Ang Yu Asuncion et al. vs. Court of Appeals and Buen Realty Corp.

(G.R. No. 109125, December 2, 1994)

Ponente: Vitug
Topic: Sales; Contract of sale v. Contract to sell; remedies for violation of right of first refusal
Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the
Unjiengs. They have been leasing the property and possessing it since 1935 and have been paying
rentals.
In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and
that Petitioners were being given priority to acquire them (Right of First Refusal). They agreed on a
price of P5M but they had not yet agreed on the terms and conditions. Petitioners wrote to the
Unjiengs twice, asking them to specify the terms and conditions for the sale but received no reply.
Later, the petitioners found out that the property was already about to be sold, thus they instituted
this case for Specific Performance [of the right of first refusal].
The Trial Court dismissed the case. The trial court also held that the Unjiengs offer to sell was
never accepted by the Petitioners for the reason that they did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower
court ruled that should the defendants subsequently offer their property for sale at a price of P11million or below, plaintiffs will have the right of first refusal.
The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case.
The title to the property was transferred into the name of De Buen and demanded that the
Petitioners vacate the premises.
Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed
the Sheriff to execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioners
favour and nullified the sale to De Buen Realty. But then, the CA reversed itself when the Private
Respondents Appealed.
Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific
Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option
under Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the object
of the contract is determinate. This means that no vinculum juris is created between the
seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First
Refusal may not be enforced through an action for specific performance. Its conduct is
governed by the law on human relations under Art. 19-21 of the Civil Code and not by
contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of
any deed of sale between the Unjiengs and Petitioners.
Other Rules, Comments and Discussion:
This case is notable because it lays down the rules on options contracts and right of first refusal as
well as promises to buy and sell. First, the Supreme Court discussed the stages of the formation of a
sales contract, these are:
1. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected).
2. Perfection takes place upon the concurrence of the essential elements thereof. In a sales
contract this is governed by Art. 1458
3. Consummation begins when the parties perform their respective undertakings under the
contract culminating in the extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a
binding juridical relation. A sales contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called
the buyer, over which the latter agrees (Art 1458).
Under Art. 1458, there is no perfection of a sale under a Contract to Sell. A Contract to Sell is
characterized as a conditional sale and the breach of the suspensive condition will prevent the
obligation to transfer title from acquiring obligatory force.
Promises to Buy and Sell
Unconditional mutual promise to buy and sell As long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted. The Right of First Refusal falls under this classification.
Accepted unilateral promise If it specifies the thing to be sold and the price to be paid and when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding. (Par. 2 Art. 1458) Note
however, that the option is a contract separate and distinct from the contract of sale. Once the option
is exercised before it is withdrawn, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.
Offers with a Period
Where a period is given to the offeree within which to accept the offer, the following rules generally
govern:
1. If the period is not itself founded upon or supported by a consideration Offeror may
withdraw offer at any time before its acceptance (or knowledge of its acceptance). However,
the right to withdraw must not be exercised whimsically or arbitrarily otherwise it can give
rise to damages under Art. 19 of the New Civil Code
2. If period is founded on a separate consideration This is a perfected contract of option.
Withdrawal of the offer within the period of the option is deemed a breach of the contract of
option (not the sale). If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for
specific performance on the proposed contract (object of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option.

Earnest money This is not an offer with a period. Earnest money is distinguished from the
option contract if the consideration given will be considered as a part of the purchase price
of the object of the sale. Earnest money is evidence of a perfected contract of sale. (Art.
1482)
Right of First Refusal
This is an innovative juridical relation because it is neither a perfected contract of sale under Art.
1458 nor an option contract under par. 2 Art 1479. The object might be made determinate, the
exercise of the right, however, is dependent on the offerors eventual intention to enter into a
binding juridical relation with another but also on terms and conditions such as price. There is no
juridical tie or vinculum juris.
3.

Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court
judgement that recognizes its existence, such as in Ang Yu Asuncion. An action for Specific
Performance is not allowed under a Right of First Refusal because doing so would negate the
indispensable element of consensuality in the perfection of contracts.
This right is not inconsequential because it gives right to an action for damages under Art. 19.
Other Acts that Wont Bind
Public advertisements or solicitations Construed as mere invitations to make offers and/or
proposals.
Related Cases
The cases of Equatorial v. Mayfair and Paraaque Kings v. Court of Appeals held that if a sale
happens in violation of a Right of First Refusal where the buyer is aware of the existence of that
right in favor of another (such as when it is written in a lease contract), the sale may be rescinded
and the seller may be forced to offer the property to the party with the Right of First Refusal.
However, the case of Ang Yu Asuncion may still be good law for cases not involving a third party
buyer in bad faith.

PERLA COMPANIA DE SEGUROS, INC vs. CA and CAYAS

G.R. No. 78860

May 28, 1990

FACTS: Cayas was the registered owner of a Mazda bus which was insured with petitioner PERLA
COMPANIA DE SEGUROS, INC (PCSI). The bus figured in an accident in Cavite, injuring several
of its passengers. One of them, Perea, sued Cayas for damages in the CFI, while three others agreed
to a settlement of P4,000.00 each with Cayas.
After trial, the court rendered a decision in favor of Perea, Cayas ordered to compensate the latter
with damages. Cayas filed a complaint with the CFI, seeking reimbursement from PCSI for the
amounts she paid to ALL victims, alleging that the latter refused to make such reimbursement
notwithstanding the fact that her claim was within its contractual liability under the insurance
policy.
The decision of the CA affirmed in toto the decision of the RTC of Cavite, the dispositive portion of
which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to pay
plaintiff Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance
policy;
In this petition for review on certiorari, petitioner seeks to limit its liability only to the payment
made by private respondent to Perea and only up to the amount of P12,000.00. It altogether denies
liability for the payments made by private respondents to the other 3 injured passengers totaling
P12,000.00.
ISSUE: how much should PCSI pay?

HELD: The decision of the CA is modified, petitioner only to pay Cayas P12,000,000.00

The insurance policy provides:

5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company

It being specifically required that petitioners written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking
reimbursement of the payments made to the other 3 victims in view of her failure to comply with
the condition contained in the insurance policy.

Also, the insurance policy involved explicitly limits petitioners liability to P12,000.00 per
person and to P50,000.00 per accident
Clearly, the fundamental principle that contracts are respected as the law between the contracting
parties finds application in the present case. Thus, it was error on the part of the trial and appellate
courts to have disregarded the stipulations of the parties and to have substituted their own
interpretation of the insurance policy.
We observe that although Cayas was able to prove a total loss of only P44,000.00, petitioner
was made liable for the amount of P50,000.00, the maximum liability per accident stipulated
in the policy. This is patent error. An insurance indemnity, being merely an assistance or
restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim or
claimant as an instrument of enrichment by reason of an accident.

Spouses Luigi Guanio and Anna Guanio v. Makati Shangri-la Hotel and Resort, Inc.; G.R. No.
190601. February 7, 2011.
Contract; damages arising from breach of contract. The Court finds that since petitioners complaint
arose from a contract, the doctrine of proximate cause, which is relevant only in actions for quasi-

delicts, finds no application to it. What applies in the present case is Article 1170 of the Civil Code
which reads: [T]hose 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. Breach of contract is defined as the failure without legal reason to comply with the
terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise
which forms the whole or part of the contract. As for petitioners claim that respondent departed
from its verbal agreement with petitioners, the same fails, given that the written contract which the
parties entered into the day before the event, being the law between them.

G.R. No. 124922. June 22, 1998

JIMMY CO, doing business under the name & style DRAGON METAL
MANUFACTURING, Petitioner, vs. COURT OF APPEALS and BROADWAY MOTOR
SALES CORPORATION, Respondents.
FACTS:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model[1] to private respondent which is engaged in the sale, distribution and repair of motor vehicles.
After petitioner paid in full the repair bill in the amount of P1,397.00,[3] private respondent issued
to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter
could not release the vehicle as its battery was weak and was not yet replaced. Left with no option,
petitioner himself bought a new battery nearby and delivered it to private respondent for installation
on the same day. However, the battery was not installed and the delivery of the car was rescheduled
to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of
July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by
private respondents employee along Pedro Gil and Perez Streets in Paco, Manila. Private
respondent said that the incident was reported to the police.
ISSUE:
whether a repair shop can be held liable for the loss of a customers vehicle while the same is
in its custody for repair or other job services?
HELD:
The Court resolves the query in favor of the customer.
1. It is a not a defense for a repair shop of motor vehicles to escape liability simply because
the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and
forcefully taken from anothers rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than
the mere forceful taking of anothers property. It must be proved and established that the event was
an act of God or was done solely by third parties and that neither the claimant nor the person
alleged to be negligent has any participation.[9] In accordance with the Rules of evidence, the
burden of proving that the loss was due to a fortuitous event rests on him who invokes it[10]- which
in this case is the private respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private respondent to the effect that
the incident was not due to its fault. A police report of an alleged crime, to which only private
respondent is privy, does not suffice to established the carnapping.
2. Even assuming arguendo that carnapping was duly established as a fortuitous event, still
private respondent cannot escape liability. Article 1165[11] of the New Civil Code makes an
obligor who is guilty of delay responsible even for a fortuitous event until he has effected the
delivery. In this case, private respondent was already in delay as it was supposed to deliver
petitioners car three (3) days before it was lost. Petitioners agreement to the rescheduled delivery
does not defeat his claim as private respondent had already breached its obligation. Moreover, such
accession cannot be construed as waiver of petitioners right to hold private respondent liable
because the car was unusable and thus, petitioner had no option but to leave it.

3. Assuming further that there was no delay, still working against private respondent is the
legal presumption under Article 1265 that its possession of the thing at the time it was lost was
due to its fault.[12] This presumption is reasonable since he who has the custody and care of
the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to
show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the
simple fact that private respondent was in possession of the vehicle at the time it was lost. In
this case, private respondents possession at the time of the loss is undisputed.

Gaisano v Insurance G.R. No. 147839 June 8, 2006

Facts:
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on "book debts
in connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."
The policies defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy." The policies also provide for
the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period
in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of
every calendar month all amount shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold
and delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI
were paid for their claims and that the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely
accidental; that the cause of the fire was not attributable to the negligence of the petitioner. Also, it
said that IMC and LSPI retained ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay
Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the vendor
until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.
Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the
goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods
delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
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

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had 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. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss
covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504
(1) of the Civil Code.
Moreover, it must be stressed that the 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. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule
that an 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. It does not apply when the obligation
is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." This rule is based on
the principle that the genus of a thing can never perish. An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has
been proven. 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.
The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil
Code which provides:
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, respondent failed to present sufficient evidence to prove its cause of action. There was
no evidence that respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of
P535,613.00.

Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation; G.R. No.
177685, January 26, 2011.
Contracts; quantum meruit. Under the principle of quantum meruit, a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack of a written contract,
in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor,
payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a
building almost completed and already occupied would be to permit unjust enrichment at the
expense of the contractor.
Contracts; rescission. 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 such that the performance
of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza
predicated its action on Article 1191 of the Civil Code, which provides for the remedy of
rescission or more properly resolution, a principal action based on breach of faith by the other
party who violates the reciprocity between them. The breach contemplated in the provision is the
obligors failure to comply with an existing obligation. Thus, the power to rescind is given only to

the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready
and willing to perform his obligation.
Petitioners may not justify Rhogens termination of the contract upon grounds of non-payment of
progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying
the violations which were the basis for issuance of the stoppage order. Having breached the
contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations
of the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was
justified in withholding payment on Rhogens first progress billing, on account of the stoppage
order and additionally due to disappearance of owner-furnished materials at the jobsite. Petitioners
may not justify Rhogens termination of the contract upon grounds of non-payment of progress
billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the
violations which were the basis for issuance of the stoppage order. Having breached the contractual
obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local
authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in
withholding payment on Rhogens first progress billing, on account of the stoppage order and
additionally due to disappearance of owner-furnished materials at the jobsite.

Legal Interest: Legal Interest In Forbearance of Credit Where No Stipulated Interest

by The Lawyer's Post October 22, 2014 Comments Off
Haydn filed a complaint for specific performance with damages against EMIR and ECE Realty due
to the failure of the respondents to deliver a condominium unit which he purchased from them. The
respondents allegedly promised to turn over to him the unit by December 31, 1999, but failed to do
so. Worse, he learned that the actual area was only 26 square meters, not 30 square meters as
indicated in their contract to sell, and the company refused to grant his corresponding reduction in
the purchase price; instead the companies told him to settle his arrears in amortizatios. He learned
later that that company sold Unit 808 to a third party.
In their defense, the respondent faulted complainant for unjustifiably refusing to accept delivery of
the condominium unit; that they were forced to cancel the contract to sell because of the refusal of
the complainant to settle his past arrears.
The HLURB ruled in favour of the complainant and ordered the company to reimburse the
respondent the amount of P452,551.65, plus legal interest, from the filing of the complaint, and to
pay the respondent P50,000.00 as moral damages, P50,000.00 as attorneys fees, and P50,000.00 as
exemplary damages.[11]
The company appealed the case all the way to the CA and eventually to the Supreme Court.

The Supreme Court affirmed the ruling of the lower four and tribunals, with a slight modification of
the legal interest imposable:
Article 2209 of the New Civil Code provides that If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum. There is no doubt that ECE incurred in delay in
delivering the subject condominium unit, for which reason the trial court was justified in awarding
interest to the respondent from the filing of his complaint. There being no stipulation as to interest,
under Article 2209 the imposable rate is six percent (6%) by way of damages, following the
guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of Appeals:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
xxx
The term forbearance, within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code

applies when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general, with the application of
both rates reckoned from the time the complaint was filed until the [adjudged] amount is fully
paid. In either instance, the reckoning period for the commencement of the running of the legal
interest shall be subject to the condition that the courts are vested with discretion, depending on the
equities of each case, on the award of interest. (Emphasis ours)
Thus, from the finality of the judgment awarding a sum of money until it is satisfied, the award
shall be considered a forbearance of credit, regardless of whether the award in fact pertained to
one. Pursuant to Central Bank Circular No. 416 issued on July 29, 1974, in the absence of written
stipulation the interest rate to be imposed in judgments involving a forbearance of credit was twelve
percent (12%) per annum, up from six percent (6%) under Article 2209 of the Civil Code. This was
reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law
beginning on January 1, 1983.
But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the judgment
until satisfaction has been brought back to six percent (6%). Section 1 of Resolution No. 796 of the
Monetary Board of the Bangko Sentral ng Pilipinas dated May 16, 2013 provides: The rate of
interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%)
per annum. Thus, the rate of interest to be imposed from finality of judgments is now back at six
percent (6%), the rate provided in Article 2209 of the Civil Code.
G.R. No. 212689, August 11, 2014, ECE REALTY AND DEVELOPMENT, INC., PETITIONER,
VS. HAYDYN HERNANDEZ, RESPONDENT.

Philippine Communications Satellite Corporation vs Globe Telecom, Inc.

Chester Cabalza recommends his visitors to please read the original & full text of the case
cited. Xie xie!
G.R. No. 147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation),
respondents.

x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
Facts:
Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation installed and
configured communication facilities for the exclusive use of the US Defense Communications
Agency (USDCA) in Clark Air Base and Subic Naval Base. Globe Telecom later contracted the
Philippine Communications Satellite Corporation (Philcomsat) for the provision of the
communication facilities. As both companies entered into an Agreement, Globe obligated itself to
operate and provide an IBS Standard B earth station with Cubi Point for the use of the USDCA. The
term of the contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.
As the saga continues, the Philippine Senate passed and adopted Senate Resolution No. 141 and
decided not to ratify the Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements to extend the term of the use by the US of Subic Naval Base, among others. In other
words, the RP-US Military Bases Agreement was suddenly terminated.
Because of this event, Globe notified Philcomsat of its intention to discontinue the use of the earth
station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic
Naval Base after the termination of the RP-US Military Bases Agreement.
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993
demanding payment of its outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed Philcomsats
demand. On the other hand, the latter with the Regional Trial Court of Makati a Complaint against
Globe, however, Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification
by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure
under the Agreement. Globe explained that the occurrence of said events exempted it from paying
rentals for the remaining period of the Agreement.
Four years after, the trial court its decision but both parties appealed to the Court of Appeals.
Issues:
1. Whether or not the non-ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force majeure which exempts Globe from
complying with its obligations under the Agreement;
2. Whether Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and
3. Whether Globe is liable to Philcomsat for exemplary damages.
Held:

Decision on Issue No. 1: Fortuitous Event under Article 1174

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the Philippine
Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the
Philippine Governments Note Verbale to the US Government, are acts, directions, or requests of the
Government of the Philippines which constitute force majeure.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services
by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence
the petitions are denied.
Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable,
but inevitable:
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as
floods or typhoons,24 or an "act of man," such as riots, strikes or wars.
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 catastrophes 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.
The Supreme Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over the 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.
Decision on Issue No. 2: Exemption of Globe from Paying Rentals for the Facility

The Supreme Court finds that the defendant is exempted from paying the rentals for the facility for
the remaining term of the contract. As a consequence of the termination of the RP-US Military
Bases Agreement (as amended) the continued stay of all US Military forces and personnel from
Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position
to render the service it was obligated under the Agreement.
The Court of Appeals was 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.
Decision on Issue No 3: No Exemplary Damages
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding
Philcomsats demands for payment of rentals. It was established during the trial of the case before
the trial court that Globe had valid grounds for refusing to comply with its contractual obligations
after 1992.
Ruling:
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.

FIL-ESTATE PROPERTIES vs. GO

G.R. No. 165164 August 17, 2007
Facts:
On December 29, 1995, petitioner Fil-Estate Properties, Inc. entered into a contract to sell a
condominium unit to respondent spouses Gonzalo and Consuelo Go. The spouses paid a total
ofP3.4M of the full contract price set at P3.6M.
Petitioner failed to develop the condominium project. The spouses demanded the refund of the
amount they paid, plus interest. When petitioner did not refund the spouses, the latter filed a
complaint against petitioner for reimbursement of P3.6M plus interest, attorneys fees, and expenses
of litigation.
Petitioner claimed that respondents had no cause of action since the delay in the construction of the
condominium was caused by the financial crisis that hit the Asian region, a fortuitous event over
which petitioner had no control.

Issue:
WON Fil-Estate can exculpate itself from liability in its claim of caso fortuito based on the 1997
Asian Financial Crisis? NO
Held:
In Mondragon Leisure vs. Court of Appeals, the Asian financial crisis in 1997 is not among the
fortuitous events contemplated under Article 1174 of the Civil Code.
The Asian financial crisis in 1997 was not unforeseeable and beyond the control of a business
corporation. However, a real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements and business risks.
The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen every day, thus, not an instance of
caso fortuito.
The delay in the construction of the building was not attributable to the Asian financial crisis which
happened in 1997 because petitioner did not even start the project in 1995 when it should have
done, so that it could have finished it in 1997, as stipulated in the contract.
Under Section 23 of P.D. No. 957, the respondents are entitled to reimbursement but only to the
P3.4M that they have paid.
MAGLASANG under GL Enterprises VS NORTHWESTERN UNIVERSITY
Ruling:
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the courts a quo, however, differed
on the basis thereof. The RTC applied the equitable principle of mutual fault, while the CA applied
Article 1191 on rescission.
The power to rescind the obligations of the injured party is implied in reciprocal obligations, such
as in this case. On this score, the CA correctly applied Article 1191, which provides thus:
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.
The two contracts require no less than substantial breach before they can be rescinded. Since the
contracts do not provide for a definition of substantial breach that would terminate the rights and
obligations of the parties, we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike slight or casual breaches of
contract, are fundamental breaches that defeat the object of the parties in entering into an
agreement, since the law is not concerned with trifles.14
The question of whether a breach of contract is substantial depends upon the attending
circumstances.15
In the case at bar, the parties explicitly agreed that the materials to be delivered must be compliant
with the CHED and IMO standards and must be complete with manuals. Aside from these clear
provisions in the contracts, the courts a quo similarly found that the intent of the parties was to
replace the old IBS in order to obtain CHED accreditation for Northwesterns maritime-related
courses.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as amended by CMO No.
13, Series of 2005, any simulator used for simulator-based training shall be capable of simulating
the operating capabilities of the shipboard equipment concerned. The simulation must be achieved
at a level of physical realism appropriate for training objectives;
include the capabilities, limitations and possible errors of such equipment; and provide an interface
through which a trainee can interact with the equipment, and the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the components that
would create an IBS that would effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility. As contained in the findings
of the CA and the RTC, petitioner supplied substandard equipment when it delivered components
that (1) were old; (2) did not have instruction manuals and warranty certificates; (3) bore indications
of being reconditioned machines; and, all told, (4) might not have met the IMO and CHED
standards.
Evidently, the materials delivered were less likely to pass the CHED standards, because the
navigation system to be installed might not accurately point to the true north; and the steering wheel
delivered was one that came from an automobile, instead of one used in ships. Logically, by no
stretch of the imagination could these form part of the most modern IBS compliant with the IMO
and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the equipment it delivered was
substandard. However, it reiterates its rejected excuse that Northwestern should have made an
assessment only after the completion of the IBS.17 Thus, petitioner stresses that it was

Northwestern that breached the agreement when the latter halted the installation of the materials for
the IBS, even if the parties had contemplated a completed project to be evaluated by CHED.
However, as aptly considered by the CA, respondent could not just sit still and wait for such day
that its accreditation may not be granted by CHED due to the apparent substandard equipment
installed in the bridge system.18 The appellate court correctly emphasized that, by that time, both
parties would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts, the materials that were hauled all
the way from Quezon City to Laoag City under the custody of the four designated installers might
not have been the components to be used.19 Without belaboring the point, we affirm the conclusion
of the CA and the RTC that the excuse is untenable for being contrary to human experience.20
Given that petitioner, without justification, supplied substandard components for the new IBS, it is
thus clear that its violation was not merely incidental, but directly related to the essence of the
agreement pertaining to the installation of an IBS compliant with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the part of petitioner.
In contrast, Northwesterns breach, if any, was characterized by the appellate court as slight or
casual.21 By way of negative definition, a breach is considered casual if it does not fundamentally
defeat the object of the parties in entering into an agreement. Furthermore, for there to be a breach
to begin with, there must be a "failure, without legal excuse, to perform any
22
Here, as discussed, the stoppage of the installation was justified. The action of Northwestern
constituted a legal excuse to prevent the highly possible rejection of the IBS. Hence, just as the CA
concluded, we find that Northwestern exercised ordinary prudence to avert a possible wastage of
time, effort, resources and also of the P2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's Fees
As between the parties, substantial breach can clearly be attributed to GL Enterprises.
Consequently, it is not the injured party who can claim damages under Article 1170 of the Civil
Code. For this reason, we concur in the result of the CA's Decision denying petitioner actual
damages in the form of lost earnings, as well as moral and exemplary damages.
With respect to attorney's fees, Article 2208 of the Civil Code allows
the grant thereof when the court deems it just and equitable that attorney's
fees should be recovered. An award of attorney's fees is proper if one was
forced to litigate and incur expenses to protect one's rights and interest by

reason of an unjustified act or omission on the part of the party from whom
23
Since we affirm theCA's finding that it was not Northwestern but GL Enterprises that breached the
contracts without justification, it follows that the appellate court correctly awarded attorneis fees to
respondent. Notably, this litigation could have altogether been avoided if petitioner heeded
respondent's suggestion to amicably settle; or, better yet, if in the first place petitioner delivered the
right materials as required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in CA-G.R. CV
No. 88989 is hereby AFFIRMED.

G.R. No. 158911 : March 4, 2008

MANILA ELECTRIC COMPANY
,
Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS,
ROSEMARIE
RAMOY, OFELIA DURIAN and CYRENE PANADO
,
Respondents
FACTS:
In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a case
for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon
City.
among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at
bar.
On April 28, 1989 the MTC rendered judgment for MERALCO to demolish or remove the building
and
structure they built on the land of the plaintiff and to vacate the premises. On June 20, 1999 NPC
wrote

to MERALCO requesting the immediate disconnection of electric power supply to all residential
and
commercial establishments beneath the NPC transmission lines along Baesa, Quezon City.
In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all the
establishments which are considered under NPC property. In due time, the electric service
connection of
the plaintiffs was disconnected. During the ocular inspection ordered by the Court, it was found out
that
the residence of the plaintiffs-spouses was indeed outside the NPC property.
ISSUES: (1)
WON the Court of Appeals gravely erred when it found MERALCO negligent when it
disconnected the subject electric service of respondents.
(2)
WON the Court of Appeals gravely erred when it awarded moral and exemplary damages
and attorneys fees
against MERALCO under the circumstances that the latter acted in good
faith in the disconnection of the electric services of the respondents.
RULING:
(1)
No. The Court agrees with the CA that under the factual milieu of the present case, MERALCO
failed
to exercise the utmost degree of care and diligence required of it, pursuant to Articles 1170 & 1173
of
the Civil Code. It was not enough for MERALCO to merely rely on the Decision of the MTC
without
ascertaining whether it had become final and executory. Verily, only upon finality of the said
Decision
can it be said with conclusiveness that respondents have no right or proper interest over the subject
property, thus, are not entitled to the services of MERALCO.
(2)
No. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and his tenants
the
supply of electricity to which they were entitled under the Service Contract. This is contrary to
public
policy because, MERALCO, being a vital public utility, is expected to exercise utmost care and
diligence i
the performance of its obligation. Thus, MERALCOs failure to exercise utmost care and diligence in
the
performance of its obligation to Leoncio Ramoy is tantamount to bad faith. Leoncio Ramoy
testified that
he suffered wounded feelings because
of MERALCOs actions. Furthermore, due to the lack of power
supply, the lessees of his four apartments on subject lot left the premises. Clearly, therefore Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA. Nevertheless, Leoncio is the
sole
person entitled to moral damages as he is the only who testified on the witness stand of his wounded
feelings. Pursuant to Article 2232 of the Civil Code, exemplary damages cannot be awarded as
MERALCOs acts cannot be considered wanton, fraudul

ent, reckless, oppressive or malevolent. Since the

Court does not deem it proper to award exemplary damages in this case then the CAs award of
attorneys fees should likewise be deleted, as pursuant to Article 2208 of the Civil Code of which the
grounds were not present.