGDI clearly failed to deliver the stocks within a reasonable time. This was a
substantial breach of their contract that entitles Vertex the right to rescind the sale under
Article 1191 of the Civil Code. o The sale is not considered consummated due to the
issuance of the certificates. It does not suffice because the law requires a specific form
to transfer ownership. Mutual restitution is required in cases involving rescission under
Article 1191 of the Civil Code as to bring back the parties to their original situation, prior
to the inception of the contract. Final Ruling: o CA order is affirmed Petitioners should
return the amounts paid by Vertex. The prolonged issuance of the stock certificate is a
substantial breach that served as basis for Vertex to rescind the sale of No award of
damages – bec. Vertex failed to prove by sufficient evidence that it suffered actual
damage due to the delay of FELI is absolved from liability - bec. no privity of contract
exists between Vertex and FELI

27. BPI V. Sanchez (2014)

FACTS: The case stemmed from a transaction entered into by private respondents
Vicente Victor, Kenneth Nereo, and Imelda all surnamed Sanchez (Sanchezes) with
Jesus Garcia (Garcia) doing business under the name TransAmerican Sales and
Exposition, Inc. (TSEI) over the a property located at No. 10 Panay Avenue, Quezon
City (subject property) covered by TCT 156254 for the amount of Php 1.8 million on
October 10, 1988. The initial terms was subsequently amended with modification of the
amount from Php 1.8 million to Php 1.850 million and an agreement that Garcia shall
take care of all the registration and transfer of the name of the property. As such, Felisa
Yap (Yap), the widow of Kenneth Nereo turned over TCT 156254 to Garcia. Afterwards,
Yap required the occupants of the subject property to vacate the premises. Thereafter,
without the knowledge and consent of the Sanchezes and Yap, after the property was
vacated, Garcia installed his own caretaker with an instruction not to let anyone enter
the premises. It was also during this time that Garcia started advertising in the Manila
Bulletin about TSEI's selling of townhouses. On December 1988, Garcia informed Yap
that the checks were ready, however, it must be Vicente who needs to pick it up from
the office. 6 checks were given, the first 4 amounted to Php 250,000.00 each and the
latter 2 amounted to Php 400,000.00 each. The first 4 were cleared, but the latter 2
bounced due to insufficiency of funds. Garcia was informed to replace the checks,
which he failed to do so. Yap then wrote to Garcia informing him that she and Vicente
decided to rescind the contract, to which Garcia replied offering 2 MCs with an
aggregate amount of Php 300,000.00 as replacement of the checks, the Sanchezes
refused the offer. Later on, it came to the knowledge of the Sanchezes of the
advertisement of Garcia/TSEI of the Townhouse in the subject property, they
immediately went to HLURB contesting the license of TSEI in selling and informing
HLURB that the selling is illegal and that they are still the registered owner of the
subject property. HLURB issued a Cease and Desist Order (CDO) to TSEI, however,
despite the CDO TSEI still continued to construct the townhouses. To further protect
their interests, Yap and Sanchezes inquired with the City Hall regarding the Building
Permit of Garcia, and found out that the construction was indeed illegal. On February
1990, private respondents filed a formal complaintbefore the RTC Quezon City for the
rescission of the contract, restitution, and damages with prayer for TRO/preliminary
injunction against TSEI and Garcia. Meanwhile, Garcia was able to cancel TCT 156254
and replaced it with TCT 383697 in the name of TSEI. However, the date of issuance of
the "replacement" bore June 9, 1988, way before the parties agreed on the sale. This
was apparently used by Garcia to entice some buyers. Claiming to have bought the
townhouses sometime in 1989, the following intervened in the instant case: Sps.
Caminas, Generoso Tulagan (Tulagan), Varied Traders Concept, Inc. (VTCI), and
Arturo Marquez (Marquez). Except VTCI, the other interveners where shown TCT
156254 under the name of the Sanchezes. The subject property was also used as a
security for a loan by Garcia/TSEI with FEBTC (which was later on acquired by BPI).
Due to failure to pay the said loan, BPI foreclosed the mortgage. Intervenors and BPI all
claimed to have acted in good faith and thus should benefit from the application of
Article 448 of the Civil Code. RTC ruled in favor of the Sanchezes and ordering
Garcia/TSEI and all intervenors or persons claiming rights under them to surrender the
peaceful possession of the property. CA affirmed RTC's ruling with modification in ruling
that Sanchezes are as equally in bad faith with Garcia/TSEI, therefore giving the
Sanchezes the option of either appropriating the townhouses for themselves by paying
the price for it or to oblige Garcia/TSEI to pay the price of land.
ISSUE/s: 1. WON all the parties acted in bad faith; 2. WON there was a valid rescission
of the Agreement between the Sanchezes and TSEI/Garcia; 3. WON TCT 383697 in the
name of TSEI may be cancelled.

HELD: ON THE ISSUE OF GOOD FAITH Sanchezes are not guilty of negligence nor
acted in bad faith The SC took note of the fact that the issue of negligence was never
raised in pre-trial and thus cannot be raised in appeal. And even if it was an issue, it
cannot also be said that the Sanchezes were negligent. The fact that the they gave the
owner's duplicate of TCT 156254 thus ultimately leading to it fraudulent cancellation is
not due to negligence but because of Garcia's assurance upon their agreement that the
latter will take care of the registration and transfer, they are just complying with the
agreement. With regards to the possession of the subject property, it must be noted that
the Sanchezes had no knowledge of Garcia's acts, in fact upon their knowledge they
immediately informed HLURB and took steps to protect their interests. It was argued
that due to the fact that the Sanchezes did not forestall the construction of the
townhouses by filing an injunction is indicative of their bad faith. Pertinent provision of
Art. 453 of the Civil Code states that: Article 453. If there was bad faith, not only on the
part of the person who built, planted or sowed on the land of another, but also on the
part of the owner of such land, the rights of one and the other shall be the same as
though both had acted in good faith. It is understood that there is bad faith on the part of
the landowner whenever the act was done with his knowledge and without opposition
on his part. Hence, the law did not prescribed any form of opposition on the part of the
landowner. The fact of the matter is that the Sanchezes took action to oppose the
construction by writing their opposition with the project to HLURB and the City Building
Official of Quezon City. Garcia, TSEI, BPI and the intervenors acted in bad faith On the
part of Garcia/TSEI, the fact that they knew that the subject property still belonged to
the Sanchezes and yet continued to construct to townhouses not only without the
knowledge of the landowners but also against their will, buttressed their lack of good
faith on the case. On the part of intervenors Sps. Caminas, Maniwang, Tulagan, and
Marquez, they were first shown a title registered under the name of the Sanchezes,
while the law prescribes that a buyer does not need to inquire beyond the title of a
property, the fact that TCT 156254 was not even registered under Garcia/TSEI should
have placed the said intervenors on alert. Hence, had they communicated with the
Sanchezes they could have known that Garcia/TSEI was not holding a valid title over
the property; this fact destroys their argument that they are buyers in good faith. On the
part of VCTI, notwithstanding that it was shown the TCT 383697 SC still held that VCTI
is a purchaser in bad faith. In its decision SC ruled that, despite the fact that HLURB
issued a CDO on the construction of the townhouses, its publication of notices in the
major dailies (Manila Bulleting and Philipppine Daily Inquirer) and Garcia/TSEI stopping
the construction, VCTI unheeded the warnings still paid the full amount for the 3
townhouses. Ordinarily, the buyer should have visited the projects that it buys, had it
done so it would have known that there are irregularities on the project. Also, for a large
tract of property, the price that VCTI paid for all 3 townhouses is a uniform amount of
Php 700,000.00 when in fact a bigger area would entail a higher price is a badge of bad
faith on the part of VCTI. Finally BPI as a successor of FEBTC is not a mortgagee in
good faith, when Garcia/TSEI presented TCT 152654 as a security it indubitably
showed that Garcia/TSEI did not yet owned the subject property however, FEBTC did
not required Garcia/TSEI to submit a Special Power of Attorney in authorizing them to
mortgage the property and receive the proceeds. Also, despite the fact that by the time
Garcia/TSEI mortgaged the property, the selling of the townhouses had already begun,
FEBTC was remiss in not requiring the submission of the approval of HLURB on the
selling of the townhouses. Had it done so, it would have found the irregularities.

28. Swire Realty v. Jayne Yu (2015)

FACTS • [July 25, 1995] Jane Yu entered into a contract to sell with Swire Realty
Development Corporation covering one residential condominium unit located at the
Palace of Makati, Makati for the amount of P7,519,371.80. And a parking slot worth
P600,000. • [September 24, 1997] Yu paid the complete amount of the unit and P20,000
for the parking. Petitioner failed to complete and deliver the subject unit on time. • Yu
filed a complaint for Rescission of Contract with Damages before the HLURB Expanded
National Capital Region Field Office. • [October 19, 2004] HLURB ENCRFO dismissed
Yu’s complaint. Ruling that rescission is not permitted for slight or casual breach of the
contract but only for such breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement. • Yu elevated the complaint to HLURB
Board of Commissioners. Reversing the decision of the ENCRFO. • Petitioner moved
for reconsideration, but denied by the HLURB BOC. • Petitioner appealed to the Office
of the President but was denied. • After a Motion for Reconsideration, OP overturned its
previous ruling. • Yu now sought for reconsideration at the CA, but was denied. ISSUES
/ RATIO ARTICLES/LAWS INVOLVED 1. WON rescission of a contract is proper in
herein case Art. 1191 of the NCC - The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him. The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period. This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385 and 1388 and
the Mortgage Law.
HELD 1. Yes. The SC ruled in favor of Yu. Citing Article 1191 of the Civil Code. Basic is
the rule that the right of rescission of a party to an obligation under Art. 1191 is
predicated on a breach of faith by the party who violates the reciprocity between them.
The breach contemplated in the said provision is the obligor’s failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the
oblige may seek rescission and, in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the rescission. In the instant
case, the CA found that the completion date of the unit was November 1998. From an
ocular inspection of the HLURB ENCRFO, the unit was still incomplete. From the
foregoing, it is evident that the amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit has not been delivered to
respondent as of August 28, 2002, which is beyond the period of development of
December 1999. The petitioner has incurred delay in the performance of its obligation
amounting to breach of contract. The delay in the completion of the project as well as
the delay in the delivery of the unit are breaches of statutory and contractual obligations
which entitle Yu to rescind the contract, demand a refund, and payment of damages.
29. Fong v. Duenas (2015)
Fong and Duenas were former schoolmates at the DLSU. They entered into a verbal
joint venture contract to create Alliance Holdings, Inc. The capital needed was Php65M
to which they would contribute in equal parts. However, after Fong provided Duenas
with Php5M (lower than 32.5M as previously agreed upon), and upon repeated
demands towards Duenas failed to provide the former with the financial documents on
the valuation of Duenas’ companies. Fong then asked for the rescission of the contract.
The SC ruled that both Fong and Duenas both breached their verbal joint venture. With
Fong lowering the amount to P5M, and Duenas to investing the P5M to his companies,
Danton and Bakcom. The SC asked Duenas to return the P5M and the joint venture be
deemed extinguished.
FACTS [November 1996] Fong and Duenas entered into a verbal joint venture contract
where they agreed to engage in the food business and to incorporate a holding
company under the name Alliance Holdings, Inc. • The parties agreed to contribute
equal amounts of P32.5M. With Fong paying in cash, and Duenas would contribute all
his Danton and Bakcom shares that he valued at P32.5M. • [November 25, 1996] Fong
started remitting money to Duenas with a total of P5M. • [June 13, 1997] Fong sent a
letter to Duenas informing him of his decision to limit his total contribution to P5M. •
Upon repeated demands from Fong to have Duenas deliver the financial documents on
the valuation of Danton and Bakcom, Fong then informed Duenas that he will cancel the
joint venture agreement. • [March 25, 1998] Fong wrote a final letter of demand to
Duenas informing the latter that he will file a judicial action against him should he still fail
to pay the P5M. • [April 24, 1998] Fong filed a complaint. • RTC ruled in favor of Fong.
The RTC also ruled that Duenas erroneously invested Fong’s cash towards the former’s
companies, Danton and Bakcom. • CA ruled that Duenas correctly invested the money
to his companies since the agreement was that the shares of Danton and Bakcom will
be used in the creation of the Alliance Holdings, Inc.
ISSUES / RATIO ARTICLES/LAWS INVOLVED 1. WON Duenas unjustly enriched
himself when he Art. 1191 of the NCC - The power to rescind obligations is invested the
P5M to his companies implied in reciprocal ones, in case one of the obligors should 2.
WON Fong has the right to cancel their verbal not comply with what is incumbent upon
him. agreement The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period. This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385 and 1388 and
the Mortgage Law.
HELD 1. Yes. The agreement of Fong and Duenas was to provide P32.5M of cash
(Fong) and the shares of Danton and Bakcom (Duenas). However, after Fong deposited
the P5M, Duenas used the money to invest into his two businesses. The SC ruled that
Duenas must return the contribution of Fong. 2. Yes. Both parties agreed to incorporate
a company that would hold the shares of Danton and Bakcom and which, in turn, would
be the platform for their food business. Fong obligated to contribute P32.5M. When the
proposed company remained unincorporated by October 30, 1997, Fong cancelled the
joint venture agreement and demanded the return of his P5M. And since Duenas
invested the money to his companies, it is erroneous for him to claim that there is
nothing irregular with his actions since the two companies will soon form part of
Alliance. However, Fong is also to blame for he only invested P5M contrary to the
originally agreed P32.5M. This in turn, caused the lack of funds to create Alliance which
is also a breach of the original agreement. The SC ruled that Duenas return the P5M
sans damages.
30. Cupino v. Pacific Rehouse (2015)
Ascano-Cupino v. Pacific Rehouse, Corp.
GR 205113 | 26 Aug 2015
DOCTRINE
• Under Rule 10, Sec. 8 of the ROC, an amended pleading supersedes the pleading
that it
• When a pleading is amended, the original pleading is deemed abandoned. The
original ceases to perform any further function as a pleading. The case stands for trial
on the amended pleading only.
Facts:
Petitioners entered into a Deed of Conditional Sale with Respondent Pacific. Included in
the terms of their Deed of Unconditional Sale are the ff. conditions: (1) the completion of
all documents necessary for the transfer of the certificate of title of the land; xxx.
However, Petitioners failed to submit the necessary documents despite several
demands from Pacific to do so. Instead, they informed Pacific that they wanted to
rescind the contract, and in fact refused to accept Pacific's tender of additional
payments. Pacific thereafter opened a savings account with the Capitol Bank,
depositing in said account the amount of P1,005,180, and informing the Petitioners that
they can withdraw the same at their convenience. Pacific made several demands on
petitioners to fulfill their obligations under the Deed of Conditional Sale. Instead of
heeding the demands, petitioners began negotiating with Pacific for the rescission of the
Deed of Conditional Sale. Pacific filed a Complaint for Cancellation of Contract, but
before pre-trial, Pacific discovered that petitioners had withdrawn the P1,005,180 it had
deposited with Capitol Bank. In response, Pacific filed an Amended Complaint changing
its cause of action from cancellation to specific performance. The RTC promulgated its
decision granting recession as the relief that Pacific prayed for. CA reversed RTC, and
granted specific performance. Petitioners appealed.
When the case reached the SC, the Court held that the RTC erred in deciding the case
based on the original complaint and not on the Amended Complaint. That under Rule
10, Sec. 8 of the ROC, an amended pleading supersedes the pleading that it amends.
With Pacific's filing of the Amended Complaint, the original one must be deemed to
have been abandoned and to have become functus officio.
Issue:
1. WON the RTC erred in deciding based
the original complaint?
2. WON the respondent Pacific is entitled to ask for specific performance?
3. Who are the parties' obligations under the Deed of Conditional Sale? The Ascanos
and Pacific
Ruling:
The RTC clearly erred in deciding the case based on the original complaint and not on
the Amended Complaint. The RTC failed to consider the Amended Complaint filed by
Pacific which changed Pacific's cause of action from cancellation/rescission of the
Conditional Deed of Sale into one for specific performance. Section 8, Rule 10 of the
Rules of Court provides: Effect of amended pleadings. - An amended pleading
supersedes the pleading that it amends. However, admissions in superseded pleadings
may be received in evidence against the pleader; and claims or defenses alleged
therein not incorporated in the amended
pleading shall be deemed waived.
With Pacific's filing of the Amended Complaint, the original one must be deemed to
have been abandoned and to have become functus officio. Thus, this Court has ruled:
"When a pleading is amended, the original pleading is deemed abandoned. The original
ceases to perform any further function as a pleading. The case stands for trial on the
amended pleading only." Therefore, the Amended Compliant, to which petitioners filed
an Amended Answer with Counterclaim, should have been the basis for the RTC's
decision.
Article 1191 par. 1 of the Civil Code states: The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The Deed of Conditional Sale clearly spells out the obligations of each party. Based on
the allegations of the parties and the findings of the lower courts, Pacific has already
partially fulfilled its obligation while petitioners have not. The obligation of petitioners
under the Deed of Conditional Sale is to "guarantee removal of tenants" and not merely
to pay disturbance compensation. It is an undertaking specifically given to petitioners
under the Deed of Conditional Sale, considering that Pacific is not yet the owner of the
property and will have no personality to evict the property's present occupants.
Petitioners failed to fulfill this obligation, as well as the obligation to deliver the
necessary documents to complete the sale.
As previously held by the Court, "the injured party is the party who has faithfully fulfilled
his obligation or is ready and willing to perform his obligation." From the foregoing, it is
clear that Pacific is the injured party, entitled to elect between rescinding of the contract
and exacting fulfillment of the obligation. It has opted for the remedy of specific
performance, as embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of petitioners, since they themselves
failed to perform their obligations under the Deed of Conditional Sale.
As to the purchase price, both the RTC and the CA held that, given no other evidence to
conclude otherwise, the true purchase price agreed upon by the parties is P5,975,300,
the amount stipulated in the Deed of Conditional Sale. Pacific, therefore, has a balance
of P1,577,530 to be paid upon the fulfillment by petitioners of their obligations under the
Deed of Conditional Sale.
Thereafter, petitioners are to execute the Deed of Absolute Sale in favor of Pacific and
deliver all the necessary documents to consummate the sale.
Pacific's obligations are: (1) to pay the down payment of P1,892,590, which it did; and
(2) to pay the balance of the purchase price "upon completion by the VENDORS of the
pertinent documents that are necessary for the transfer of the Transfer Certificate of
Title of the above mentioned parcel of land unto the VENDEE."

31. Vasquez v Borja, 74 Phil 560 (1944)

Facts: In January 1932, Francisco De Borja entered into a contract of sale with the
NVSD (Natividad-Vasquez Sabani Development Co., Inc.). The subject of the sale was
4,000 cavans of rice valued at Php2.10 per cavan. On behalf of the company, the
contract was executed by Antonio Vasquez as the company’s acting president. NVSD
only delivered 2,488 cavans and failed and refused, despite demand, to deliver the rest
hence De Borja incurred damages (apparently, NVSD was insolvent). He then sue
Vasquez for payment of damages.

ISSUE: Whether or not Vasquez is liable for damages.

HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja
contracted with. It is well known that a corporation is an artificial being invested by law
with a personality of its own, separate and distinct from that of its stockholders and from
that of its officers who manage and run its affairs. The mere fact that its personality is
owing to a legal fiction and that it necessarily has to act thru its agents, does not make
the latter personally liable on a contract duly entered into, or for an act lawfully
performed, by them for an in its behalf.

The fact that the corporation, acting thru Vazquez as its manager, was guilty of
negligence in the fulfillment of the contract did not make Vazquez principally or even
subsidiarily liable for such negligence. Since it was the corporation’s contract, its non
fulfillment, whether due to negligence or fault or to any other cause, made the
corporation and not its agent liable.

32. Federal Builders v Foundation Specialists, GR 194507, Sept. 8,2014

FACTS In 1990, Federal Builders, Inc. entered into an agreement with Foundation
Specialists, Inc. whereby the latter, as subcontractor, undertook the construction of the
diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza at Salcedo
Village, Makati City. On August 30, 1991, FSI made its claim against FBI through a
letter demanding payment for its services but to no avail. FSI then filed a complaint for
sum of money against FBI with accrued interest plus moral and exemplary damages
with attorney’s fees; alleging that FBI refused to pay said amount despite demand and
its completion of 97% of the contracted works. FBI, on the other hand, claimed that FSI
completed only 85% of the contracted works, failing to finish the diaphragm wall and
component works in accordance with the plans and specifications and abandoning the
jobsite. It maintains that because of FSI’s inadequacy, its schedule in finishing the
project has been delayed resulting in the Project owner’s deferment of its payment. It
further interposed counterclaims for amounts it spent for the remedial works on the
alleged defects in FSI’s work.
ISSUE:
1. Did FSI incur in delay, entitling FBI to damages?
2. Is the imposition of the 12% legal interest rate, by way of damages due to delay,
proper despite the fact that there was no stipulation in the agreement of the parties with
regard to interest and despite the fact that their agreement was not a loan or
forbearance of money?
RULING 1. No. The delay was in fact attributable to FBI from the time an extrajudicial
demand was made by FSI on August 30, 1991. FSI had finished the construction of the
guide wall and diaphragm wall but had not yet constructed the capping beam for FBI’s
failure to deliver the needed cement despite the demand of FSI. On the misaligned
diaphragm wall, FSI explained that in the excavation of the soil where the rebar cages
are lowered and later poured with concrete cement, the characteristics of the soil is not
the same or homogenous all throughout. Because of such, in the process of excavation,
it may erode in some places that may cause spaces that the cement may fill or occupy
which would naturally cause bulges, protrusions and misalignment in the concrete cast
into the excavated ground. This, in fact was anticipated when the agreement was
executed and such was included as provision of such. Wrong location of rebar dowels
was anticipated by both contractor and subcontractor. A submitted plan provided two
alternatives by which the wrong location of rebar dowels may be remedied. Hence, FBI,
aware of the possibility of inaccurate location of these bars, cannot therefore ascribe the
same to FSI as defective work. Part of the construction of the diaphragm wall is the
construction of the steel props which could be installed only after the soil has been
excavated by the main contractor. When FBI directed FSI to install the props, the latter
requested for a site inspection to determine if the excavation of the soil was
finished up to the 4th level basement. FSI, however, did not receive any response but
later learned that FBI had contracted out that portion of work to another sub-contractor.
In fact, FBI even admitted that it had paid ₱6 million based on its evaluation of plaintiff’s
accomplishments and its payment was made without objection on plaintiff’s works, the
majority of which were for the accomplishments in the construction of the diaphragm
wall. Thus, in the absence of any record to otherwise prove FSI’s neglect in the
fulfilment of its obligations under the contract, the Supreme Court shall refrain from
reversing the findings of the RTC, which are fully supported by and deducible from, the
evidence on record. Indeed, FBI failed to present any evidence to justify its refusal to
pay FSI for the works it was contracted to perform. 2. No. As provided in the landmark
case of Eastern Shipping Lines, Inc. v. Court of Appeals, 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. Thus, the 12% rate will be reduced to 6% respectively. Forbearance of money,
goods or credits refers to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending the happening
of certain events or fulfilment of certain conditions. Since this case does not involve an
acquiescence to the temporary use of a party’s money but a performance of a particular
service; then no forbearance of money is involved so the imposition of the rate of 12% is
erroneous.
33. Cangco v. Manila Railroad Co., 38 Phil. 763
FACTS

Jose Cangco was an employee of Manila Railroad Company as clerk. He lived in San
Mateo which is located upon the line of the defendant railroad company. He used to
travel by trade to the office located in Manila for free. On January 21, 1915, on his way
home by rail and when the train drew up to the station in San Mateo, he rose from his
seat, making his exit through the door. When he stepped off from the train, one or both
of his feet came in contact with a sack of watermelons causing him to slip off from under
him and he fell violently on the platform. He rolled and was drawn under the moving car.
He was badly crushed and lacerated. He was hospitalized which resulted to amputation
of his hand. He filed the civil suit for damages against defendant in CFI of Manila
founding his action upon the negligence of the employees of defendant in placing the
watermelons upon the platform and in leaving them so placed as to be a menace to the
security of passengers alighting from the train. The trial court after having found
negligence on the part of defendant, adjudged saying that plaintiff failed to use due
caution in alighting from the coach and was therefore precluded from recovering, hence
this appeal.

ISSUE

Is the negligence of the employees attributable to their employer whether the

negligence is based on contractual obligation or on torts?

HELD

YES. It cannot be doubted that the employees of defendant were guilty of negligence in
piling these sacks on the platform in the manner stated. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless recovery is
barred by the plaintiff’s own contributory negligence. It is to note that the foundation of
the legal liability is the contract of carriage. However Art. 1903 relates only to culpa
aquiliana and not to culpa contractual, as the Court cleared on the case of Rakes v.
Atlantic Gulf. It is not accurate to say that proof of diligence and care in the selection
and control of the servant relieves the master from liability fro the latter’s act. The
fundamental distinction between obligation of this character and those which arise from
contract, rest upon the fact that in cases of non-contractual obligations it is the wrongful
or negligent act or omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the breach of the voluntary
duty assumed by the parties when entering into the contractual relation. When the
source of obligation upon which plaintiff’s cause of action depends is a negligent act or
omission, the burden of proof rest upon the plaintiff to prove negligence. On the other
hand, in contractual undertaking, proof of the contract and of its nonperformance is
suffient prima facie to warrant recovery. The negligence of employee cannot be invoked
to relieve the employer from liability as it will make juridical persons completely immune
from damages arising from breach of their contracts. Defendant was therefore liable for
the injury suffered by plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or contractual. As Manresa discussed, whether negligence
occurs as an incident in the course of the performance of a contractual undertaking or is
itself the source of an extra-contractual obligation, its essential characteristics are
identical. There is always an act or omission productive of damage due to carelessness
or inattention on the part of the defendant. The contract of defendant to transport
plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe
means of entering and leaving its trains. Contributory negligence on the part of
petitioner as invoked by defendant is untenable. In determining the question of
contributory negligence in performing such act- that is to say, whether the passenger
acted prudently or recklessly- age, sex, and physical condition of the passenger are
circumstances necessarily affecting the safety of the passenger, and should be
considered. It is to be noted that the place was perfectly familiar to plaintiff as it was his
daily routine. Our conclusion is there is slightly underway characterized by imprudence
and therefore was not guilty of contributory negligence. The decision of the trial court is
REVERSED.

34. Sarmiento v. Sps. Cabrido, G.R. No. 141258, April 9, 2003, 401 SCRA 122

FACTS;
Tomasa Sarmiento's friend, Dra. Virginia Lao, requested her to find someone to
reset a pair of diamond earrings into two gold rings. Sarmiento sent Tita Payag with the
earrings to Dingding's Jewelry Shop, owned and managed by spouses Luis and Rose
Cabrido, which accepted the job order for P400. Petitioner provided 12 grams of gold to
be used in crafting the pair of ring settings. After 3 days, Payag delivered to the jewelry
shop one of the diamond earrings which was earlier appraised as worth .33 carat and
almost perfect in cut and clarity.
Respondent Marilou Sun went on to dismount the diamond from original settings.
Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. He removed the
diamond by twisting the setting with a pair of pliers, breaking the gem in the process.
Petitioner required the respondents to replace the diamond with the same size and
quality. When they refused, the petitioner was forced to buy a replacement in the
amount of P30,000.Rose Cabrido, manager, denied having any transaction with Payag
whom she met only after the latter came to seek compensation for the broken piece of
jewelry. Marilou, on the other hand, admitted knowing Payag to avail their services and
recalled that when Santos broke the jewelry, Payag turned to her for reimbursement
thinking she was the owner.
Santos also recalled that Payag requested him to dismount what appeared to him as
sapphire and that the stone accidentally broke. He denied being an employee of the
Jewelry shop. The MTCC of Tagbilaran City rendered a decision in favor of the
petitioner.
On appeal, Respondents conceded to the existence of an agreement for crafting a pair
of gold rings mounted with diamonds but denied they had obligation to dismount the
diamonds from the original setting. Petitioner claims that dismounting the diamonds
from the original setting was part of the obligation assumed by respondents under the
contract of service. The RTC ruled in favor of the respondents. CA affirmed the
judgment of the RTC.
ISSUES:
1. Whether or not dismounting of the diamond from its original setting was part of the
obligation.
2. Whether or not the Respondents are liable for damages
3. Whether or not the Respondents are liable for moral damages
HELD:
1. YES. The contemporaneous and subsequent acts of the parties reveal the scope of
obligation assumed by the jewelry shop to reset the pair of earrings. Marilou expressed
no reservation regarding the dismounting of the diamonds. She could have instructed
Payag to have the diamonds dismounted first, but instead, she readily accepted the job
order and charged P400.
After the new settings were completed, she called petitioner to bring the diamond
earrings to be reset. She examined one of them and went on to dismount the diamond
from the original setting.
After failing to do the same, she delegated it to the goldsmith. Having acted the way she
did, she cannot deny that the dismounting was part of the shop's obligation to reset the
pair of earrings.
2. YES. Those who, in the performance of their obligations are guilty of fraud,
negligence or delay and those who in any manner contravene the tenor thereof, are
liable for damages. The fault or negligence of the obligor consists in the 'omission of
that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.' Santos acted negligently in
dismounting the diamond from its original setting.
Instead of using a miniature wire, which is the practice of the trade, he used a pair of
pliers.
Marilou examined the diamond before dismounting and found the same to be in order.
The subsequent breakage could only have been caused by Santos' negligence in using
the wrong equipment. Res ipsa loquitur. Facts show that Marilou, who has transacted
with Payag on at least 10 occasions, and Santos, who has been accepting job referrals
through respondents for 6 mos. now, are employed at the jewelry shop. The jewelry
shop failed to perform its obligation with the ordinary diligence required by the
circumstances.
3. YES. Moral damages may be awarded in a breach of contract when there is proof
that defendant acted in bad faith, or was guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligation. Santos was a goldsmith for
more than 40 years.
He should have known that using a pair of pliers would have entailed unnecessary risk
of breakage.
The gross negligence of their employee makes the respondents liable of moral
damages. Petition was granted and the CA decision was reversed. Respondents were
ordered to pay P30,000 as actual damages and P10,000 as moral damages.
35. Phil. Export vs. V.P. Eusebio Const. Inc., et al. G.R. No.b140047, July 13,
2004The Wellex Group; Inc. vs. U-Land Airlines, Co, Ltd G.R. No. 167519, January
14, 2015, Second Division, J. Leonen
Facts:
Philippine Export and Foreign Loan Guarantee Corporation (hereinafter Philguarantee)
filed a complaint for reimbursement from .P. Eusebio
Construction, Inc. (VPECI) of the sum of money it paid to Al Ahli Bank of Kuwait
pursuant to a guarantee it issued for respondent.
The claim represents the full payment of the performance bond to Al Ahli Bank, as a
counter-guarantee for the construction of the Institute of Physical Therapy-Medical
Rehabilitation Center in Iraq.
VPECI and 3-Plex allegedly had delays on the construction work due to some setbacks
and
difficulties. The Project was not completed as scheduled. VPECI failed to pay prompting
Philguarantee to file the case.
The State Organization of Buildings (SOB), Ministry of Housing and Construction,
Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy-Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq, to Ajyal Trading for a total contract
price of US$18,739,668. 3-Plex, respondent entered into a joint venture agreement with
Ajyal; and undertook the execution of the entire Project, while the latter would be
entitled to a commission of 4% of the contract
price. 3-Plex, not being accredited by POCB assigned and transferred all its rights and
interests under the joint venture agreement to VPECI.
The SOB required the contractors to submit (1) a performance bond and (2) an advance
payment bond.
To comply with these requirements, respondents 3-Plex and VPECI obtained a
guarantee with petitioner Philguarantee, (a government financial institution empowered
to issue guarantees for qualified Filipino
The SOB required the contractors to submit (1) a performance bond and (2) an advance
payment bond.
To comply with these requirements, respondents 3-Plex and VPECI obtained a
guarantee with petitioner Philguarantee, (a government financial institution empowered
to issue guarantees for qualified Filipino contractors to secure the performance of
approved service contracts abroad).
Because of this delay and the slow progress of the construction work due to some
setbacks and
difficulties, the Project was not completed as scheduled. Al Ahli Bank of Kuwait Sent a
telex to Philguarantee demanding full payment of its performance counter-guarantee.
VPECI requested Iraqi government to recall the telex for being in contravention of its
mutual agreement that the penalty will be held in abeyance until completion. Because of
this delay and the slow progress of the construction work due to some setbacks and
difficulties, the Project was not completed as scheduled. Al Ahli Bank of Kuwait Sent a
telex to Philguarantee demanding full payment of its performance counter-guarantee.
VPECI requested Iraqi government to recall the telex for being in contravention of its
mutual agreement that the penalty will be held in abeyance until completion of
the project.
However, PhilGuarantee remitted to Al Ahli Bank representing the full payment of the
performance counter-guarantee for VPECI's project. Philguarantee then sent letters to
VPECI demanding the full payment of the amount it paid. VPECI failed to pay prompting
Philguarantee to file the case.

Issue: Which law shall govern the conflict involving breach of contract due to fault of
mora.

Ruling: Philippine courts would do well to adopt the first and most basic rule in most
legal systems, namely, to allow the parties to select the law applicable to their contract,
subject to the limitation that it is not against the law, morals, or public policy of the forum
and that the chosen law must bear a substantive relationship to the transaction.
The service contract between SOB and VPECI contains
no express choice of the law that would govern it. In the United States and Europe, the
two rules that now seem to have emerged as "kings of the hill" are the parties may
choose the governing law; and in the absence of such a choice, the applicable law is
that of the State that "has the most significant relationship to the transaction and the
parties." Another authority proposed that all matters relating to the time, place, and
manner of performance and valid excuses for non-performance are determined by the
law of the place of performance or lex loci solutionis, which is useful because it is
undoubtedly always connected to the contrary in a significant wav. The service contract
between SOB and VPECI contains no express choice of the law that would govern it. In
the United States and Europe, the two rules that now seem to have emerged as "kings
of the hill" are the parties may choose the governing law; and in the absence of such a
choice, the applicable law is that of the State that "has the most significant relationship
to the transaction and the parties." Another authority proposed that all matters relating
to the time, place, and manner of performance and valid excuses for non-performance
are determined by the law of the place of performance or lex loci solutionis, which is
useful because it is undoubtedly always connected to the contract in a significant way.In
this case, the laws of Iraq bear substantial connection to the transaction, since one of
the parties is the Iraqi Government and the place of performance is in Iraq. Hence, the
issue of whether respondent VPECI defaulted in its obligations may be determined by
the laws of Iraq. However, since that foreign law was not properly pleaded or proved,
the presumption of identity or similarity, otherwise known as the processual
presumption, comes into play. Where foreign law is not pleaded or, even it is pleaded, is
not proved, the presumption is that foreign law is the same as ours.

36. SSS v Moonwalk, G.R. No. 73345. April 7, 1993

Facts:
· SSS filed a complaint in the CFI Rizal against Moonwalk Development &
Housing Corp., alleging that it 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 of P7,053.77 and, also in not reflecting in its statement or
account an unpaid balance on the said penalties for delayed payments of
P7,517,178.21
· Both parties submitted their stipulation of facts to the trial court.
· The trial court dismissed the complaint because the obligation was already
extinguished by the payment by Moonwalk of its indebtedness to SSS, and by the
latter's act of cancelling the real estate mortgages executed in its favor by defendant
Moonwalk.
· The CA affirmed CFI, holding that Moonwalk's obligation was extinguished, and
there was no more need for the penal clause.

Issue:
WoN there was a basis for demanding the penal clause since the obligation has
been extinguished.

Held:
No, the Supreme Court rules that there is no basis for demanding the penal
clause since the obligation has been extinguished.
 The obligation of Moonwalk was fully complied with, that is, the amount loaned
together with the 12% interest has been fully paid. Hence, there is no basis for
demanding the penal clause since the obligation has been extinguished.
SSS has waived the penal clause as it did not demand the same before the full
obligation was fully paid and extinguished. In fact, SSS has not lost anything under the
contract since it got back in full the amount loan as well as the interest thereof. The
same thing would have happened if the obligation was paid on time, for then the penal
clause, under the terms of the contract would not apply. Payment of the penalty does
not mean gain or loss of SSS since it is merely for the purpose of enforcing the
performance of the main obligation, which has been fully complied with and
extinguished. Hence, the penal clause has lost its raison d' entre.

37. Maybank Philippines v. Sps. Tarrosa (2015)

Facts: Sps. Tarrosa (Maybank), obtained from then PNB-Republic Bank, now Maybank
Philippines, Inc.
After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained another
loan from Maybank payable on March 11, 1984.[10] However, Sps. Tarrosa failed to
settle the second loan upon maturity. Sometime in April 1998, Sps. Tarrosa received a
Final Demand Letter] dated March 4, 1998 (final demand letter) from Maybank requiring
them to settle their outstanding loan. They offered to pay a lesser amount, which
Maybank refused. Maybank commenced extrajudicial foreclosure proceedings The
subject property was eventually sold in a public auction Sps. Tarrosa filed a complaint
for declaration of nullity and invalidity of the foreclosure of real estate and of public
auction sale proceedings and damages with prayer for preliminary injunction against
Maybank They averred among others that Maybank's right to foreclose had prescribed
or is barred by laches. Maybank and PPI countered that the loan became past due and
the spouses failed to pay despite demand. They also averred that acknowledgment of
their indebtedness controverts the defense of prescription.
Issue: Was there delay on the part of the spouses?
Ruling: Yes. In the absence of showing that demand is unnecessary for the loan
obligation to become due and demandable, Maybank's right to foreclose the real estate
mortgage accrued only after the lapse of the period indicated in its final demand letter
for Sps. Tarrosa to pay, i.e., after the lapse of five (5) days from receipt of the final
demand letter dated March 4, 1998.

In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, unless demand is not
necessary - i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for the
creation of the obligation; and where demand would be useless. Moreover, 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. Thus, it is only when
demand to pay is unnecessary in case of the aforementioned circumstances, or when
required, such demand is made and subsequently refused that the mortgagor can be
considered in default and the mortgagee obtains the right to file an action to collect the
debt or foreclose the mortgage.
38.Abella v Gonzaga, 55 Phil 447 (1931)
Facts: Guillermo Francisco, who purchased lots on installments, faced payment delays
and acknowledged receiving P500 from Julio Abella, with the remaining balance due by
December 15, 1928. Despite an additional payment from Abella on November 13, 1928,
Francisco, in Cebu on December 27, 1928, granted power of attorney to Roman
Mabanta, instructing him to cancel the option and return P915.31 if the remainder wasn't
paid. On January 3, 1929, Mabanta, with power of attorney, informed Abella of his
readiness to execute the deed upon payment. Although Abella sought an extension until
January 9, Mabanta granted only until January 5. Abella's attempt to pay on January 9
was rejected, leading to a returned check of P915.31. Abella sued to compel Francisco
to execute the deed, seeking ownership declaration and lot delivery, but the Court of
First Instance absolved Francisco, prompting Abella's appeal.
ISSUE: WON the time was an essential element in the contract, and therefore, the
defendant was entitled to rescind the contract for failure of plaintiff to pay the price
within the time specified
Ruling: Yes. The defendant is entitled to resolve the contract for failure to pay the price
within the time specified. In holding that the time was an essential element in the
contract, the CFI considered that the agreement in question was an option for the
purchase of the lots. The SC, however, was divided on the question of whether the
agreement was an option or a sale. But the SC ruled that regardless of whether it was
an option or a sale, having agreed that the selling price would be paid not later than
December, 1928, and in view of the fact that the vendor executed the contract to pay off
with the proceeds thereof certain obligations which fell due in the same month of
December, the time fixed for the payment of the selling price was essential in the
transaction.
39.Foundation v Santos, GR 153004, November 4, 2004
Doctrine: Delay, as referred to in Article 1169, is synonymous with default or mora,
indicating a delay in fulfilling obligations. It denotes non-compliance with the obligation
concerning the stipulated time.
Facts: The parties executed a Compromise Agreement on October 26, 1990, settling
their disputes. The agreement mandated the payment of P14.5 Million by the defendant
Foundation to the plaintiff Santos, with P1.5 Million due immediately and the balance of
P13 Million within two years. Failure to comply allowed the aggrieved party to seek a
writ of execution. Despite partial compliance, petitioner SVHFI failed to pay the balance.
Respondent Santos, in 1995, filed a complaint for declaratory relief and damages, citing
delay on the petitioner's part.
Issue: Whether respondents are entitled to legal interest.
Ruling: Yes. The debtor must be in default for the creditor to claim legal interest. In this
case, the obligation became due and demandable after the two-year period ended on
October 26, 1992. Petitioner's delay in settling the outstanding balance, which extended
beyond two years after extrajudicial demand, constituted default. The demand letter on
October 28, 1992, aligned with the extrajudicial demand required by law. Consequently,
respondents are entitled to legal interest, and petitioner is liable for damages due to the
delay in fulfilling its obligation. The petition is denied for lack of merit.
40.Vasquez v Ayala Corp., GR 149734, November 19, 2004
Facts: On April 23, 1981, spouses Vasquez entered a Memorandum of Agreement
(MOA) with Ayala Corp., selling their shares in Conduit Development. The MOA
involved a property in Ayala Alabang being developed by Conduit, divided into Villages
1, 2, and 3. Ayala agreed to develop the entire property, excluding the "Retained Area,"
and offered to sell the 4 lots adjacent to it to the Vasquez spouses at the prevailing
price. Legal issues arose during development, leading to a court suit.
Issue:Whether Ayala Corp. incurred default or delay in fulfilling its obligation.
Held:No. For default to occur, the obligation must be demandable, liquidated, and the
debtor must delay performance. The MOA did not fix a day certain for the development
of the subject lots. Without a specified period, petitioners should have asked the court to
determine it. Since they didn't, their complaint for specific performance was premature.
Ayala Corp. cannot be deemed in delay as no demand was made, and the letters sent
were reminders, not categorical demands. The 3-year period for development was
waived by the Vasquez spouses, as evidenced by their agent's letter agreeing to count
it from the termination of the legal case.
41.Agner v BPI, G.R. No. 182963. June 3, 2013
Facts: Petitioners executed a Promissory Note with Chattel Mortgage in favor of
Citimotors, Inc., securing a loan for a Mitsubishi Adventure Super Sport. The loan was
later assigned to respondent BPI Family Savings Bank, Inc. After failure to pay
installments, respondent demanded payment, filed an action for Replevin and
Damages, and obtained a writ of replevin. The trial court ruled in favor of respondent,
ordering petitioners to pay the outstanding balance and interest.
Issue: Whether respondent incurred default and if the interest rate is valid.
Ruling: The court held that there was no default as demand was legally waived in the
contract. The Promissory Note with Chattel Mortgage stipulated that the entire sum
becomes due and payable without notice in case of default. The court also found that
verbal and written demands were made by respondent. Regarding interest, the court
reduced the rate from 6% per month to 1% per month, deeming the original rate
excessive, iniquitous, and unconscionable. The modified decision affirmed the lower
court's ruling with the adjusted interest rate.
42. Vda. de Villaruel v Manila Motor Co., 104 Phil 926 (1958)

FACTS

Villaruel and the defendant Manila Motor Co. entered into a contract on May 31, 1940.
Where Villaruel agreed to transfer the legal document which is the lease to the Manila
Motor Co., Inc. which constitutes the following premises:

a. 500 square meters of floor space of a building of strong materials for automobile
showroom, offices, and store room for automobile spare parts;
b. Another building of strong materials for automobile repair shop; and c. A 5-bedroom
house of strong materials for residence of the Bacolod Branch Manager of the
defendant company.

The lease term was initially 5 years, with an option for an additional 5 years. Manila
Motors Company agreed to pay a monthly rental of P300 for the main premises and an
additional P50 for the residential house of their branch manager. The lease commenced
on October 31, 1940, with both parties benefiting from the arrangement. During the
Japanese occupation (June 1942 - March 1945), no rent was paid. After the U.S. Army's
occupancy, a new 5-year lease was agreed, excluding the military period. Dispute arose
when Villaruel demanded past rent, leading to a failed rescission attempt by Villaruel.
Despite a partial payment in July 1946, further negotiations failed, and Villaruel
demanded arrears and rescission

No formal agreement regarding the receipt occurred, and no payment was made until
the end of November 1946. Despite the new branch manager paying P350 for rent, Dr.
Villaruel demanded arrears and rescission. The lessors filed a complaint on April 26,
1947, against Manila Motor Company (MMC). During the case, the leased building was
burned, leading to a demand for reimbursement in a supplemental complaint.

ISSUE

Is Manila Motor CO., Inc. liable for the rentals of leased premises with correspond to the
time when the Japanese army occupied as quarters the said premises?

RULING

NO. The demand of the lessor to collect the rentals for the occupation from 1942 to
1945 was unjustifiable in law (SEE ART 1554) . Thus, the refusal to accept the rentals
without any valid reason makes the plaintiffs in default or Mora Accipiendi (delay on the
part of the creditor to accept the performance of the obligation). Due to this, they have
to carry the unpredictable risk of accidental injury or destruction of the leased premises.

43. Tengco v CA, GR 49852, October 19, 1989

FACTS

This case is a petition for review on the decision of CA by petitioner Emilia Tengco
which is the lessee,and private respondent Benjamin Cifra Jr. as lessor. On September
16, 1976, Benjamin Cifra, Jr., claimingto be the owner of the premises at No. 164 Int.,
Gov. Pascual St., Navotas, Metro Manila, which he hadleased to Emilia Tengco, filed an
action for unlawful detainer with the Municipal Court of Navotas,Metro Manila, docketed
therein as Civil Case No. 2092, to evict the petitioner from the said premises,for her
alleged failure to comply with the terms and conditions of the lease contract by failing
andrefusing to pay the stipulated rentals despite repeated demands. The Municipal trial
court ruled infavor of private respondent, but Tengco appealed to the Court of First
Instance in Rizal. The Court ofFirst Instance also rendered judgment affirming the
decision of the Municipal Court. Then Tengco, notsatisfied with the decision, appealed
to the Court of Appeals but her petition was denied. She filed amotion for
reconsideration and was also denied so she recourse to the Supreme Court. The
petitionercontends that the respondent Court of Appeals erred in sustaining the
decisions of the appellate andtrial courts which are allegedly contrary to the evidence
and applicable jurisprudence.

The petitionermore particularly claims that:

(1) the private respondent Benjamin Cifra, Jr. is not the owner of the leased premises;
(2) the lessor was guilty of mora accipiendi;
(3) the petitioner’s version of the facts is more credible than private respondent’s;
(4) laches had deprived the lessor of the right to eject her; and
(5) the private respondent failed to establish a cause of action against the petitioner

ISSUE\
WON private respondent is the owner of the leased premise.

RULING

The SC found no merit in Tengco’s petition. The question of whether or not private
respondent is the owner ofthe leased premises is one of fact which is within the
cognizance of the trial court whose findings thereon willnot be disturbed on appeal
unless there is a showing that the trial court had overlooked, misunderstood,
ormisapplied some fact or circumstance of weight and substance that would have
affected the result of the case.And since the petitioner has not presented sufficient proof
that the leased premise is not the same lot registeredin the name of the private
respondent, the findings of the lower courts on the fact of ownership of the
leasedpremises will not be disturbed. The Court has held that a contract of lease
executed by the vendor, unless recorded, ceases to have effectwhen the property is
sold, in the absence of a contrary agreement.

44. Fil-Estate v Spouses Ronquillo, GR 185789, Jan. 13, 2014

FACTS

Respondent Spouses purchased from petitioners an 82-square meter condominium

unit for a pre-selling contract price of ₱5,174,000.00. Respondents executed and
signed a ReservationApplication Agreement wherein they deposited₱200,000.00 as
reservation fee. As agreed upon, respondents paid the full downpayment and had
been paying the monthly amortizations butstopped upon learning that construction
works had stopped. Claiming to have paid a total of₱2,198,949.96, respondents
wrote two successive lettersdemanding a full refund of their payment with interest.
When their demands went unheeded, respondents were constrained to file a Complaint
for Refund and Damages before the Housingand Land Use Regulatory Board (HLURB).
HLURB rendered judgment in favour of respondent. Petitioners filed a Notice of
Appeal with the Office of the President but was dismissed. Petitioners sought
relief from the CA but again it was denied. Hence, this petition.

ISSUE: WON respondents are entitled to rescind the contract.

RULING

YES. Asian financial crisis is not a fortuitous event which will exempt
petitioners from theperformance of their contractual obligation and failure to develop
the condominium project istantamount to a substantial breach.The non-performance of
petitioners’ obligation entitles respondents to rescission under Article1191 of the
New Civil Code which states “The power to rescind obligations is implied
inreciprocal ones, in case one of the obligors should not comply with what is
incumbent uponhim.”The injured party may choose between the fulfillment and the
rescission of the obligation, withpayment of damages in either case. He may also
seek rescission, even after he has chosenfulfillment, if the latter should become
impossible.

45. Republic v. Luzon Stevedoring Co., G.R. No. L-21749, September 29, 1967, 21
SCRA 279

FACTS

Luzon Stevedoring Corporation owned barge L-1892, which was being towed by two
tugboats, “Bangus” and “Barbero,” down the Pasig river in August 17, 1960. . On that
day, the river was swollen and the current was swift, on account of the heavy downpour
in Manila and the surrounding provinces. It then rammed against one of the wooden
piles of the Nagtahan bridge, smashing the posts and causing the bridge to lean on one
side. The Republic of the Philippines sued Luzon Stevedoring for actual and
consequential damages to the bridge caused by its employees for PHP 200,000. The
defendant company raised the defense of exercising due diligence in the selection and
supervision of its employees, and that the damages caused by the bridge were caused
by force majeure. After trial, the CFI of Manila ruled in favor of the Republic, holding the
defendant liable for PhP192,561.72, the actual cost for the repair of said bridge.
Defendant appealed directly to the Court.

ISSUE
WON the damage resulting from the collision was caused by fortuitous event or force
majeure.

RULING

NO. Considering that the bridge is a fixed object with adequate openings for passage of
water vessels, the collision of the barge with the bridge’s support structures raises a
presumption of negligence on the part of Luzon Stevedoring Co. or its employees who
were manning the craft. In the ordinary course of events, such event does not happen.

While the appellant strongly stressed the precautions it took on the day in question,
such negates the appellant’s defense of force majeure. Fortuitous events (caso fortuito)
or force majeure (which in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events
that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ.
Code of the Philippines).

Luzon Stevedoring Co., knowing the risks posed by the stream and the swift
current, still decided to enter into the situation. It assured the risk, and can’t shed
responsibility merely because the precautions it adopted turned out to be
insufficient. Hence, the lower Court committed no error in holding it negligent in
not suspending operations and in holding it liable for the damages caused.

46. JUAN NAKPIL & SONS vs. CA 144 SCRA 597 (1986)
FACTS:
The Philippine Bar Association (PBA) decided to construct an office building, with
United Construction, Inc. handling construction based on an "administration" basis.
Nakpil & Sons prepared the plans. After completion in June 1966, an earthquake in
August 1968 caused major damage. PBA sought damages against United Construction,
Inc. and Juan J. Carlos. The trial court held them liable.

ISSUE:
Whether an act of God, an unusually strong earthquake, exempts parties otherwise
liable due to negligence.

RULING:
NO. Under Article 1723 of the Civil Code, engineers or architects are liable for damages
if a building collapses within fifteen years due to defects in plans, specifications, or
ground. The contractor is also responsible for defects in construction or materials. The
evidence showed negligence of both United and Nakpil and Sons, not an act of God, led
to damages. The court upheld the lower court's findings.

47. SOUTHEASTERN COLLEGE INC. vs. CA

GR. NO. 126389 July 10, 1998

FACTS:
Private respondents own a house near petitioner's four-story school building. During a
typhoon, the roof of petitioner's building was ripped off, landing on and damaging private
respondents' house. The city building official imputed negligence to petitioner for the
structural defect and improper anchorage of trusses. Respondents filed a damages
claim based on culpa aquiliana. RTC ruled in favor of respondents, affirmed by the CA.

ISSUE:
Whether the damage can be attributed to a fortuitous event in the legal sense.

RULING:
YES. The court held that petitioner is not liable as the damage is attributable to a
fortuitous event. Art 1174 of the Civil Code states that no person shall be responsible for
events that could not be foreseen or were inevitable, except in cases specified by law or
stipulation. To be liable for a fortuitous event, respondents must prove petitioner's
negligence, which they failed to do. The city building official's report was insufficient,
considering he had approved petitioner's building plans, and no prior complaints were
filed. The building should have withstood storms, given its location. Petitioner also
provided evidence of regular maintenance. Respondents' claim lacked support for the
actual loss, relying on estimates and not considering wear and tear. The petition is
granted, and the challenged decision is reversed.
48. ACINTO TANGUILIG DOING BUSINESS UNDER THE NAME AND STYLE J.M.T.
ENGINEERING AND GENERAL MERCHANDISING vs. COURT OF APPEALS AND
VICENTE HERCE JR.
Date: January 2, 1997
G.R. No. 117190

FACTS:
Herce contracted Tanguilig to build a windmill system for 60,000.00 pesos, with a
30,000.00 downpayment and a 15,000.00 installment, leaving a 15,000.00 balance.
Herce refused to pay the balance, claiming he paid SPGMI the same amount for
constructing a deep well crucial for connecting to the windmill. Tanguilig insisted the
60,000.00 was solely for the windmill, excluding the deep well. The windmill collapsed
due to strong winds, leading to a dispute.

ISSUES:

Whether the agreement included the installation of a deep well.

Whether petitioner is obligated to reconstruct the windmill after it collapsed.

RULING:

NO. The proposals for constructing the windmill system did not include the installation of
a deep well. The terms were clear, and the court prioritized the intention of the parties
reflected in the clear terms of the instruments. The words "deep well" in the proposals
referred to the pump type suitable for the windmill, not its inclusion.

NO. For a party to claim exemption from liability due to a fortuitous event under Art.
1174 of the Civil Code, the event must be the sole and proximate cause of the loss or
destruction. The collapse did not result solely from a fortuitous event, as there was no
evidence of a typhoon on the collapse day, only a "strong wind." The collapse was
attributed to an inherent defect in the

49. NPC vs. CA (G.R. No. L-47379)

Date: May 16, 1988

FACTS:
On August 4, 1964, Engineering Construction, Inc. (ECI) entered into a contract with the
National Waterworks and Sewerage Authority (NAWASA) to construct the 2nd Ipo-
BictiTunnel, Intake and Outlet Structures, and Appurtenant Features in Norzagaray,
Bulacan, completing the project within 800 calendar days.

The project had two major phases: tunnel work covering seven kilometers from Ipo
River to Bicti, and outworks at both ends of the tunnel. By September 1967, ECI
completed the tunnel excavation work.

On November 4, 1967, Typhoon 'Welming' hit Central Luzon, causing NPC's Angat
Hydro-electric Project and Dam at Ipo to open spillway gates due to rising water levels.
The released water hit ECI's installations at the Ipo site, resulting in the loss of
materials, supplies, camp facilities, and structures.

The appellate court affirmed the trial court's findings that NPC's negligent opening of the
spillway gates caused the loss.

ISSUE:
Whether the destruction and loss of ECI's equipment and facilities were due to force
majeure.

RULING:
NO. The destruction and loss were not due to force majeure. While Typhoon 'Welming'
was an act of God, NPC's negligence in opening the spillway gates at the peak of the
typhoon, despite prior knowledge, made NPC liable. Citing Juan F. Nakpil & Sons v.
Court of Appeals, the Supreme Court ruled that when human negligence concurs with
an act of God, the party cannot escape liability. The act of God must be the exclusive
cause of the damage for exemption. Since NPC's negligence was the proximate cause,
force majeure did not absolve it from liability.