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Tanguilig v CA respondent who accepted the same without diameter of 2 to 3 inches.

For if the real intent of

Facts: protest. Besides, its collapse was attributable to a petitioner was to include a deep well in the
Jacinto M. Tanguilig doing business under the typhoon, a force majeure, which relieved him of agreement to construct a windmill, he would
name and style J.M.T. Engineering and General any liability have used instead the conjunctions "and" or
Merchandising proposed to respondent Vicente "with." Since the terms of the instruments are
Herce Jr. to construct a windmill system for him. Issue: clear and leave no doubt as to their meaning they
After some negotiations they agreed on the Whether the agreement to construct the windmill should not be disturbed.
construction of the windmill for a consideration system included the installation of a deep well
of P60,000.00 with a one-year guaranty from the Respondent insists that petitioner verbally
date of completion and acceptance by Whether petitioner is under obligation to agreed that the contract price of P60,000.00
respondent Herce Jr. of the project. Pursuant to reconstruct the windmill after it collapsed covered the installation of a deep well pump. He
the agreement respondent paid petitioner a down contends that since petitioner did not have the
payment of P30,000.00 and an installment Ruling: The petition is denied. capacity to install the pump the latter agreed to
payment of P15,000.00, leaving a balance of We reverse the appellate court on the first issue have a third party do the work the cost of which
P15,000.00. but sustain it on the second. was to be deducted from the contract price. To
prove his point, he presented Guillermo Pili of
Due to the refusal and failure of respondent to 1. The preponderance of evidence supports the SPGMI who declared that petitioner Tanguilig
pay the balance, petitioner filed a complaint to finding of the trial court that the installation of a approached him with a letter from respondent
collect the amount. In his Answer before the trial deep well was not included in the proposals of Herce Jr. asking him to build a deep well pump
court respondent denied the claim saying that he petitioner to construct a windmill system for as "part of the price/contract which Engineer
had already paid this amount to the San Pedro respondent. There were in fact two (2) proposals (Herce) had with Mr. Tanguilig.
General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill Notably, nowhere in either proposal is the For if indeed the deep well were part of the
system was to be connected. According to installation of a deep well mentioned, even windmill project, the contract for its installation
respondent, since the deep well formed part of remotely. Neither is there an itemization or would have been strictly a matter between
the system the payment he tendered to SPGMI description of the materials to be used in petitioner and Pili himself with the former
should be credited to his account by petitioner. constructing the deep well. There is absolutely assuming the obligation to pay the price. That it
Moreover, assuming that he owed petitioner a no mention in the two (2) documents that a deep was respondent Herce Jr. himself who paid for
balance of P15,000.00, this should be offset by well pump is a component of the proposed the deep well by handing over to Pili the amount
the defects in the windmill system which caused windmill system. The contract prices fixed in of P15,000.00 clearly indicates that the contract
the structure to collapse after a strong wind hit both proposals cover only the features for the deep well was not part of the windmill
their place specifically described therein and no other. project but a separate agreement between
While the words "deep well" and "deep well respondent and Pili. Besides, if the price of
Petitioner denied that the construction of a deep pump " are mentioned in both, these do not P60,000.00 included the deep well, the
well was included in the agreement to build the indicate that a deep well is part of the windmill obligation of respondent was to pay the entire
windmill system, for the contract price of system. amount to petitioner without prejudice to any
P60,000.00 was solely for the windmill action that Guillermo Pili or SPGMI may take, if
assembly and its installation, exclusive of other As correctly pointed out by petitioner, the words any, against the latter
incidental materials needed for the project. "deep well" preceded by the prepositions "for"
He also disowned any obligation to repair or and "suitable for" were meant only to convey the 2. This Court has consistently held that in order
reconstruct the system and insisted that he idea that the proposed windmill would be for a party to claim exemption from liability by
delivered it in good and working condition to appropriate for a deep well pump with a reason of fortuitous event under Art. 1174 of
the Civil Code the event should be the sole and the Civil Code is explicit on this point that if a within which the defendant appellee was to
proximate cause of the loss or destruction of the person obliged to do something fails to do it, the comply with the contract before said defendant-
object of the contract. In Nakpil vs. Court of same shall be executed at his cost appellee could be held liable for breach of
Appeals, four (4) requisites must concur: contract
(a) the cause of the breach of the obligation Chavez v Gonzales
must be independent of the will of the debtor; Facts: On July 1963, Rosendo Chavez brought Issue: Whether or not the defendant is liable for
(b) the event must be either unforeseeable or his typewriter to Fructuoso Gonzales a the total cost of the repair made by Freixas
unavoidable; typewriter repairman for the cleaning and Business Machines with the plaintiff typewriter?
(c) the event must be such as to render it servicing of the said typewriter but the latter was
impossible for the debtor to fulfill his obligation not able to finish the job. During October 1963, Ruling: The petition granted
in a normal manner; and, the plaintiff gave the amount of P6.00 to the The inferences derivable from these findings of
(d) the debtor must be free from any defendant which the latter asked from the fact are that the appellant and the appellee had a
participation in or aggravation of the injury to plaintiff for the purchase of spare parts, because perfected contract for cleaning and servicing a
the creditor. of the delay of the repair the plaintiff decided to typewriter; that they intended that the defendant
recover the typewriter to the defendant which he was to finish it at some future time although
Petitioner failed to show that the collapse of the wrapped it like a package. When the plaintiff such time was not specified; and that such time
windmill was due solely to a fortuitous event. reached their home he opened it and examined had passed without the work having been
Interestingly, the evidence does not disclose that that some parts and screws was lost. That on accomplished, far the defendant returned the
there was actually a typhoon on the day the October 29, 1963 the plaintiff sent a letter to the typewriter cannibalized and unrepaired, which in
windmill collapsed. Petitioner merely stated that defendant for the return of the missing parts, the itself is a breach of his obligation, without
there was a "strong wind." But a strong wind in interior cover and the sum of P6.00 (Exhibit D). demanding that he should be given more time to
this case cannot be fortuitous unforeseeable The following day, the defendant returned to the finish the job, or compensation for the work he
nor unavoidable. On the contrary, a strong wind plaintiff some of the missing parts, the interior had already done. The time for compliance
should be present in places where windmills are cover and the P6.00. The plaintiff brought his having evidently expired, and there being a
constructed, otherwise the windmills will not typewriter to Freixas Business Machines and the breach of contract by non-performance, it was
turn. repair cost the amount of P89.85. He academic for the plaintiff to have first petitioned
commenced this action on August 23, 1965 in the court to fix a period for the performance of
Finally, petitioner's argument that private the City Court of Manila, demanding from the the contract before filing his complaint in this
respondent was already in default in the payment defendant the payment of P90.00 as actual and case. Defendant cannot invoke Article 1197 of
of his outstanding balance of P15,000.00 and compensatory damages, P100.00 for temperate the Civil Code for he virtually admitted non-
hence should bear his own loss, is untenable. In damages, P500.00 for moral damages, and performance by returning the typewriter that he
reciprocal obligations, neither party incurs in P500.00 as attorneys fees. The defendant made was obliged to repair in a non-working
delay if the other does not comply or is not no denials of the facts narrated above, except the condition, with essential parts missing. The
ready to comply in a proper manner with what is claim of the plaintiff that the cost of the repair fixing of a period would thus be a mere
incumbent upon him. When the windmill failed made by Freixas Business Machines be fully formality and would serve no purpose than to
to function properly it became incumbent upon chargeable against him. According to him, delay (cf. Tiglao. et al. V. Manila Railroad Co.
petitioner to institute the proper repairs in Fructuoso Gonzales, is that he is not liable at all, 98 Phil. 181).
accordance with the guaranty stated in the not even for the sum of P31.10, because his
contract. Thus, respondent cannot be said to contract with plaintiffappellant did not contain a It is clear that the defendant-appellee
have incurred in delay; instead, it is petitioner period, so that plaintiff-appellant should have contravened the tenor of his obligation because
who should bear the expenses for the first filed a petition for the court to fix the he not only did not repair the typewriter but
reconstruction of the windmill. Article 1167 of period, under Article 1197 of the Civil Code, returned it "in shambles", according to the
appealed decision. For such contravention, as contravened the tenor of his obligation because Khe Hong Cheng v CA
appellant contends, he is liable under Article he not only did not repair the typewriter but Facts:
1167 of the Civil Code. jam quot, for the cost of returned it "in shambles,'' he is liable for the cost Petitioner Khe Hong Cheng, alias Felix Khe, is
executing the obligation in a proper manner. The of the labor or service expended in the repair of the owner of Butuan Shipping Lines. It appears
cost of the execution of the obligation in this the typewriter, which is in the amount of P58.75, that on or about October 4, 1985, the Philippine
case should be the cost of the labor or service because the obligation or contract was to repair Agricultural Trading Corporation shipped on
expended in the repair of the typewriter, which it. In addition, he is likewise liable under Art. board the vessel M/V PRINCE ERIC, owned by
is in the amount of P58.75.because the 1170 of the Code, for the cost of the missing petitioner Khe Hong Cheng,
obligation or contract was to repair it. parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, M/V PRINCE ERIC, however, sank somewhere
In addition, the defendant-appellee is likewise but failed or neglected, to return it in the same between Negros Island and Northeastern
liable, under Article 1170 of the Code, for the condition it was when he received it. Mindanao, resulting in the total loss of the
cost of the missing parts, in the amount of shipment. Because of the loss, the insurer,
P31.10, for in his obligation to repair the CLAIMS FOR DAMAGES OR ATTORNEY'S American Home, paid the amount of
typewriter he was bound, but failed or neglected, FEES NOT RECOVERABLE; NOT P354,000.00 (the value of the copra) to the
to return it in the same condition it was when he ALLEGED OR PROVED IN INSTANT consignee.
received it. CASE. Claims for damages and attorney's
fees must be pleaded, and the existence of the Having been subrogated into the rights of the
CIVIL LAW; CONTRACTS; BREACH OF actual basis thereof must be proved. As no consignee, American Home instituted Civil
CONTRACT FOR NON-PERFORMANCE; findings of fact were made on the claims for Case No. 13357 in the Regional Trial Court
FIXING OF PERIOD BEFORE FILING OF damages and attorney's fees, there is no factual (RTC) of Makati, Branch 147 to recover the
COMPLAINT FOR NON-PERFORMANCE, basis upon which to make an award therefor. money paid to the consignee, based on breach of
ACADEMIC. Where the time for compliance contract of carriage. While the case was still
had expired and there was breach of contract by No, he is not liable for the total cost of the repair pending, or on December 20, 1989, petitioner
non-performance, it was academic for the made by Freixas Business Machines instead he Khe Hong Cheng executed deeds of donations of
plaintiff to have first petitioned the court to fix a is only liable for the cost of the missing parts parcels of land in favor of his children, herein
period for the performance of the contract before and screws. The defendant contravened the tenor co-petitioners Sandra Joy and
filing his complaint. of his obligation in repairing the typewriter of Ray Steven.
the plaintiff that he fails to repair it and returned
DEFENDANT CANNOT INVOKE ARTICLE it with the missing parts, he is liable under The trial court rendered judgment against
1197 OF THE CIVIL CODE OF THE ART. 1167. If a person obliged to do petitioner Khe Hong Cheng in Civil Case No.
PHILIPPINES. Where the defendant virtually something fails to do it, the same shall be 13357 on December 29, 1993, four years after
admitted non-performance of the contract by executed at his cost. the donations were made and the TCTs were
returning the typewriter that he was obliged to registered in the donees' names
repair in a non-working condition, with essential This same rule shall be observed if he does it in
parts missing, Article 1197 of the Civil Code of contravention of the tenor of the obligation. After the said decision became final and
the Philippines cannot be invoked. The fixing of Furthermore it may be decreed that what has executory, a writ of execution was forthwith,
a period would thus be a mere formality and been poorly done he undone. issued on September 14, 1995. Said writ of
would serve no purpose than to delay. execution, however, was not served. An alias
writ of execution was, thereafter, applied for and
DAMAGES RECOVERABLE; CASE AT granted in October 1996. Despite earnest efforts,
BAR. Where the defendant-appellee the sheriff found no property under the name of
Butuan Shipping Lines and/or petitioner Khe that the judgment award could not be satisfied exhausted and have been proven futile. For an
Hong Cheng to levy or garnish for the because the judgment creditor, petitioner Khe accion pauliana to accrue, the following
satisfaction of the trial court's decision. When Hong Cheng, had no more properties in his requisites must concur:
the sheriff, accompanied by counsel of name. Prior thereto, respondent Philam had not 1) That the plaintiff asking for rescission, has a
respondent Philam, went to Butuan City on yet exhausted all legal means for the satisfaction credit prior to the alienation, although
January 17, 1997, to enforce the alias writ of of the decision in its favor, as prescribed under demandable later;
execution, they discovered that petitioner Khe Article 1383 of the Civil Code. 2) That the debtor has made a subsequent
Hong Cheng no longer had any property and that contract conveying a patrimonial benefit to a
he had conveyed the subject properties to his Issue: When did the four (4) year prescriptive third person;
children period as provided for in Article 1389 of the 3) That the creditor has no other legal remedy to
Civil Code for respondent Philam to file its satisfy his claim, but would benefit by rescission
On February 25, 1997, respondent Philam filed a action for rescission of the subject deeds of of the conveyance to the third person;
complaint with the Regional Trial Court of donation commence to run? 4) That the act being impugned is fraudulent;
Makati City, Branch 147, for the rescission of 5) That the third person who received the
the deeds of donation executed by petitioner Khe Ruling: The petition is denied. property conveyed, if by onerous title, has been
Hong Cheng in favor of his children and for the an accomplice in the fraud
nullification of their titles Article 1389 of the Civil Code simply provides
that, "The action to claim rescission must be An accion pauliana accrues only when the
Petitioners subsequently filed their answer to the commenced within four years." Since this creditor discovers that he has no other legal
complaint a quo. They moved for its dismissal provision of law is silent as to when the remedy for the satisfaction of his claim against
on the ground that the action had already prescriptive period would commence, the the debtor other than an accion pauliana. The
prescribed general rule, i.e, from the moment the cause of accion pauliana is an action of a last resort. For
action accrues, therefore, applies. as long as the creditor still has a remedy at law
Acting thereon, the trial court denied the motion Article 1150 of the Civil Code for the enforcement of his claim against the
to dismiss. It held that respondent Philam's The time for prescription for all kinds of debtor, the creditor will not have any cause of
complaint had not yet prescribed. According to actions, when there is no special provision action against the creditor for rescission of the
the trial court, the prescriptive period began to which ordains otherwise, shall be counted from contracts entered into by and between the debtor
run only from December 29, 1993, the date of the day they may be brought. and another person or persons.
the decision of the trial court
Indeed, this Court enunciated the principle that it An accion pauliana thus presupposes the
On appeal by petitioners, the CA affirmed the is the legal possibility of bringing the action following:
trial court's decision in favor of respondent which determines the starting point for the 1) A judgment;
Philam. The CA declared that the action to computation of the prescriptive period for the 2) The issuance by the trial court of a writ of
rescind the donations had not yet prescribed. action. Article 1383 of the Civil Code provides execution for the satisfaction of the judgment,
Citing Articles 1381 and 1383 of the Civil Code, as follows An action for rescission is 3) The failure of the sheriff to enforce and
the CA basically ruled that the four year period subsidiary; it cannot be instituted except when satisfy the judgment of the court. It requires that
to institute the action for rescission began to run the party suffering damage has no other legal the creditor has exhausted the property of the
only in January 1997, and not when the decision means to obtain reparation for the same. debtor.
in the civil case became final and executory on
December 29, 1993. The CA reckoned the It is thus apparent that an action to rescind or an The date of the decision of the trial court is
accrual of respondent Philam's cause of action accion pauliana must be of last resort, availed of immaterial. What is important is that the credit
on January 1997, the time when it first learned only after all other legal remedies have been of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After when its counsel accompanied the sheriff to void. On appeal, the Court of Appeals reversed
all, the decision of the trial court against the Butuan City to attach the properties of petitioner the trial court and dismissed the action pauliana.
debtor will retroact to the time when the debtor Khe Hong Cheng. There they found that he no It ruled that the deed of donation was not
became indebted to the creditor. longer had any properties in his name. It was fraudulent transfer as respondent debtor Rosa
only then that respondent Philam's action for still owns 4 parcels of land sufficient to cover
Petitioners, however, maintain that the cause of rescission of the deeds of donation accrued her debts to petitioner, that the notarized deed of
action of respondent Philam against them for the because then it could be said that respondent donation, a public document in the absence of
rescission of the deeds of donation accrued as Philam had exhausted all legal means to satisfy convincing evidence that the notary and the
early as December 27, 1989, when petitioner the trial court's judgment in its favor. Since parties antedated the instrument, is evidence of
Khe Hong Cheng registered the subject respondent Philam filed its complaint for accion the fact that gave rise to its execution and of the
conveyances with the Register of Deeds. pauliana against petitioners on February 25, date thereof. Petitioner's motion for
Respondent Philam allegedly had constructive 1997, barely a month from its discovery that reconsideration having been denied she resorted
knowledge of the execution of said deeds under petitioner Khe Hong Cheng had no other to this recourse.
Section 52 of Presidential Decree No. 1529 property to satisfy the judgment award against
him, its action for rescission of the subject deeds Issue: Whether the questioned Deed of
Even if respondent Philam was aware, as of clearly had not yet prescribed. Donation was made in fraud of petitioner and,
December 27, 1989, that petitioner Khe Hong therefore, rescissible
Cheng had executed the deeds of donation in Siguan v Lim
favor of his children, the complaint against Facts: Ruling: The petition is denied.
Butuan Shipping Lines and/or petitioner Khe Respondent Rosa was charged by petitioner with
Hong Cheng was still pending before the trial two counts of violation of Batas Pambansa Blg. The Supreme Court held that contracts
court. Respondent Philam had no inkling, at the 22 for issuing checks, in the total amount of undertaken in fraud of creditors are rescissible
time, that the trial court's judgment would be in P541,668, dishonored by the bank for the reason when the latter cannot in any other manner
its favor and further, that such judgment would of "account closed." The conviction was collect the claims due them; that rescission is but
not be satisfied due to the deeds of donation affirmed by the Court of Appeals and is now a subsidiary remedy which cannot be instituted
executed by petitioner Khe Hong Cheng during pending review with this Court. Petitioner, except when the party suffering damage has no
the pendency of the case. Had respondent thereafter filed action pauliana against other legal means to obtain reparation for the
Philam filed his complaint on December 27, respondent Rosa to rescind, the notarized deed same. In the case at bar, respondent Rosa has 4
1989, such complaint would have been of donation over 4 parcels of land Rosa executed other real properties, hence, the presumption of
dismissed for being premature. Not only were all in favor of her three children, the other fraud will not come into play; and that a party
other legal remedies for the enforcement of respondents. Petitioner claimed that there was cannot invoke the credit of others to justify
respondent Philam's claims not yet exhausted at fraudulent transfer leaving no sufficient rescission of the deed of donation
the time the deeds of donation were executed properties to pay her obligations with her and
and registered. Respondent Philam would also that the deed of donation was not antedated. ACTIONS; ACCION PAULIANA;
not have been able to prove then that petitioner During the hearing of the case, petitioner REQUISITE FOR ACTION TO PROSPER.
Khe Hong Cheng had no more property other presented evidence on Rosa's civil liability to The action to rescind contracts in fraud of
than those covered by the subject deeds to one Victoria Suarez in the amount of P169,000. creditors is known as accion pauliana. For this
satisfy a favorable judgment by the trial court. For her defense, Rosa denied liability and the action to prosper, the following requisites must
alleged antedating of the deed. The trial court be present: (1) the plaintiff asking for rescission
As mentioned earlier, respondent Philam only rendered judgment in favor of petitioner, ordered has a credit prior to the alienation, although
learned about the unlawful conveyances made the rescission of the contract and declared the demandable later; (2) the debtor has made a
by petitioner Khe Hong Cheng in January 1997 titles in the name of Rosa's children null and subsequent contract conveying a patrimonial
benefit to a third person; (3) the creditor has no in the questioned deed, which is 10 August fraud of creditors when the donor did not reserve
other legal remedy to satisfy his claim; (4) the 1989. Petitioner's claim against LIM was sufficient property to pay all debts contracted
act being impugned is fraudulent; (5) the third constituted only in August 1990, or a year after before the donation." Likewise, Article 759 of
person who received the property conveyed, if it the questioned alienation. Thus, the first two the same Code, second paragraph, states that
is by onerous title, has been an accomplice in the requisites for the rescission of contracts are the donation is always presumed to be in fraud
fraud. absent. of creditors when at the time thereof the donor
did not reserve sufficient property to pay his
CREDIT MUST EXIST PRIOR TO CREDITOR CANNOT IN ANY MANNER debts prior to the donation. For this presumption
FRAUDULENT ALIENATION. The general COLLECT CLAIM. Even assuming of fraud to apply, it must be established that the
rule is that rescission requires the existence of arguendo that petitioner became a creditor of donor did not leave adequate properties which
creditors at the time of the alleged fraudulent LIM prior to the celebration of the contract of creditors might have recourse for the collection
alienation, and this must be proved as one of the donation, still her action for rescission would not of their credits existing before the execution of
bases of the judicial pronouncement setting fare well because the third requisite was not met. the donation. As earlier discussed, petitioner's
aside the contract. Without any prior existing Under Article 1381 of the Civil Code, contracts alleged credit existed only a year after the deed
debt, there can neither be injury nor fraud. While entered into in fraud of creditors may be of donation was executed. She cannot, therefore,
it is necessary that the credit of the plaintiff in rescinded only when the creditors cannot in any be said to have been prejudiced or defrauded by
the accion pauliana must exist prior to the manner collect the claims due them. Also, such alienation.
fraudulent alienation, the date of the judgment Article 1383 of the same Code provides that the
enforcing it is immaterial. Even if the judgment action for rescission is but a subsidiary remedy BADGES OF FRAUD. Nevertheless, a
be subsequent to the alienation, it is merely which cannot be instituted except when the party creditor need not depend solely upon the
declaratory, with retroactive effect to the date suffering damage has no other legal means to presumption laid down in Articles 759 and 1387
when the credit was constituted. obtain reparation for the same. The term of the Civil Code. Under the third paragraph
"subsidiary remedy" has been defined as "the of Article 1387, the design to defraud may be
ALLEGED ANTEDATING OF DOCUMENT exhaustion of all remedies by the prejudiced proved in any other manner recognized by the
NOT PROVED BY LATE REGISTRATION creditor to collect claims due him before law of evidence. Thus in the consideration of
OF ACKNOWLEDGED DOCUMENT. In rescission is resorted to." It is, therefore, whether certain transfers are fraudulent, the
the instant case, the alleged debt of LIM in favor "essential that the party asking for rescission Court has laid down specific rules by which the
of petitioner was incurred in August 1990, while prove that he has exhausted all other legal means character of the transaction may be determined.
the deed of donation was purportedly executed to obtain satisfaction of his claim. Petitioner The following have been denominated by the
on 10 August 1989. We are not convinced with neither alleged nor proved that she did so. On Court as badges of fraud: (1) The fact that the
the allegation of the petitioner that the this score, her action for the rescission of the consideration of the conveyance is fictitious or is
questioned deed was antedated to make it appear questioned deed is not maintainable even if the inadequate; (2) A transfer made by a debtor after
that it was made prior to petitioner's credit. fraud charged actually did exist. suit has begun and while it is pending against
Notably, that deed is a public document, it him; (3) A sale upon credit by an insolvent
having been acknowledged before a notary DEBTOR DID NOT RESERVE SUFFICIENT debtor; (4) Evidence of large indebtedness or
public. As such, it is evidence of the fact which PROPERTY TO PAY DEBT PRIORTO complete insolvency; (5) The transfer of all or
gave rise to its execution and of its date, DONATION. The fourth requisite for an nearly all of his property by a debtor, especially
pursuant to Section 23, Rule 132 of the Rules accion pauliana to prosper is not present either. when he is insolvent or greatly embarrassed
of Court. In the present case, the fact that the Article 1387, first paragraph, of the Civil financially; (6) The fact that the transfer is made
questioned Deed was registered only on 2 July Code provides: "All contracts by virtue of between father and son, when there are present
1991 is not enough to overcome the presumption which the debtor alienates property by gratuitous other of the above circumstances; and (7) The
as to the truthfulness of the statement of the date title are presumed to have been entered into in failure of the vendee to take exclusive
possession of all the property. The above These petitions arising from the same case filed in the construction, the failure of the contractors
enumeration, however, is not an exclusive list. in the Court of First Instance of Manila were to follow plans and specifications and violations
The circumstances evidencing fraud are as consolidated by this Court in the resolution of by the defendants of the terms of the contract.
varied as the men who perpetrate the fraud in May 10, 1978 requiring the respective
each case. This Court has therefore declined to respondents to comment Defendants in turn filed a third-party complaint
define it, reserving the liberty to deal with it against the architects who prepared the plans and
under whatever form it may present itself. The plaintiff, Philippine Bar Association, a specifications, alleging in essence that the
civic-non-profit association, incorporated under collapse of the building was due to the defects in
RESCISSION SHALL ONLY BE TO EXTENT the Corporation Law, decided to construct an the said plans and specifications. Roman Ozaeta,
OF CREDITOR'S UNSATISFIED CREDIT. office building on its 840 square meters lot the then president of the plaintiff Bar
It should be noted that the complainant in that located at the corner of Aduana and Arzobispo Association was included as a third-party
case, Victoria Suarez, albeit a creditor prior to Streets, Intramuros, Manila. The construction defendant for damages for having included Juan
the questioned alienation, is not a party to this was undertaken by the United Construction, Inc. J. Carlos, President of the United Construction
accion pauliana. Article 1384 of the Civil Code on an "administration" basis, on the suggestion Co., Inc. as party defendant.
provides that rescission shall only be to the of Juan J. Carlos, the president and general
extent necessary to cover the damages caused. manager of said corporation. The proposal was Thus, the issues of this case were divided into
Under this Article, only the creditor who approved by plaintiff's board of directors and technical issues and non-technical issues.
brought the action for rescission can benefit signed by its president Roman Ozaeta, a third- As aforestated the technical issues were referred
from the rescission; those who are strangers to party defendant in this case. The plans and to the Commissioner (Mr. Andres O Hizon). The
the action cannot benefit from its effects. And specifications for the building were prepared by non-technical issues were tried by the Court.
the revocation is only to the extent of the the other third-party defendants Juan F. Nakpil
plaintiff creditors unsatisfied credit; as to the & Sons. The building was completed in June, After the protracted hearings, the Commissioner
excess, the alienation is maintained. Thus, 1966 eventually submitted his report on September
petitioner cannot invoke the credit of Suarez to 25, 1970 with the findings that while the damage
justify rescission of the subject deed of donation. In the early morning of August 2, 1968 an sustained by the PBA building was caused
unusually strong earthquake hit Manila and its directly by the August 2, 1968 earthquake whose
Juan Nakpil &Sons v CA environs and the building in question sustained magnitude was estimated at 7.3 they were also
Facts: major damage. The front columns of the caused by the defects in the plans and
Petitioners Juan F. Nakpil & Sons in L-47851 building buckled, causing the building to tilt specifications prepared by the third-party
and United Construction Co., Inc. and Juan J. forward dangerously. The tenants vacated the defendants' architects, deviations from said plans
Carlos in L-47863 seek the reversal of the building in view of its precarious condition. As a and specifications by the defendant contractors
decision of the Court of Appeals, among other temporary remedial measure, the building was and failure of the latter to observe the requisite
things, for exoneration from liability while shored up by United Construction, Inc. at the workmanship in the construction of the building
petitioner Philippine Bar Association in L-47896 cost of P13,661.28. and of the contractors, architects and even the
seeks the modification of aforesaid decision to owners to exercise the requisite degree of
obtain an award of P1,830,000.00 for the loss of On November 29, 1968, the plaintiff supervision in the construction of subject
the PBA building plus four (4) times such commenced this action for the recovery of building.
amount as damages resulting in increased cost of damages arising from the partial collapse of the
the building; P100,000.00 as exemplary building against United Construction, Inc. and All the parties registered their objections to
damages; and P100,000.00 as attorney's fees. its President and General Manager Juan J. aforesaid findings which in turn were answered
Carlos as defendants. Plaintiff alleges that the by the Commissioner.
collapse of the building was accused by defects
The trial court agreed with the findings of the liability under this Article, for a breach of an liability for loss because of an act of God, he
Commissioner except as to the holding that the obligation due to an "act of God", the following must be free from any previous negligence or
owner is charged with full time supervision of must concur: (a) the cause of the breach of the misconduct by which that loss or damage may
the construction. The Court sees no legal or obligation must be independent of the will of the have been occasioned. (Fish & Elective Co. v.
contractual basis for such conclusion. debtor; (b) the event must be either Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49
unforeseeable or unavoidable; (c) the event must O.G. 4379; Limpangco & Sons v. Yangco
Thus, on September 21, 1971, the lower court be such as to render it impossible for the debtor Steamship Co., 34 Phil. 594, 604; Lasam v.
rendered the assailed decision which was to fulfill his obligation in a normal manner; and Smith, 45 Phil. 657)
modified by the Intermediate Appellate Court on (d) the debtor must be free from any
November 28, 1977. participation in, or aggravation of the injury to QUASI-DELICTS; NEGLIGENCE
the creditor. (Vasquez v. Court of Appeals, 138 EQUIVALENT TO BAD FAITH; The
All the parties herein appealed from the decision SCRA 553; Estrada v. Consolacion, 71 SCRA aforementioned facts clearly indicate the wanton
of the Intermediate Appellate Court. 423; Austria v. Court of Appeals, 39 SCRA 527; negligence of both the defendant and the third-
Hence, these petitions. Republic of the Phil. v. Luzon Stevedoring party defendants in effecting the plans, designs,
Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. specifications, and construction of the PBA
On May 11, 1978, the United Architects of the 657). The principle embodied in the act of God building and We hold such negligence as
Philippines, the Association of Civil Engineers, doctrine strictly requires that the act must be one equivalent to bad faith in the performance of
and the Philippine Institute of Architects filed occasioned exclusively by the violence of nature their respective tasks. Relative thereto, the ruling
with the Court a motion to intervene as amicus and all human agencies are to be excluded from of the Supreme Court in Tucker v. Milan (49
curiae. The motion having been granted, the creating or entering into the cause of the O.G. 4379 ,4380) which may be in point in this
amicus curiae were granted mischief. case, reads: "One who negligently creates a
dangerous condition cannot escape liability for
Issue: Whether or not an act of God, an INSTANCES WHEN THE RULE DOES NOT the natural and probable consequences thereof,
unusually strong earthquake which caused APPLY. When the effect, the cause of which although the act of a third person, or an act of
the failure of the building, exempts from is to be considered, is found to be in part the God for which he is not responsible, intervenes
liability, parties who are otherwise liable result of the participation of man, whether it be to precipitate the loss."
because of their negligence. from active intervention or neglect, or failure to
act, the whole occurrence is thereby humanized, Republic v Luzon Stevedoring
Ruling: The petition is denied. as it were, and removed from the rules Facts: In the early afternoon of August 17,
CIVIL LAW; ACT OF GOD; DEFINED. An applicable to the acts of God. (1 Corpus Juris, 1960, barge L-1892, owned by the Luzon
act of God has been defined as an accident, due pp. 1174-1175) Thus, if upon the happening of a Stevedoring Corporation was being towed down
directly and exclusively to natural causes fortuitous event or an act of God, there concurs a the Pasig river by tugboats "Bangus" and
without human intervention, which by no corresponding fraud, negligence, delay or "Barbero," also belonging to the same
amount of foresight, pains or care, reasonably to violation or contravention in any manner of the corporation, when the barge rammed against one
have been expected, could have been prevented. tenor of the obligation as provided for in Article of the wooden piles of the Nagtahan bailey
1170 of the Civil Code, which results in loss or bridge, smashing the posts and causing the
GENERAL RULE; REQUISITES TO EXEMPT damage, the obligor cannot escape liability. It bridge to list. The river, at the time, was swollen
OBLIGOR FROM LIABILITY. The general has also been held that when the negligence of a and the current swift, on account of the heavy
rule is that no person shall be responsible for person concurs with an act of God in producing downpour in Manila and the surrounding
events which could not be foreseen or which, a loss, such person is not exempt from liability provinces
though foreseen, were inevitable (Article 1174, by showing that the immediate cause of the
New Civil Code). To exempt the obligor from damage was the act of God. To be exempt from
Sued by the Republic of the Philippines for additional evidence of damages after said party that the event should not have been foreseen or
actual and consequential damage caused by its had rested its case. anticipated, as is commonly believed but it must
employees, amounting to P200,000 (Civil Case be one impossible to foresee or to avoid. The
No. 44562, CFI of Manila), defendant Luzon Ruling: The petition is denied. mere difficulty to foresee the happening is not
Stevedoring Corporation disclaimed liability impossibility to foresee the same. The very
therefor, on the grounds that it had exercised due As to the first question considering that the measures adopted by appellant prove that the
diligence in the selection and supervision of its Nagtahan bridge was an immovable and possibility of danger was not only foreseeable,
employees; that the damages to the bridge were stationary object and uncontrovertedly provided but actually foreseen, and was not caso fortuito.
caused by force majeure; that plaintiff has no with adequate openings for the passage of water
capacity to sue; and that the Nagtahan bailey craft, including barges like of appellant's, it is Otherwise state, the appellant, Luzon
bridge is an obstruction to navigation undeniable that the unusual event that the barge, Stevedoring Corporation, knowing and
exclusively controlled by appellant, rammed the appreciating the perils posed by the swollen
After due trial, the court rendered judgment on bridge supports raises a presumption of stream and its swift current, voluntarily entered
June 11, 1963, holding the defendant liable for negligence on the part of appellant or its into a situation involving obvious danger; it
the damage caused by its employees and employees manning the barge or the tugs that therefore assumed the risk, and can not shed
ordering it to pay plaintiff the actual cost of the towed it. For in the ordinary course of events, responsibility merely because the precautions it
repair of the Nagtahan bailey bridge which such a thing does not happen if proper care is adopted turned out to be insufficient. Hence, the
amounted to P192,561.72, with legal interest used. In Anglo American Jurisprudence, the lower Court committed no error in holding it
thereon from the date of the filing of the inference arises by what is known as the "res negligent in not suspending operations and in
complaint. Hence this petition. ipsa loquitur" rule holding it liable for the damages caused.

However, it must be recalled that the established The appellant strongly stresses the precautions It avails the appellant naught to argue that the
rule in this jurisdiction is that when a party taken by it on the day in question: that it dolphins, like the bridge, were improperly
appeals directly to the Supreme Court, and assigned two of its most powerful tugboats to located. Even if true, these circumstances would
submits his case there for decision, he is deemed tow down river its barge L-1892; that it assigned merely emphasize the need of even higher
to have waived the right to dispute any finding to the task the more competent and experienced degree of care on appellant's part in the situation
of fact made by the trial Court. The only among its patrons, had the towlines, engines and involved in the present case. The appellant,
questions that may be raised are those of law equipment double-checked and inspected' that it whose barges and tugs travel up and down the
(Savellano vs. Diaz, L-17941, July 31, instructed its patrons to take extra precautions; river everyday, could not safely ignore the
1963; Aballe vs. Santiago, L- 16307, April 30, and concludes that it had done all it was called danger posed by these allegedly improper
1963, G.S.I.S. vs. Cloribel, L-22236, June 22, to do, and that the accident, therefore, should be constructions that had been erected and, in place,
1965) held due to force majeure or fortuitous event. for years.

Issue: These very precautions, however, completely CASO FORTUITO, INVOCATION OF.
Whether or not the collision of appellant's barge destroy the appellant's defense. For caso Where appellant adopted precautionary
with the supports or piers of the Nagtahan bridge fortuito or force majeure (which in law are measures by assigning two of its most powerful
was in law caused by fortuitous event or force identical in so far as they exempt an obligor tugboats to tow its barge down river and by
majeure, and from liability) 2 by definition, are extraordinary assigning its more competent and experienced
events not foreseeable or avoidable, "events that patrons to take care of the towlines, who were
Whether or not it was error for the Court to have could not be foreseen, or which, though instructed to take precautions; and where the
permitted the plaintiff-appellee to introduce foreseen, were inevitable" (Art. 1174, Civ. Code engines and equipment had been double-checked
of the Philippines). It is therefore, not enough and unspected so that it had done all it could do
to prevent an accident, said appellant cannot invoke caso the lower court to dismiss such a suit as no liability could Philippines dispels any doubt that what is therein
fortuito or force majeure, as the possibility of danger was have been incurred as a result of a fortuitous event and the contemplated is the resulting liability even if caused by a
not only foreseeable, but actually foreseen. Otherwise other being its failure to award damages against plaintiff fortuitous event where the party charged may be considered
stated, appellant, knowing or appreciating the perils posed for the unwarranted inclusion of the wife and the father in as having assumed the risk incident in the nature of the
by the swollen stream and its swift current, voluntarily this litigation obligation to be performed.
entered into a situation involving obvious danger; it
therefore assumed the risk, and cannot shed responsibility Issue: Whether or not Laureano is liable for the damages? EXPLAINED. Caso fortuito or force majeure (which in
merely because the precautions it adopted turned out to be law are identical in so far as they exempt an obligor from
insufficient. Ruling: The petition is denied. liability) by definition, are extraordinary events not
foreseeable or avoidable, events that could not be foreseen,
Dioquino v Laureano CIVIL LAW; OBLIGATIONS AND CONTRACTS; or which, though foreseen, were or anticipated, as is
Facts: FORTUITOUS EVENT; NO RESPONSIBILITY commonly believed, but it must be one impossible to
Attorney Pedro Dioquino, a practicing lawyer of Masbate, THEREFOR. The express language of Article 1174 of foresee or to avoid. The mere difficulty to foresee the
is the owner of a car. On March 31, 1964, he went to the the present Civil Code which is a restatement of Article happening is not impossibility to foresee the same: "un
office of the MVO, Masbate, to register the same. He met 1105 of the Old Civil Code, except for the addition of the hecho no constituye caso fortuito por la sola circunstancia
the defendant Federico Laureano, a patrol officer of said nature of an obligation requiring the assumption of risk de que su existencia haga mas dificilo mas onerosa la
MVO office, who was waiting for a jeepney to take him to reads thus: "Except in cases expressly specified by law, or accion diligente del presente ofensor." (Peirano Facio,
the office of the Provincial Commander. PC, Masbate. when it is otherwise declared by stipulation, or when the Responsibilidad Extra-contractual, p. 465; Mezand, Traite
Attorney Dioquino requested the defendant Federico nature of the obligation requires the assumption of risk, no dela Responsibilite Civile, Vol. 2, Sec. 1569)
Laureano to introduce him to one of the clerks in the MVO person shall be responsible for those events which could
Office, who could facilitate the registration of his ear and not be foreseen, or which though foreseen were inevitable. ASSUMPTION OF RISK; CASE OF REPUBLIC vs.
the request was graciously attended to. Defendant Laureano BASIS. Its basis, as Justice Moreland stressed, is the LUZON STEVEDORING
rode on the car of Atty. Dioquino on his way to the P.C. Roman law principle major casus est, cui humana CORP. DISTINGUISHED FROM INSTANT CASE. In
Barracks at Masbate. While about to reach their destination, infirmintas resistere non potest. the case of Republic vs. Luzon
the car driven by plaintiff's driver and with defendant Stevedoring Corp., appellant took all the precautions
Federico Laureano as the sole passenger, was stoned by CONCERNING OBLIGATION ARISING FROM necessary for safety however, these very precautions
some 'mischievous boys,' and its windshield was broken. CONTRACT. Authorities of repute are in agreement, completely destroy the appellant's defense force majeure.
Defendant Federico Laureano chased the boys and he was more specifically considering an obligation arising from In that instant case then, the risk was quite evident and the
able to catch one of them The boy was taken to Atty. contract "that some extraordinary circumstance nature of the obligation such that a party could rightfully be
Dioquino [and] admitted having thrown the stone that independent of the will of the obligor, or of his employees, deemed as having assumed it. It is not so in the instant case.
broke the car's windshield. The plaintiff and the defendant is an essential element of a caso fortuito." If it could be It is anything but that. If the lower court, therefore, were
Federico Laureano with the boy returned to the P.C. shown that such indeed was the case, liability is ruled out. duly mindful of what this particular legal provision
barracks and the father of the boy was called, but no There is no requirement of "diligence beyond what human contemplates, it could not have reached the conclusion that
satisfactory arrangements [were] made about the damage to care and foresight can provide." defendant Federico Laureano could beheld liable. To
the windshield repeat, that was clear error on its part.
The defendant Federico Laureano refused to pay the INSTANT CASE. Where, as in the instant case, the car RIGHT TO DAMAGES FOR WRONG INCLUSION OF
windshield himself and challenged that the case be brought borrowed by defendant from plaintiff and driven by the PARTIES IN COMPLAINT;
to court for judicial adjudication. There is no question that latter's driver and with defendant as the sole passenger NOT ALLOWED IN INSTANT CASE. As regards
the plaintiff tried to convince the defendant, Federico while on the way to the P.C. Barracks at Masbate, was appellant's position to have plaintiff pay damages for
Laureano just to pay the value of the windshield and he stoned by some mischievous boys and its windshield was having joined appellant's wife and father-in-law in the
even came to the extent of asking the wife to convince her broken, said defendant should not be liable for such complaint, We are not disposed to view the matter thus:
husband to settle the matter amicably but the defendant damages for what happened was clearly unforeseen. It was "Considering the equities of the situation, plaintiff having
Federico Laureano refused to make any settlement, clinging fortuitous event resulting in a loss which must be borne by suffered a pecuniary loss which, while resulting from a
[to] the belief that he could not be held liable because a the owner of the car. An element of reasonableness in the fortuitous event, perhaps would not have occurred at all had
minor child threw a stone accidentally on the windshield law would be manifestly lacking if, on the circumstances as not defendant Federico Laureano borrowed his car, we feel
and therefore, the same was due to force majeure. thus disclosed, legal responsibility could be imputed to an that he is not to be penalized further by his mistaken view
individual in the situation of defendant Laureano. Article of the law including them in his complaint.
Plaintiff prevailed in the lower court, the judgment 1174 of the Civil Code guards against the possibility of its
however going only against the principal defendant, his being visited with such reproach. Austria v CA
spouse and his father being absolved of any responsibility. Facts:
Nonetheless, all three of them appealed directly to us, ARTICLE 1174 PRESENT CIVIL CODE CONSTRUED. In a receipt dated 30 January 1961, Maria G. Abad
raising two questions of law, the first being the failure of The very wording of Article 1174, Civil Code of the acknowledged having received from
Guillermo Austria one (1) pendant with diamonds valued at the event must be independent of the human will (or rather, robbery in question did take place, for at that time
P4,500.00, to be sold on commission basis or to be returned of the debtor's or obligor's); (2) the occurrence must render criminality had not by far reached the levels attained in the
on demand. On 1 February 1961, however while walking it impossible for the present day.
home to her residence in Mandaluyong, Rizal, Abad was debtor to fulfill the obligation in a normal manner; and that
said to have been accosted by two men, one of whom hit (3) the obligor must be free of participation in, or Yobido v CA
her on the face, while the other snatched her purse aggravation of, the injury to the creditor. A fortuitous Facts:
containing jewelry and cash, and ran away. Among the event, therefore, can be produced by nature, e.g., On April 26, 1988, spouses Tito and Leny Tumboy and
pieces of jewelry allegedly taken by the robbers was the earthquakes, storms, floods, etc., or by the act of man, such their minor children, Ardee and
consigned pendant. The incident became the subject of a as war, attack by bandits, robbery, etc., provided that the Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido
criminal case filed in the Court of First Instance of Rizal event has all the characteristics enumerated above. bus bound for Davao City. Along
against certain persons Picop road in Km. 17, Sta. Maria, Agusan del Sur, the left
FOR ROBBERY TO CONSTITUTE A FORTUITOUS front tire of the bus suddenly exploded. The bus fell into a
After due hearing, the trial court rendered judgment for the EVENT, IT IS NOT REQUIRED THAT THE ACCUSED ravine around three (3) feet from the road and struck a tree
plaintiff, and ordered defendants spouses, jointly and IN THE ROBBERY CASE BE FIRST CONVICTED; which resulted in the death of Tito Tumboy and physical
severally, to pay to the former the sum of P4,500.00, with REASON. The point at issue in this proceeding is how injuries to other passengers.
legal interest thereon, plus the amount of P450.00 as the fact of robbery is to be established in order that a person Thereafter, a complaint for breach of contract of carriage,
reasonable attorneys' fees, and the costs. It was held that may avail of the exempting provision of Article 1174 of the damages and attorney's fees was filed by Leny and her
defendants failed to prove the fact of robbery, or, if indeed new Civil Code, which reads as follows: . . It may be noted children against Alberta Yobido, the owner of the bus, and
it was committed, that defendant Maria Abad was guilty of therefrom that the emphasis of the provision is on the Cresencio Yobido, its driver in the Regional Trial Court of
negligence when she went home without any companion, events, not on the agents or factors responsible for them. To Davao City. After trial, the lower court rendered a decision
although it was already getting dark and she was carrying a avail of the exemption granted in the law, it is not dismissing the action for lack of merit. Respondents
large amount of cash and valuables on the day in question, necessary that the persons responsible for the occurrence appealed to the Court of Appeals. On August 23, 1993,
and such negligence did not free her from liability for should be found or punished; it would only be sufficient to respondent court rendered a decision reversing that of the
damages for the loss of the jewelry establish that the unforeseeable event, the robbery in this lower court. In this instant petition, petitioners assert that
case, did take place without any concurrent fault on the the tire blowout that caused the death of Tito Tumboy was
Not satisfied with his decision, the defendants went to the debtor's part, and this can be done by preponderant a caso fortuito and herein respondent court misapprehended
Court of Appeals, and there secured a reversal of the evidence. To require in the present action for recovery the the facts of the case, therefore, its findings cannot be
judgment. The appellate court, overruling the finding of the prior conviction of the culprits in the criminal case, in order considered final which shall bind the Court
trial court on the lack of credibility of the two defense to establish the robbery as a fact, would be to demand proof
witnesses who testified on the occurrence of the robbery, beyond reasonable doubt to prove a fact in a civil case. Issue: Whether or not Yobido is liable for damages
and holding that the facts of robbery and defendant Maria
Abad's possession of the pendant on that unfortunate day THE COMMISSION AGENT WHO TRAVELED Ruling: The petition is denied.
have been duly established, declared respondents not ALONE AT NIGHT 1961 IS The Supreme Court ruled that there is no reason to overturn
responsible for the loss of the jewelry on account of a NOT NEGLIGENT AND NOT RESPONSIBLE FOR THE the findings and conclusions of the Court of Appeals.
fortuitous event, and relieved them from liability for LOSS DUE TO ROBBERY OF JEWELRY RECEIVED Petitioners' contention that they are exempted from liability
damages to the owner. Plaintiff thereupon instituted the ON CONSIGNMENT; IT IS OTHER WISE IN 1971; because the tire blowout was a fortuitous event that could
present proceeding. CASE AT BAR. It is undeniable that in order to not have been foreseen, must fail. It is settled that an
completely exonerate the debtor for reason of a fortuitous accident caused either by defects in the automobile or
It is petitioner's theory that for robbery to fall under the event, such debtor must, in addition to the casus itself, be through the negligence of its driver is not a caso fortuito
category of a fortuitous event and relieve the obligor from free of any concurrent or contributory fault or negligence. that would exempt the carrier from liability for damages.
is obligation under a contract, pursuant to Article 1174 of This is apparent from Article 1170 of the Civil Code of the Accordingly, the challenged decision is affirmed subject to
the new Civil Code, there ought to be prior finding on the Philippines, providing that: . . It is clear that under the modification that petitioners shall additionally pay herein,
guilt of the persons responsible there for. circumstances prevailing at present in the City of Manila respondents P20,000.00 as exemplary damages.
and its suburbs, with their high incidence of crimes against
Issue: Whether or not Abad is liable to Austria persons and property, that renders travel after nightfall a CIVIL LAW; OBLIGATIONS AND CONTRACTS;
matter to be sedulously avoided without suitable precaution FORTUITOUS EVENT;
Rulings: The petition is denied. and protection, the conduct of respondent Maria G. Abad, CHARACTERISTICS THEREOF. A fortuitous event is
in returning alone to her house in the evening, carrying possessed of the following characteristics: (a) the cause of
CIVIL LAW; OBLIGATIONS; REQUISITES OF jewelry of considerable value, would be negligent per se, the unforeseen and unexpected occurrence, or the failure of
FORTUITOUS EVENT. It is recognized in this and would not exempt her from responsibility in the case of the debtor to comply with his obligations must be
jurisdiction that to constitute a caso fortuito that would a robbery. We are not persuaded, however, that the same independent of human will; (b) it must be impossible to
exempt a person from responsibility, it is necessary that (1) rule should obtain ten years previously, in 1961, when the foresee the event which constitutes the caso fortuito, or if it
can be foreseen, it must be impossible to avoid; (c) the caso fortuito that would exempt the carrier from liability However, the same damages may be recovered when
occurrence must be such as to render it impossible for the for damages. breach of contract of carriage results in the death of a
debtor to fulfill his obligation in a normal manner; and (d) passenger, as in this case.
the obligor must be free from any participation in the PROOF THAT THE TIRE WAS NEW AND OF GOOD
aggravation of the injury resulting to the creditor. As QUALITY IS NOT SUFFICIENT PROOF THAT EXEMPLARY DAMAGES; RESPONDENTS ARE
Article 1174 provides, no person shall be responsible for a PETITIONER IS NOT NEGLIGENT. It was incumbent ENTITLED TO P20,000.00 AS EXEMPLARY
fortuitous event which could not be foreseen, or which, upon the defense to establish that it took precautionary DAMAGES BECAUSE PETITIONER IS DEEMED TO
though foreseen was inevitable. In other words, there must measures considering partially dangerous condition of the HAVE ACTED RECKLESSLY. Exemplary damages,
be an entire exclusion of human agency from the cause of road. As stated above, proof that the tire was new and of awarded by way of example or correction for the public
injury or loss. good quality is not sufficient proof that it was not good when moral damages are awarded, may likewise be
negligent. Petitioners should have shown that it undertook recovered in contractual obligations if the defendant acted
COMMON CARRIER; WHEN A PASSENGER IS extraordinary diligence in the care of its carrier such as in wanton, fraudulent, reckless, oppressive, or malevolent
INJURED OR DIES WHILE conducting daily routinary check-ups of the vehicle's parts. manner. Because petitioners failed to exercise the
TRAVELLING, THE LAW PRESUMES THAT THE As the late Justice J.B.L. Reyes said: "It may be extraordinary diligence required of a common carrier,
COMMON CARRIER IS NEGLIGENT. When a impracticable, as appellee argues, to require of carriers to which resulted in the death of Tito Tumboy, it is deemed to
passenger boards a common carrier, he takes the risks test the strength of each and every part of its vehicles have acted recklessly. As such, private respondents shall be
incidental to the mode of travel he has taken. After all, a before each trip, but we are of the opinion that a due regard entitled to exemplary damages in the amount of P20,000.00
carrier is not an insurer of the safety of its passengers and is for the carrier's obligations toward the traveling public
not bound absolutely and at all events to carry them safely demands adequate periodical tests to determine the Phil Free Press v CA
and without injury. However, when a passenger is injured condition and strength of those vehicle portions the failure Facts: A domestic corporation engaged in the publication
or dies while travelling, the law presumes that the common of which may endanger the safety of the passengers." of Philippine Free Press Magazine, one of the widely
carrier is negligent. . . . Article 1755 provides that "(a) circulated political magazines in the Philippines.
common carrier is bound to carry the passengers safely as PRESENCE OF CONTRADICTORY FACTS MUST BE
far as human care and foresight can provide, using the RESOLVED IN FAVOR OF LIABILITY IN VIEW OF During the 1965 presidential elections, [petitioner]
utmost diligence of very cautious persons, with a due THE PRESUMPTION OF NEGLIGENCE OF THE supported the late President Diosdado Macapagal against
regard for all the circumstances." CARRIER IN THE LAW; CASE AT BAR. It is then Senate President Ferdinand Marcos. Upon the election
Accordingly, the culpa contractual, once a passenger dies interesting to note that petitioners proved through the bus of the late President Ferdinand Marcos in 1965 and prior to
or is injured the carrier is presumed to have been at fault or conductor, Salce, that the bus was running at "60-50" the imposition of Martial law on September 21, 1972,
to have acted negligently. This disputable presumption may kilometers per hour only within the prescribed lawful speed [petitioner] printed numerous articles highly critical of the
only be overcome by evidence that the carrier had observed limit. However, they failed to rebut the testimony of Leny Marcos administration, exposing the corruption and abuses
extraordinary diligence as prescribed by Articles 1733, Tumboy that the bus was running so fast that she cautioned of the regime. The [petitioner] likewise ran a series of
1755 and 1756 of the Civil Code or that the death or injury the driver to slow down. These contradictory facts must, articles exposing the plan of the Marcoses to impose a
of the passenger was due to a fortuitous event. therefore, be resolved in favor of liability in view of the dictatorship in the guise of Martial Law
Consequently, the court need not make an express finding presumption of negligence of the carrier in the law.
of fault or negligence on the part of the carrier to hold it In the evening of September 20, 1972, soldiers surrounded
responsible for damages sought by the passenger. DAMAGES; FOR THE DEATH OF A PASSENGER, the Free Press Building, forced out its employees at
THE HEIRS ARE ENTITLED gunpoint and padlocked the said establishment. The soldier
AN ACCIDENT CAUSED EITHER BY DEFECTS IN TO P50,000.00. Having failed to discharge its duty to in charge of the military contingent then informed Teodoro
THE AUTOMOBILE OR overthrow the presumption of negligence with clear and Locsin, Jr., the son of Teodoro Locsin, Sr., the President of
THROUGH THE NEGLIGENCE OF ITS DRIVER IS convincing evidence, petitioners are hereby held liable for [petitioner], that Martial Law had been declared and that
NOT A CASO FORTUITO THAT WOULD EXEMPT damages. Article 1764 in relation to Article 2206 of the they were instructed by the late President Marcos to take
THE CARRIER FROM LIABILITY FOR DAMAGES. Civil Code prescribes the amount of at least three thousand over the building and to close the printing press.
The explosion of the new tire may not be considered a pesos as damages for the death of a passenger. Under
fortuitous event. There are human factors involved in the prevailing jurisprudence, the award of damages under Sometime during the middle of 1973, Locsin, Sr. was
situation. The fact that the tire was new did not imply that it Article 2206 has been increased to fifty thousand pesos contacted by Brig. Gen. Hans Menzi, the former aide-de-
was entirely free from manufacturing defects or that it was (P50,000.00). camp of then President Marcos concerning the sale of the
properly mounted on the vehicle. Neither may the fact that (petitioner)
the tire bought and used in the vehicle is of a brand name MORAL DAMAGES; RECOVERABLE WHEN THERE
noted for quality, resulting in the conclusion that it could IS A BREACH OF CONTRACT OF CARRIAGE Locsin, Sr. refused but Menzi insisted that he had no choice
not explode within five days' use. Be that as it may, it is RESULTING IN THE DEATH OF A PASSENGER. but to sell. Locsin, Sr. then made a counteroffer that he will
settled that an accident caused either by defects in the Moral damages are generally not recoverable in culpa sell the land, the building and all the machineries and
automobile or through the negligence of its driver is not a contractual except when bad faith had been proven. equipment therein but he will be
allowed to keep the name of the [petitioner]. Menzi Teodoro Locsin, Sr. and his family and other menacing length on the vitiation issue and, relative thereto, ascribes
promised to clear the matter with then President Marcos effects of martial law which should be considered as the following errors to the appellate court:first, in
(TSN, 27 May 1993, p. 72). Menzi thereafter contacted force majeure ceased only after the February 25, 1986 considering as hearsay the testimonial evidence that may
Locsin, Sr. and informed him that President Marcos was People Power uprising. prove the element of "threat" against petitioner or Mr.
amenable to his counteroffer and is offering the purchase Locsin, Sr., and the dictatorial regime's use of private
price of Five Million Seven Hundred Fifty Thousand Issue: Did the 4-year prescriptive period start to run in late respondent as a corporate vehicle for forcibly acquiring
(P5,750,000.00) Pesos for the land, the building, the October 1973, as postulated in the decision subject of petitioner's properties; second, in concluding that the acts
machineries, the office furnishing and the fixtures of the review, or on February 25, 1986, as petitioner argues, on of then President Marcos during the martial law years did
[petitioner] on a "take-it-or-leave-it" basis the theory that martial law has the effects of a force not have a consent-vitiating effect on petitioner; and third,
majeure which, in turn, works to suspend the running of the in resolving the case on the basis of mere surmises and
On August 22, 1973, Menzi tendered to Locsin, Sr. a check prescriptive period for the main case speculations.
for One Million (P1,000,000.00) Pesos downpayment for filed with the trial court.
the sale, . . . Locsin, Sr. accepted the check, subject to the The evidence referred to as hearsay pertains mainly to the
condition that he will refund the same in case the sale will Ruling: The petition is denied. testimonies of Messrs. Locsin, Sr. and Teodoro Locsin, Jr.
not push through (the Locsins, collectively), which, in gist, established the
*It strains credulity to believe that petitioner found it following facts: 1) the widely circulated Free Press
On August 23, 1973, the Board of Directors of [petitioner] impossible to commence and succeed in an annulment suit magazine, which, prior to the declaration of Martial Law,
held a meeting and reluctantly passed a resolution during the entire stretch of the dictatorial regime. The Court took the strongest critical stand against the Marcos
authorizing Locsin, Sr. to sell the assets of the [petitioner] can grant that Mr. Locsin, Sr. and petitioner were, in the administration, was closed down on the eve of such
to Menzi minus the name "Philippine Free Press context of DBP and Tan, "true oppositionists" during the declaration, which closure eventually drove petitioner to
period of material law. Petitioner, however, has failed to financial ruin; 2) upon Marcos' orders, Mr. Locsin, Sr. was
On October 23, 1973, the parties [petitioner, as vendor and convincingly prove that Mr. Locsin, Sr., as its then arrested and detained for over 2 months without charges
private respondent, represented by B/Gen. Menzi, as President, and/or its governing board, were so and, together with his family, was threatened with
vendee] met . . . and executed two (2) notarized Deeds of circumstanced that it was well-nigh impossible for execution; 3) Mr. Locsin, Sr. was provisionally released on
Sale covering the land, building and the machineries of the him/them to successfully institute an action during the the condition that he refrains from reopening Free Press
[petitioner]. Menzi paid the balance of the purchase price in martial law years. Petitioner cannot plausibly feign and writing anything critical of the Marcos administration;
the amount of . . . (P4,750,000.00) Pesos ignorance of the fact that shortly after his arrest in the and 4) Mr. Locsin, Sr. and his family remained fearful of
evening of September 20, 1972, Mr. Locsin, Sr., together reprisals from Marcos until the 1986 EDSA Revolution.
Locsin, Sr. thereafter used the proceeds of the sale to pay with several other journalists, dared to file suits against Per the Locsins, it was amidst the foregoing circumstances
the separation pay of [petitioner's] employees, buy out the powerful figures of the dictatorial regime and veritably that petitioner's property in question was sold to private
shares of the minority stockholders as well as to settle all challenged the legality of the declaration of martial law. respondent, represented by Gen. Menzi, who, before the
its obligations. Docketed in this Court as GR No. L-35538, the case, after sale, allegedly applied the squeeze on Mr. Locsin, Sr. thru
its consolidation with eight (8) other petitions against the the medium of the "Marcos cannot be denied" and "[you]
On February 26, 1987, [petitioner] filed a complaint for martial law regime, is now memorialized in books of have no choice but to sell" line
Annulment of Sale against [respondent] Liwayway and the jurisprudence and cited in legal publications and case
PCGG before the Regional Trial Court of Makati, Branch studies as Aquino vs. Enrile *Jurisprudence instructs that evidence of statement made or
146 on the grounds of vitiated consent and gross a testimony is hearsay if offered against a party who has no
inadequacy of purchase price. On motion of defendant Incidentally, Mr. Locsin Sr., as gathered from the ponencia opportunity to cross-examine the witness. Hearsay
PCGG, the complaint against it was dismissed on October of then Chief Justice Querube Makalintal in Aquino, was evidence is excluded precisely because the party against
22, 1987. released from detention notwithstanding his refusal to whom it is presented is deprived of or is bereft of
withdraw from his petition in said case. Judging from the opportunity to cross-examine the persons to whom the
In a decision dated October 31, 1995, the trial court actuations of Mr. Locsin, Sr. during the onset of martial statements or writings are attributed. And there can be no
dismissed petitioner's complaint and granted private law regime and immediately thereafter, any suggestion that quibbling that because death has supervened, the late Gen
respondent's counterclaim intimidation or duress forcibly stayed his hands during the Menzi, like the other purported Marcos subalterns, Messrs.
dark days of martial law to seek judicial assistance must be Baizas and De Vega, cannot cross-examine the Locsins for
That was also affirmed by the Court of Appeals rejected the threatening statements allegedly made by them for the
late President.
Petitioner contends, that the 4-year prescriptive period Corollary to the presented issue of prescription of action for
could not have commenced to run on October 23, 1973, annulment of contract voidable on account of defect of The testimonies of Teodoro Locsin, Sr. and Teodoro
martial law being then in full swing. Plodding on, petitioner consent 14 is the question of whether or not duress, Locsin, Jr. that the late Atty. Baizas, Gen. Menzi and
avers that the continuing threats on the life of Mr. intimidation or undue influence vitiated the petitioner's Secretary de Vega stated that they were representing
consent to the subject contracts of sale. Petitioner delves at Marcos, that "Marcos cannot be denied", and the fact that
Gen. Menzi stated that private respondent Liwayway was even in the absence of the alleged intimidation and undue Petitioner's posture that its use of the proceeds of the sale
to be the corporate vehicle for the then influence because of the absence of other buyers. does not translate to tacit ratification of what it viewed as
President Marcos' take-over of petitioner Free Press are not voidable contracts of sale, such use being a "matter of [its
hearsay. Teodoro Locsin, Sr. and Teodoro Locsin, Jr. were *Petitioner's third assigned error centers on the gross financial] survival", 35 is untenable. As couched, Article
in fact testifying to matters of their own personal inadequacy of the purchase price, referring to the amount of 1393 of the Civil Code is concerned only with the act
knowledge because they were either parties to the said P5,775,000.00 private respondent paid for the property in which passes for ratification of contract, not the reason
conversation or were present at the time the said statements question. To petitioner, the amount thus paid does not even which actuated the ratifying person to act the way he did.
were made. approximate the actual market value of the assets and "Ubi lex non distinguit nec nos distinguere debemus. When
properties, 27 and is very much less than the P18 Million the law does not distinguish, neither should we.
Again, we disagree. Even if petitioner succeeds in halving offered by Eugenio Lopez.
its testimonial evidence, one-half purporting to quote the PhilComSat Corp. v Globe Telecom
words of a live witness and the other half purporting to Lest it be overlooked, gross inadequacy of the purchase Facts:
quote what the live witness heard from one already dead, price does not, as a matter of civil law, per se affect a For several years prior to 1991, Globe Mckay Cable and
the other pertaining to the dead shall nevertheless remain contract of sale. Article 1470 of the Civil Code says so. It Radio Corporation, now Globe Telecom, Inc. (Globe), had
hearsay in character. reads: Article 1470. Gross inadequacy of price does not been engaged in the coordination of the provision of
affect a contract of sale, except as it may indicate a defect various communication facilities for the military bases of
The all too familiar rule is that "a witness can testify only in the consent, or that the parties really intended a donation the United States of America (US) in Clark Air Base,
to those facts which he knows of his own knowledge". 20 or some other act or contract Angeles, Pampanga and Subic Naval Base in Cubi Point,
There can be no quibbling that petitioner's witnesses cannot Zambales. The said communication facilities were installed
testify respecting what President Marcos said to Gen. *Following the aforequoted codal provision, it behooves and configured for the exclusive use of the US Defense
Menzi about the acquisition of petitioner's newspaper, if petitioner to first prove "a defect in the consent", failing Communications Agency (USDCA), and for security
any there be, precisely because none of said witnesses ever which its case for annulment contract of sale on ground reasons, were operated only by its personnel or those of
had an opportunity to hear what the two talked about. gross inadequacy of price must fall. The categorical American companies contracted by it to operate said
conclusion of the Court of Appeals, confirmatory of that of facilities. The USDCA contracted with said American
Neither may petitioner circumvent the hearsay rule by the trial court, is that the price paid for the Free Press' companies, and the latter, in turn, contracted with Globe for
invoking the exception under the declaration-against- office building, and other physical assets is not the use of the communication facilities. Globe, on the other
interest rule. In context, the only declaration supposedly unreasonable to justify the nullification of the sale. This hand, contracted with local service providers such as the
made by Gen. Menzi which can conceivably be labeled as factual determination, predicated as it were on offered Philippine Communications Satellite Corporation
adverse to his interest could be that he was acting in behalf evidence, notably petitioner's Balance Sheet as of (Philcomsat) for the provision of the communication
of Marcos in offering to acquire the physical assets of November 30, 1972 (Exh. 13), must be accorded great facilities.
petitioner. Far from making a statement contrary to his own weight if not finality. 32
interest, a declaration conveying the notion that the On 07 May 1991, Philcomsat and Globe entered into an
declarant possessed the authority to speak and to act for the In the light of the foregoing disquisition, the question of Agreement whereby Philcomsat obligated itself to
President of the Republic can hardly be considered as a whether or not petitioner's undisputed utilization of the establish, operate and provide an IBS Standard B earth
declaration against interest. proceeds of the sale constitutes, within the purview of station (earth station) within Cubi Point for the exclusive
Article 1393 of the Civil Code, 33 implied ratification of use of the USDCA. 2 The term of the contract was for 60
Noteworthy is the fact that although the threat of arrest the contracts of sale need not detain us long. Suffice it to months, or five (5) years. 3 In turn, Globe promised to pay
hung over his head like the Sword of Damocles, Locsin Sr. state in this regard that the ruling of the Court of Appeals Philcomsat monthly rentals for each leased circuit involved
was still able to reject the offers of Atty. Baizas and on the matter is well-taken. Wrote the appellate court:
Secretary De Vega, both of whom were supposedly acting At the time of the execution of the Agreement, both parties
on behalf of the late President Marcos, without being *In the case at bench, Free Press's own witnesses admitted knew that the Military Bases Agreement between the
subjected to reprisals. In fact, the Locsins testified that the that the proceeds of the 1973 sale were used to settle the Republic of the Philippines and the US (RP-US Military
initial offer of Menzi was rejected even though it was claims of its employees, redeem the shares of its Bases Agreement), which was the basis for the occupancy
supposedly accompanied by the threat that "Marcos cannot stockholders and finance the company's entry into money- of the Clark Air Base and Subic Naval Base in Cubi Point,
be denied". Locsin, Sr. was, moreover, even able to secure market shareholdings and fishpond business activities was to expire in 1991.
a compromise that only the assets of the Free Press will be (TSN, 2 May 1988, pp. 16, 42-45). It need not be
sold. It is, therefore, quite possible that plaintiff-appellant's overemphasized that by using the proceeds in this manner, On 31 December 1991, the Philippine Government sent a
financial condition, albeit caused by the declaration of Free Press only too clearly confirmed the voluntaries of its Note Verbale to the US Government through the US
Martial Law, was a major factor in influencing Locsin, Sr. consent and ratified the sale. Needless to state, such Embassy, notifying it of the Philippines' termination of the
to accept Menzi's offer. It is not farfetched to consider that ratification cleanses the assailed contract from any alleged RPUS Military Bases Agreement. The Note Verbale stated
Locsin, Sr. would have eventually proceeded with the sale defects from the moment it was constituted (Art. 1396, that since the RP-US Military Bases Agreement, as
Civil Code). amended, shall terminate on 31 December 1992, the
withdrawal of all US military forces from Subic Naval majeure under the Agreement. Globe explained that the
Base should be completed by said date. occurrence of said events exempted it from paying rentals There is no merit is Philcomsat's argument that Section 8 of
for the remaining period of the Agreement. the Agreement cannot be given effect because the
In a letter dated 06 August 1992, Globe notified Philcomsat enumeration of events constituting force majeure therein
of its intention to discontinue the use of the earth station Both parties appealed the trial court's Decision to the Court unduly expands the concept of a fortuitous event under
effective 08 November 1992 in view of the withdrawal of of Appeals. Article 1174 of the Civil Code and is therefore invalid.
US military personnel from Subic Naval Base after the In support of its position, Philcomsat contends that under
termination of the RP-US Military Bases Agreement. Globe Philcomsat claimed that the trial court erred in ruling that: Article 1174 of the Civil Code, an event must be
invoked as basis for the letter of termination Section 8 (1) the non-ratification by the unforeseen in order to exempt a party to a contract from
(Default) of the Agreement, which provides: Senate of the Treaty of Friendship, Cooperation and complying with its obligations therein. It insists that since
Security and its Supplementary Agreements constitutes the expiration of the RP-US Military Bases Agreement, the
Neither party shall be held liable or deemed to be in default force majeure which exempts Globe from complying with non-ratification of the Treaty of Friendship, Cooperation
for any failure to perform its obligation under this its obligations under the Agreement; and Security and the withdrawal of US military forces and
Agreement if such failure results directly or indirectly from (2) Globe is not liable to pay the rentals for the remainder personnel from Cubi Point were not unforeseeable, but
force majeure or fortuitous event. Either party is thus of the term of the Agreement; were possibilities known to it and Globe at the time they
precluded from performing its obligation until such force (3) Globe is not liable to Philcomsat for exemplary entered into the Agreement, such events cannot exempt
majeure or fortuitous event shall terminate. For the purpose damages. Globe from performing its obligation of paying rentals for
of this paragraph, force majeure shall mean circumstances the entire five-year term thereof.
beyond the control of the party involved including, but not Globe, on the other hand, contended that the RTC erred in
limited to, any law, order, regulation, direction or request holding it liable for payment of rent of the earth station for However, Article 1174, which exempts an obligor from
of the Government of the Philippines, strikes or other labor December 1992 and of attorney's fees. It explained that it liability on account of fortuitous events or force majeure,
difficulties, insurrection riots, national emergencies, war, terminated Philcomsat's services on 08 November 1992; refers not only to events that are unforeseeable, but also to
acts of public enemies, fire, floods, typhoons or other hence, it had no reason to pay for rentals beyond that date. those which are foreseeable, but inevitable
catastrophies or acts of God.
On 27 February 2001, the Court of Appeals promulgated its A fortuitous event under Article 1174 may either be an "act
Philcomsat sent a reply letter dated 10 August 1992 to Decision dismissing Philcomsat's appeal for lack of merit of God," or natural occurrences such as floods or typhoons,
Globe, stating that "we expect [Globe] to know its and affirming the trial court's finding that certain events 24 or an "act of man," such as riots, strikes or wars.
commitment to pay the stipulated rentals for the remaining constituting force majeure under Section 8 the Agreement
terms of the Agreement even after [Globe] shall have occurred and justified the non-payment by Globe of rentals Philcomsat and Globe agreed in Section 8 of the
discontinue[d] the use of the earth station after November for the remainder of the term of the Agreement. Agreement that the following events shall be deemed
08, 1992." 7 Philcomsat referred to Section 7 of the events constituting force majeure
Agreement However, the Court of Appeals ruled that although Globe
sought to terminate Philcomsat's services by 08 November Furthermore, under Article 1306 26 of the Civil Code,
After the US military forces left Subic Naval Base, 1992, it is still liable to pay rentals for the December 1992, parties to a contract may establish such stipulations,
Philcomsat sent Globe a letter dated 24 November 1993 amounting to US$92,238.00 plus interest, considering that clauses, terms and conditions as they may deem fit, as long
demanding payment of its outstanding obligations under the US military forces and personnel completely withdrew as the same do not run counter to the law, morals, good
the Agreement amounting to US$4,910,136.00 plus interest from Cubi Point only on 31 December 1992. customs, public order or public policy.
and attorney's fees. However, Globe refused to heed Article 1159 of the Civil Code also provides that
Philcomsat's demand. Issue: "[o]bligations arising from contracts have the force of law
(1) Whether the termination of the RPUS between the contracting parties and should be complied
On 27 January 1995, Philcomsat filed with the Regional Military Bases Agreement, the non-ratification of the with in good faith."Courts cannot stipulate for the parties
Trial Court of Makati a Complaint against Globe, praying Treaty of Friendship, Cooperation and Security, and the nor amend their agreement where the same does not
that the latter be ordered to pay liquidated damages under consequent withdrawal of US military forces and personnel contravene law, morals, good customs, public order or
the Agreement, with legal interest, exemplary damages, from Cubi Point constitute force majeure which would public policy, for to do so would be to alter the real intent
attorney's fees and costs of suit. The case was raffled to exempt Globe from complying with its obligation to pay of the parties, and would run contrary to the function of the
Branch 59 of said court. rentals under its Agreement with Philcomsat; courts to give force and effect thereto.
(2) Whether Globe is liable to pay rentals under the
Globe filed an Answer to the Complaint, insisting that it Agreement for the month of December 1992; and Not being contrary to law, morals, good customs, public
was constrained to end theAgreement due to the (3) Whether Philcomsat is entitled to attorney's fees and order, or public policy, Section 8 of the Agreement which
termination of the RP-US Military Bases Agreement and exemplary damages Philcomsat and Globe freely agreed upon has the force of
the nonratification by the Senate of the Treaty of law between them.
Friendship and Cooperation, which events constituted force Ruling: The petition is denied.
In order that Globe may be exempt from non-compliance Philcomsat is not entitled to attorney's fees and exemplary Inc. alleges that IMC and LSPI filed their claims under
with its obligation to pay rentals under Section 8, the damages. their respective fire insurance policies which it paid thus it
concurrence of the following elements must be established: was subrogated to their rights
(1) the event must be independent of the human will; (2) The award of attorney's fees is the exception rather than the
the occurrence must render it impossible for the debtor to rule, and must be supported by factual, legal and equitable Gaisano Cagayan, Inc: not be held liable because it was
fulfill the obligation in a normal manner; and (3) the justifications. In previously decided cases, the Court destroyed due to fortuities event or force majeure
obligor must be free of participation in, or aggravation of, awarded attorney's fees where a party acted in gross and
the injury to the creditor. evident bad faith in refusing to satisfy the other party's RTC: IMC and LSPI retained ownership of the delivered
claims and compelled the former to litigate to protect his goods until fully paid, it must bear the loss (res perit
The Court agrees with the Court of Appeals and the trial rights; when the action filed is clearly unfounded, or where domino)
court that the abovementioned requisites are present in the moral or exemplary damages are awarded. However, in
instant case. Philcomsat and Globe had no control over the cases where both parties have legitimate claims against CA: Reversed - sales invoices is an exception under Article
non-renewal of the term of the RP-US Military Bases each other and no party actually prevailed, such as in the 1504 (1) of the Civil Code to res perit domino
Agreement when the same expired in 1991, because the present case where the claims of both parties were
prerogative to ratify the treaty extending the life thereof sustained in part, an award of attorney's fees would not be Issue: W/N Insurance Company of North America can
belonged to the Senate. Neither did the parties have control warranted. claim against Gaisano Cagayan for the debt that was
over the subsequent withdrawal of the US military forces isnured
and personnel from Cubi Point in December 1992 Exemplary damages may be awarded in cases involving
contracts or quasi-contracts, if the erring party acted in a Held: YES. petition is partly GRANTED. order to pay
The aforementioned events made impossible the wanton, fraudulent, reckless, oppressive or malevolent P535,613 is DELETED
continuation of the Agreement until the end of its five-year manner. In the present case, it was not shown that Globe
term without fault on the part of either party. The Court of acted wantonly or oppressively in not heeding Philcomsat's Insurance policy is clear that the subject of the insurance is
Appeals was thus correct in ruling that the happening of demands for payment of rentals. It was established during the book debts and NOT goods sold and delivered to the
such fortuitous events rendered Globe exempt from the trial of the case before the trial court that Globe had customers and dealers of the insured
payment of rentals for the remainder of the term of the valid grounds for refusing to comply with its contractual
Agreement. Moreover, it would be unjust to require Globe obligations after 1992. ART. 1504. Unless otherwise agreed, the goods remain at
to continue paying rentals even though Philcomsat cannot the seller's risk until the ownership therein is transferred to
be compelled to perform its corresponding obligation under Gaisano Cagayan v Insurance Co. of North American the buyer, but when the ownership therein is transferred to
the Agreement. Article 1504,Article 1263, Article 2207 of the Civil the buyer the goods are at the buyer's risk whether actual
Code, Section 13 of Insurance Code delivery has been made or not, except that:
With respect to the issue of whether Globe is liable for
payment of rentals for the month of December 1992, the Facts: (1) Where delivery of the goods has been made to the
Court likewise affirms the appellate court's ruling that Intercapitol Marketing Corporation (IMC) is the maker of buyer or to a bailee for the buyer, in pursuance of the
Globe should pay the same Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc. contract and the ownership in the goods has been retained
(LSPI) is the local distributor of products bearing by the seller merely to secure performance by the buyer of
Although Globe alleged that it terminated the Agreement trademarks owned by Levi Strauss & Co his obligations under the contract, the goods are at the
with Philcomsat effective 08 November 1992 pursuant to buyer's risk from the time of such delivery;
the formal order issued by Cdr. Corliss of the US Navy, the IMC and LSPI separately obtained from Insurance
date when they actually ceased using the earth station Company of North America fire insurance policies for their IMC and LSPI did not lose complete interest over the
subject of the Agreement was not established during the book debt endorsements related to their ready-made goods. They have an insurable interest until full payment of
trial. 34 However, the trial court found that the US military clothing materials which have been sold or delivered to the value of the delivered goods. Unlike the civil law
forces and personnel completely withdrew from Cubi Point various customers and dealers of the Insured anywhere in concept of res perit domino, where ownership is the basis
only on 31 December 1992. 35 Thus, until that date, the the Philippines which are unpaid 45 days after the time of for consideration of who bears the risk of loss, in property
USDCA had control over the earth station and had the the loss insurance, one's interest is not determined by concept of
option of using the same. Furthermore, Philcomsat could title, but whether insured has substantial economic interest
not have removed or rendered ineffective said February 25, 1991: Gaisano Superstore Complex in in the property
communication facility until after 31 December 1992 Cagayan de Oro City, owned by Gaisano Cagayan, Inc.,
because Cubi Point was accessible only to US naval containing the ready-made clothing materials sold and Section 13 of our Insurance Code defines insurable interest
personnel up to that time. Hence, the Court of Appeals did delivered by IMC and LSPI was consumed by fire. as "every interest in property, whether real or personal, or
not err when it affirmed the trial court's ruling that Globe is any relation thereto, or liability in respect thereof, of such
liable for payment of rentals until December 1992. Neither February 4, 1992: Insurance Company of North America nature that a contemplated peril might directly damnify the
did the appellate court commit any error in holding that filed a complaint for damages against Gaisano Cagayan, insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) Failure to substantiate the claim of subrogation is fatal to having negligent or at fault for the shipment was already in
an existing interest; (b) an inchoate interest founded on petitioner's case for recovery of the amount of P535,613 damage and bad order condition when received by it, but
existing interest; or (c) an expectancy, coupled with an nonetheless, it still exercised extra ordinary care and
existing interest in that out of which the expectancy arises. Eastern Shipping Lines v CA diligence in he handling/delivery of the cargo to consignee
Facts: "On December 4, 1981, two fiber drums of in the same condition shipment was received by it.
Anyone has an insurable interest in property who derives a riboflavin were shipped from Yokohama, Japan for
benefit from its existence or would suffer loss from its delivery vessel `SS EASTERN COMET' owned by The appellate court rendered judgement in favor of the
destruction. defendant Eastern Shipping Lines under Bill of Lading No. respondent
YMA-8 (Exh. B). The shipment was insured under
It is sufficient that the insured is so situated with reference plaintiff's Marine Insurance Policy No. 81/01177 for Issue:
to the property that he would be liable to loss should it be P36,382,466.38. a) whether or not a claim for damage sustained on a
injured or destroyed by the peril against which it is insured shipment of goods can be a solidary, or joint and several,
"Upon arrival of the shipment in Manila on December 12, liability of the common carrier, the arrastre operator and the
An insurable interest in property does not necessarily imply 1981, it was discharged unto the custody of defendant customs broker;
a property interest in, or a lien upon, or possession of, the Metro Port Services, Inc. The latter excepted to one drum, (b) whether the payment of legal interest on an award of
subject said to be in bad order, which damage was unknown to loss or damage is to be computed from the time the
plaintiff. complaint is filed or from the date the decision appealed
Matter of the insurance, and neither the title nor a from is rendered; and
beneficial interest is requisite to the existence of such an "On January 7, 1982 defendant Allied Brokerage (c) whether the applicable rate of interest, referred to
interest Corporation received the shipment from defendant Metro above, is twelve percent (12%) or six percent (6%).
Port Service, Inc., one drum opened and without seal
Insurance in this case is not for loss of goods by fire but for Ruling: The petition is granted
petitioner's accounts with IMC and LSPI that remained "On January 8 and 14, 1982, defendant Allied Brokerage The common carrier's duty to observe the requisite
unpaid 45 days after the fire - obligation is pecuniary in Corporation made deliveries of the shipment to the diligence in the shipment of goods lasts from the time the
nature consignees' warehouse. The latter excepted to one drum articles are surrendered to or unconditionally placed in the
which contained spillages, while the rest of the contents possession of, and received by, the carrier for transportation
Obligor should be held exempt from liability when the loss was adulterated/fake (per 'Bad Order Waybill' No. 10649, until delivered to, or until the lapse of a reasonable time for
occurs thru a fortuitous event only holds true when the Exh. E). their acceptance, by the person entitled to receive them
obligation consists in the delivery of a determinate thing (Arts. 1736-1738, Civil Code)
and there is no stipulation holding him liable even in case "Plaintiff contended that due to the losses/damage sustained
of fortuitous event by said drum, the consignee suffered losses totaling When the goods shipped either are lost or arrive in
P19,032.95, due to the fault and negligence of defendants. damaged condition, a presumption arises against the carrier
Article 1263 of the Civil Code in an obligation to deliver a Claims were presented against defendants who failed and of its failure to observe that diligence, and there need not be
generic thing, the loss or destruction of anything of the refused to pay the same an express finding of negligence to hold it liable (Art.
same kind does not extinguish the obligation (Genus 1735, Civil Code)
nunquan perit) "As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the There are, of course, exceptional cases when such
The subrogation receipt, by itself, is sufficient to establish aforestated marine insurance policy, so that it became presumption of fault is not observed but these cases,
not only the relationship of respondent as insurer and IMC subrogated to all the rights of action of said consignee enumerated in Article 1734 1 of the Civil Code, are
as the insured, but also the amount paid to settle the against defendants exclusive, not one of which can be applied to this case.
insurance claim
"Defendants filed their respective answers, traversing the The question of charging both the carrier and the arrastre
Art. 2207. If the plaintiff's property has been insured, and material allegations of the compliant contending that: As operator with the obligation of properly delivering the
he has received indemnity from the insurance company for for defendant Eastern Shipping it alleged that the shipment goods to the consignee has, too, been passed upon by the
the injury or loss arising out of the wrong or breach of was discharged in good order from the vessel unto the Court. In Fireman's Fund Insurance vs. Metro Port Services
contract complained of, the insurance company shall be custody of Metro Port Service so that any damage/losses (182 SCRA 455), we have explained in holding the carrier
subrogated to the rights of the insured against the incurred after the shipment was incurred after the shipment and the arrastre operator liable in solidum.
wrongdoer or the person who has violated the contract. was turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment The legal relationship between the consignee and the
As to LSPI, no subrogation receipt was offered in evidence. was discharged unto its custody, portion of the same was arrastre operator is akin to that of a depositor and
already in bad order (p. 11, Record); Allied Brokerage warehouseman (Lua Kian v. Manila Railroad Co., 19
alleged that plaintiff has no cause of action against it, not SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee In the " first group ," the basic issue focus on the 2. When a obligation, not constituting a loan or forbearance
and the arrastre operator (Northern Motors, Inc. v. Prince application of either the 6% (under the Civil Code) or 12% of money, is breached, an interest on the amount of
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the (under the Central Bank Circular) interest per annum. It is damages awarded may be imposed at the discretion of the
ARRASTRE to take good care of the goods that are in its easily discernible in these cases that there has been a court 24 at the rate of 6% per annum. 25 No interest,
custody and to deliver them in good condition to the consistent holding that the Central Bank Circular imposing however, shall be adjudged on unliquidated claims or
consignee, such responsibility also devolves upon the the 12% interest per annum applies only to loans or damages except when or until the demand can be
CARRIER. Both the ARRASTRE and the CARRIER are forbearance 16 of money, goods or credits, as well as to established with reasonable certainty. Accordingly, where
therefore charged with the obligation to deliver the goods judgments involving such loan or forbearance of money, the demand is established with reasonable certainty, the
in goods condition to the consignee." goods or credits, and that the 6% interest under the Civil interest shall begin to run from the time the claim is made
Code governs when the transaction involves the payment of judicially or extrajudicially (Art. 1169, Civil Code) but
We do not, of course, imply by the above pronouncement indemnities in the concept of damage arising from the when such certainty cannot be so reasonably established at
that the arrastre operator and the customs broker are breach of a delay in the performance of obligations in the time the demand is made, the interest shall begin to run
themselves always and necessarily liable solidarily with the general. Observe, too, that in these cases, a common time only from the date of the judgment of the court is made (at
carrier, or vice-versa, nor that attendant facts in a given frame in the computation of the 6% interest per annum has which time the quantification of damages may be deemed
case may not vary the rule. The instant petition has been been applied, i.e., from the time the complaint is filed until to have been reasonably ascertained). The actual base for
brought solely by Eastern Shipping Lines which, being the the adjudged amount is fully paid. the computation of legal interest shall, in any case, be on
carrier and not having been able to rebut the presumption of the amount of finally adjudged.
fault, is, in any event, to be held liable in this particular The "second group ," did not alter the pronounced rule on
case. A factual finding of both the court a quo and the the application of the 6% or 12% interest per annum, 17 3. When the judgment of the court awarding a sum of
appellate court, we take note, is that "there is sufficient depending on whether or not the amount involved is a loan money becomes final and executory, the rate of legal
evidence that the shipment sustained damage while in the or forbearance, on the one hand, or one of indemnity for interest, whether the case falls under paragraph 1 or
successive possession of appellants" (the herein petitioner damage, on the other hand. Unlike, however, the "first paragraph 2, above, shall be 12% per annum from such
among them). Accordingly, the liability imposed on group" which remained consistent in holding that the finality until its satisfaction, this interim period being
Eastern Shipping Lines, Inc., the sole petitioner in this case, running of the legal interest should be from the time of the deemed to be by then an equivalent to a forbearance of
is inevitable regardless of whether there are others filing of the complaint until fully paid, the "second group" credit.
solidarily liable with it. varied on the commencement of the running of the legal
interest. WHEREFORE, the petition is partly GRANTED. The
"Interest upon an obligation which calls for the payment of appealed decision is AFFIRMED with the
money, absent a stipulation, is the legal rate. Such interest I. When an obligation, regardless of its source, i.e., law, MODIFICATION that the legal interest to be paid is SIX
normally is allowable from the date of demand, judicial or contracts, quasi-contracts, delicts or quasi-delicts 18 is PERCENT(6%) on the amount due computed from the
extrajudicial. The trial court opted for judicial demand as breached, the contravenor can be held liable for damages. decision, dated 03 February 1988, of the court a quo. A
the starting point. The provisions under Title XVIII on "Damages" of the TWELVE PERCENT (12%) interest, in lieu of SIX
Civil Code govern in determining the measure of PERCENT (6%), shall be imposed on such amount upon
"But then upon the provisions of Article 2213 of the Civil recoverable damages. finality of this decision until the payment thereof
Code, interest 'cannot be recovered upon unliquidated
claims or damages, except when the demand can be II. With regard particularly to an award of interest in the Crismina Garments v Court of Appeals
established with reasonable certainty.' And as was held by concept of actual and compensatory damages, the rate of Facts:
this Court in Rivera vs. Perez 4 , L-6998, February 29, interest, as well as the accrual thereof, is imposed, as Petitioner Crismina Garments, Inc. contracted the services
1956, if the suit were for damages, 'unliquidated and not follows: of respondent Norma Siapno, the sole proprietress of D'
known until definitely ascertained, assessed and determined Wilmar Garments for sewing assorted pieces of assorted
by the courts after proof (Montilla c. Corporacion de P. P. 1. When the obligation is breached, and it consists in the girl's denims supplied by petitioner under several purchase
Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. payment of a sum of money, i.e., a loan or forbearance of orders. Petitioner was obliged to pay the respondent for her
302),' then, interest 'should be from the date of the money, the interest due should be that which may have services, in the total amount of P76,410.00. However,
decision.'" (Emphasis supplied) been stipulated in writing. 21 Furthermore, the interest due petitioner failed to pay said amount. Respondent filed a
shall itself earn legal interest from the time it is judicially complaint with the trial court for the collection of the
Concededly, there have been seeming variances in the demanded. 22 In the absence of stipulation, the rate of principal amount of P76,410.00 and after due proceedings,
above holdings. The cases can perhaps be classified into interest shall be 12% per annum to be computed from the trial court rendered judgment in favor of respondent
two groups according to the similarity of the issues default, i.e., from judicial or extrajudicial demand under ordering petitioner to pay respondent the amount of
involved and the corresponding rulings rendered by the and subject to the provisions of Article 1169 23 of the Civil P76,410.00 with interest thereon at 12% per annum. On
court. Code. appeal to the Court of Appeals, the appellate court affirmed
the trial court's ruling. Petitioner's motion for
reconsideration was subsequently denied by the Court of
Appeals. Hence, the present petition. Petitioner contended the obligation is satisfied, the interest should be reckoned at (2) the interests awarded should be compounded quarterly
that the interest rate should be six percent (6%) per annum, twelve percent (12%) per year. Private respondent from due date as provided in the three (3) promissory notes;
pursuant to Article 2209 of the Civil Code. On the other maintains that the twelve percent (12%) interest should be
hand, private respondent maintained that the interest rate imposed, because the obligation arose from a forbearance (3) defendant Leila Ventura should likewise be held liable
should be twelve percent (12%) per annum, in accordance of money. This is erroneous. In Eastern Shipping , the to pay the balance on the promissory notes since she has
with Central Bank Circular No. 416. Court observed that a "forbearance" in the context of the signed as co-maker and as such, liable jointly and severally
usury law is a "contractual obligation of lender or creditor with defendant Eusebio without a need for demand upon
Issue: Whether or not it is proper to impose interest at the to refrain, during a given period of time, from requiring the her
rate of twelve percent (12%) per annum for an obligation borrower or debtor to repay a loan or debt then due and
that does not involve a loan or forbearance of money in the payable." Using this standard, the obligation in this case Consequently, an Order was issued by the court a quo
absence of stipulation of the parties. was obviously not a forbearance of money, goods or credit. denying the motion to grant the rates of interest beyond
12% per annum; and holding defendant Leila Ventura
Ruling: Security Bank v RTC Makati jointly and severally liable with co-defendant Eusebio.
The Supreme Court found petitioner's contention tenable. Facts: On April 27, 1983, private respondent Magtanggol
The Court had previously ruled that the interest rate under Eusebio executed Promissory Note No. TL/74/178/83 in Issue: Whether or not the 23% rate of interest per annum
CB Circular No. 416 applies to (1) loans; (2) forbearance of favor of petitioner Security Bank and Trust Co. (SBTC) in agreed upon by petitioner bank and respondents is
money, goods or credits; or (3) a judgment involving a loan the total amount of One Hundred Thousand Pesos allowable and not against the Usury Law.
or forbearance of money, goods or credits. Cases beyond (P100,000.00) payable in six monthly installments with a
the scope of said circular are governed by Article 2209 of stipulated interest of 23% per annum up to the fifth Ruling: The petition is granted
the Civil Code, which considers interest a form of installment.
indemnity for the delay in the performance of an obligation. CIVIL LAW; LOANS; INTEREST; USURIOUS, NOT A
Applying the said doctrine in the case at bar, the Court On July 28, 1983, respondent Eusebio again executed CASE OF; APPLICABILITY OF CENTRAL BANK
ruled that since the amount due in the present case arose Promissory Note No. TL/74/1296/83 in favor of petitioner CIRCULAR 905 IN CASE AT BENCH. From the
from a contract for a piece of work, not from a loan or SBTC. Respondent bound himself to pay the sum of One examination of the records, it appears that indeed the
forbearance of money, the legal rate of six percent (6%) Hundred Thousand Pesos (P100,000.00) in six (6) monthly agreed rate of interest as stipulated on the three (3)
interest per annum should be applied. Private respondent's installments plus 23% promissory notes is 23% per annum. The applicable
contention that the twelve percent (12%) interest per annum interest per annum. 2 provision of law is Central Bank Circular No. 905 which
should be imposed because the obligation arose from a took effect on December 22, 1982, particularly Sections 1
forbearance of money was found by the Court erroneous Finally, another Promissory Note No. TL/74/1491/83 was and 2. . . . CB Circular 905 was issued by the Central
because a "forbearance" in the context of the Usury Law is executed on August 31, 1983 in the amount of Sixty Five Bank's Monetary Board pursuant to P.D. 1684 empowering
"a contractual obligation of lender or creditor to refrain, Thousand Pesos (P65,000.00). Respondent agreed to pay them to prescribe the maximum rates of interest for loans
during a given period of time from requiring the borrower this note in six (6) monthly installments plus interest at the and certain forbearances. . . . All the promissory notes were
or debtor to repay a loan or debt then due and payable." rate of 23% per annum. signed in 1983 and, therefore, were already covered by CB
Using the said standard in case at bar, the Court concluded Circular No. 905. Contrary to the claim of respondent
that the obligation was obviously not a forbearance of On all the abovementioned promissory notes, private court, this circular did not repeal nor in anyway amend the
money, goods or credits. respondent Leila Ventura had signed as co-maker. Usury Law but simply suspended the latter's effectivity

CIVIL LAW; DAMAGES; ACTUAL OR Upon maturity which fell on the different dates below, the CIVIL LAW; LOANS; INTEREST RATE WHEN
COMPENSATORY; RATE OF INTEREST OF THE principal balance remaining on the notes stood VALIDLY STIPULATED MAY NOT BE
CONTRACT FOR A PIECE OF WORK, NOT FROM Upon the failure and refusal of respondent Eusebio to pay was agreed upon by the parties freely. Significantly,
A LOAN OR FORBEARANCE OF MONEY SHOULD the aforestated balance payable, a collection case was filed respondent did not question that rate. It is not for
BE THE LEGAL INTEREST OF SIX PERCENT (6%) in court by petitioner SBTC. 5 On March 30, 1993, the respondent court a quo to change the stipulations in the
PER ANNUM PURSUANT TO ARTICLE 2209 OF THE court a quo rendered a judgment in favor of petitioner contract where it is not illegal. Furthermore, Article 1306
CIVIL CODE. Because the amount due in this case SBTC, of the New Civil Code provides that contracting parties
arose from a contract for a piece of work, not from a loan may establish such stipulations, clauses, terms and
or forbearance of money, the legal interest of six percent On August 6, 1993, a motion for partial reconsideration conditions as they may deem convenient, provided they are
(6%) per annum should be applied. Furthermore, since the was filed by petitioner SBTC contending that: not contrary to law, morals, good customs, public order, or
amount of the demand could be established with certainty public policy. We find no valid reason for the respondent
when the Complaint was filed, the six percent (6%) interest (1) the interest rate agreed upon by the parties during the court a quo to impose a 12% rate of interest on the principal
should be computed from the filing of the said Complaint. signing of the promissory notes was 23% per annum; balance owing to petitioner by respondent in the presence
But after the judgment becomes final and executory until of a valid stipulation
ID.; ID.; ID.; 12% INTEREST RATE IS IMPOSED March, 1988, the spouses filed on February 6, 1988 a 28, 1993, respectively, were denied by respondent court in
WHEN THERE IS NO STIPULATED INTEREST DUE. petition for declaratory relief with prayer for a writ of its resolution dated January 10, 1994.
In a loan or forbearance of money, the interest due preliminary injunction and temporary restraining order with
should be that stipulated in writing, and in the absence the Regional Trial Court of Makati, docketed as Civil Case In its comment dated April 19, 1994, respondent bank
thereof, the rate shall be 12% per annum. Hence, only in No. 18872. In said petition, which was raffled to Branch vigorously denied that the increases in the interest rates
the absence of a stipulation can the court impose the 12% 134 presided by Judge Ignacio Capulong, the spouses were illegal, unilateral, excessive and arbitrary, it argues
rate of interest. sought clarification as to whether or not the PNB could that the escalated rates of interest it imposed was based on
unilaterally raise interest rates on the loan, pursuant to the the agreement of the parties. Respondent bank further
Almeda v CA credit agreement's escalation clause, and in relation to contends that it had a right to foreclose the mortgaged
Facts: On various dates in 1981, the Philippine National Central Bank Circular No. 905. As a preliminary measure, property pursuant to P.D. 385, after petitioners were unable
Bank granted to herein petitioners, the spouses Ponciano L. the lower court, on March 3, 1988, issued a writ of to pay their loan obligations to the bank based on the
Almeda and Eufemia P. Almeda several loan/credit preliminary injunction enjoining the Philippine National increased rates upon maturity in 1984.
accommodations totaling P18.0 Million pesos payable in a Bank from enforcing an interest rate above the 21%
period of six years at an interest rate of 21% per annum. To stipulated in the credit agreement. By this time the spouses Issue: 1) Whether or not respondent bank was authorized to
secure the loan, the spouses Almeda executed a Real Estate were already in default of their loan obligations. raise its interest rates from 21% to as high as 68% under the
Mortgage Contract covering a 3,500 square meter parcel of credit agreement;
land, together with the building erected thereon (the Marvin Invoking the Law on Mandatory Foreclosure (Act 3135, as
Plaza) located at Pasong Tamo, Makati, Metro Manila. A amended and P.D. 385), the PNB countered by ordering the 2)Whether or not respondent bank is granted the authority
credit agreement embodying the terms and conditions of extrajudicial foreclosure of petitioners' mortgaged to foreclose the Marvin Plaza under the mandatory
the loan was executed between the parties. properties and scheduled an auction sale for March 14, foreclosure provisions of P.D. 385
1989. Upon motion by petitioners, however, the lower
The loan shall be subject to interest at the rate of twenty court, on April 5, 1989, granted a supplemental writ of Ruling: The petition is denied.
one per cent (21%) per annum, payable semi-annually in preliminary injunction, staying the public auction of the
arrears, the first interest payment to become due and mortgaged property CIVIL LAW; CONTRACTS; BINDING EFFECT OF
payable six (6) months from date of initial release of the AGREEMENT BETWEEN PARTIES;PREMISED ON
loan. The loan shall likewise be subject to the appropriate On January 15, 1990, upon the posting of a counterbond by THE PRINCIPLE OF MUTUALITY AND
service charge and a penalty charge of three per cent (3%) the PNB, the trial court dissolved the supplemental writ of OBLIGATORY. The binding effect of any agreement
per annum to be imposed on any amount remaining unpaid preliminary injunction. Petitioners filed a motion for between parties to a contract is premised on two settled
or reconsideration. In the interim, respondent bank once more principles: (1) that any obligation arising from contract has
set a new date for the foreclosure sale of Marvin Plaza the force of law between the parties; and (2) that there must
(c) Interest and Charges which was March 12, 1990. Prior to the scheduled date, be mutuality between the parties based on their essential
(1) The Bank reserves the right to increase the interest rate however, petitioners tendered to respondent bank the equality. Any contract which appears to be heavily weighed
within the limits allowed by law at any time depending on amount of P40,142,518.00, consisting of the principal in favor of one of the parties so as to lead to an
whatever policy it may adopt in the future; provided, that (P18,000,000.00) and accrued interest calculated at the unconscionable result is void. Any stipulation regarding the
the interest rate on this/these accommodations shall be originally stipulated rate of 21%. The PNB refused to validity or compliance of the contract which is left solely to
correspondingly decreased in the event that the applicable accept the payment the will of one of the parties, is likewise, invalid.
maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in the As a result of PNB's refusal of the tender of payment, SPECIAL CONTRACTS; LOAN; INTEREST IS
interest rate agreed upon shall take effect on the effectivity petitioners, on March 8, 1990, formally consigned the REQUIRED TO BE EXPRESSLY STIPULATED IN
date of the increase or decrease of the maximum interest amount of P40,142,518.00 with the Regional Trial Court in WRITING. The manner of agreement is itself explicitly
rate. Civil Case No. 90-663. They prayed therein for a writ of stipulated by the Civil Code when it provides, in Article
preliminary injunction with a temporary restraining order. 1956 that "No interest shall be due unless it has been
Between 1981 and 1984, petitioners made several partial The case was raffled to Branch 147, presided by Judge expressly stipulated in writing." What has been "stipulated
payments on the loan totaling P7,735,004.66, 2 a Teofilo Guadiz. On March 15, 1990, respondent bank in writing" from a perusal of interest rate provision of the
substantial portion of which was applied to accrued sought the dismissal of the case. credit agreement signed between the parties is that
interest. 3 On March 31, 1984, respondent bank, over petitioners were bound merely to pay 21% interest, subject
petitioners' protestations, raised the interest rate to 28%, On August 27, 1993, respondent court rendered its decision to a possible escalation or deescalation, when 1) the
allegedly pursuant to Section III-c (1) of its credit setting aside the assailed orders and upholding respondent circumstances warrant such escalation or de-escalation; 2)
agreement. Said interest rate thereupon increased from an bank's right to foreclose the mortgaged property pursuant to within the limits allowed by law; and (3) upon agreement.
initial 21% to a high of 68% between March of 1984 to Act 3135, as amended and P.D. 385. Petitioners' Motion for
September, 1986. Petitioners protested the increase in Reconsideration and Supplemental Motion for LIFTING OF USURY CEILING; DOES NOT GRANT
interest rates, to no avail. Before the loan was to mature in Reconsideration, dated September 15, 1993 and October BANKS CARTE BLANCHE AUTHORITY TO RAISE
INTEREST; RULE UNDER CB CIRCULAR 905. DKC Holdings Corp. v CA very well be performed by her heir Victor. It is futile for
While the Usury Law ceiling on interest rates was lifted by Facts: On March 16, 1988, petitioner entered into a private respondent to insist that he is not a party to the
C.B. Circular 905, nothing in the said circular could Contract of Lease with Option to Buy with Encarnacion contract because of the clear provision of Article 1311 of
possibly be read as granting respondent bank carte blanche Bartolome, which option must be exercised within a period the Civil Code. Being an heir of Encarnacion, there is
authority to raise interest rates to levels which would either of two years from the signing thereof. Petitioner undertook privity of interest between him and his deceased mother.
enslave its borrowers or lead to a hemorrhaging of their to pay P3,000.00 a month as consideration for the He only succeeds to what rights his mother had and what
assets. Borrowing represents a transfusion of capital from reservation of its option. The contract also provided that in are valid and binding against her is also valid and binding
lending institutions to industries and businesses in order to case petitioner chose to lease the property, it may take as against him. Moreover, the subject matter of the contract
stimulate growth. This would not, obviously, be the effect actual possession of the premises. In such an event, the is a lease, which is a property right.
of PNB's unilateral and lopsided policy regarding the lease shall be for a period of six years, renewable for
interest rates of petitioners' borrowings in the instant case. another six years. Petitioner regularly paid the reservation CIVIL LAW; CONTRACTS; HEIRS ARE BOUND BY
fee to Encarnacion until her death in January 1990. CONTRACTS ENTERED INTO BY THEIR
CANNOT BE INVOKED TO JUSTIFY ESCALATION Thereafter, petitioner paid the reservation fees to private PREDECESSOR-IN-INTEREST; EXCEPTIONS. The
CLAUSES, NOT BEING A GRANT OF SPECIFIC respondent, being the sole heir of Encarnacion. Private general rule is that heirs are bound by contracts entered into
AUTHORITY. Apart from violating the principle of respondent, however, refused to accept these payments. On by their predecessors-in-interest except when the rights and
mutuality of contracts, there is authority for disallowing the March 14, 1990, petitioner served upon private respondent obligations arising therefrom are not transmissible by (1)
interest rates imposed by respondent bank, for the credit a notice that it was exercising its option to lease the their nature, (2) stipulation or (3) provision of law. In the
agreement specifically requires that the increase be "within property, and tendered the rental fee for the month of case at bar, there is neither contractual stipulation nor legal
the limits allowed by law." In the case of PNB vs. Court of March. Again, Victor refused to accept the tendered rental provision making the rights and obligations under the
Appeals, cited above, this Court clearly emphasized that fee and to surrender possession of the property to contract intransmissible. More importantly, the nature of
C.B. Circular No. 905 could not be properly invoked to petitioner. Petitioner thus opened a savings account with the rights and obligations therein are, by their nature,
justify the escalation clauses of such contracts, not being a the China Banking Corporation in the name of private transmissible.
grant of specific authority. respondent and deposited therein the rental and reservation
fees. When petitioner tried to register and annotate the INTRANSMISSIBLE RIGHTS; EXPLAINED. The
ESCALATION CLAUSES; VALID AS LONG AS NOT contract on the title of the subject property, the respondent nature of intransmissible rights as explained by Arturo
SOLELY POTESTATIVE BUT BASED ON Register of Deeds refused to register or annotate the same. Tolentino, an eminent civilist, is as follows: "Among
REASONABLE AND VALID GROUNDS. Escalation Hence, petitioner filed a complaint for specific performance contracts which are intransmissible are those which are
clauses are not basically wrong or legally objectionable so and damages against private respondent and the Register of purely personal, either by provision of law, such as in cases
long as they are not solely potestative but based on Deeds, before the Regional Trial Court of Valenzuela. of partnerships and agency, or by the very nature of the
reasonable and valid grounds. Here, as clearly After trial on the merits, the trial court dismissed the obligations arising therefrom, such as those requiring
demonstrated above, not only the increases of the interest complaint. On appeal, the Court of Appeals affirmed in toto special personal qualifications of the obligor. It may also be
rates on the basis of the escalation clause patently the decision of the trial court. Hence, this petition. stated that contracts for the payment of money debts are not
unreasonable and unconscionable, but also there are no Issue: Whether or not the Contract of Lease with Option to transmitted to the heirs of a party, but constitute a charge
valid and reasonable standards upon which the increases Buy entered into by the late Encarnacion Bartolome with against his estate. Thus, where the client in a contract for
are anchored. petitioner was terminated upon her death or whether it professional services of a lawyer died, leaving minor heirs,
binds her sole heir, Victor, even after her demise. and the lawyer, instead of presenting his claim for
MORTGAGE; AUTOMATIC FORECLOSURE professional services under the contract to the probate
PROVISIONS OF PD 385; CAN BE INVOKED AFTER Both the lower court and the Court of Appeals held that the court, substituted the minors as parties for his client, it was
SETTLEMENT OF QUESTION INVOLVING said contract was terminated upon the death of Encarnacion held that the contact could not be enforced against the
INTEREST AND ONLY AFTER DEBTORS REFUSED Bartolome and did not bind Victor because he was not a minors; the lawyer was limited to a recovery on the basis of
TO MEET OBLIGATION FOLLOWING SUCH party thereto quantum meruit." In American jurisprudence, "(W)here
DETERMINATION. In the first place, because of the acts stipulated in a contract require the exercise of special
dispute regarding the interest rate increases, an issue which Ruling: The petition is granted. knowledge, genius, skill, taste, ability, experience,
was never settled on merit in the courts below, the exact Where the service or act is of such a character that it may judgment, discretion, integrity, or other personal
amount of petitioner's obligations could not be determined. as well be performed by another, or where the contract by qualification of one or both parties, the agreement is of a
Thus, the foreclosure provisions of P.D. 385 could be its terms, shows that the performance by others was personal nature, and terminates on the death of the party
validly invoked by respondent only after settlement of the contemplated, death does not terminate the contract or who is required to render such service."
question involving the interest rate on the loan, and only excuse non-performance. In the case at bar, there was no
after the spouses refused to meet their obligations following personal act required from the late Encarnacion Bartolome.
such determination. Rather, the obligation of Encarnacion in the contract to
deliver possession of the subject property to petitioner upon
the exercise by the latter of its option to lease the same may
DEATH DOES NOT TERMINATE A CONTRACT OR obligations thereunder pass to the personal representatives
EXCUSE NONPERFORMANCE THEREOF WHERE of the deceased. Similarly, nonperformance is not excused
THE CONTRACT, BY ITS TERMS, SHOWS THAT by the death of the party when the other party has a
PERFORMANCE BY OTHERS WAS property interest in the subject matter of the contract.
CONTEMPLATED. It has been held that a good Under both Article 1311 of the Civil Code and
measure for determining whether a contract terminates jurisprudence, therefore, Victor is bound by the subject
upon the death of one of the parties is whether it is of such Contract of Lease with Option to Buy.
a character that it may be performed by the promissor's
personal representative. Contracts to perform personal acts CONTRACT OF LEASE WITH OPTION TO BUY;
which cannot be as well performed by others are PRIVATE RESPONDENT HAS OBLIGATION TO
discharged by the death of the promissor. Conversely, SURRENDER POSSESSION OF LAND AND LEASE
where the service or act is of such a character that it may as THE PREMISES TO PETITIONER. The payment by
well be performed by another, or where the contract, by its petitioner of the reservation fees during the two-year period
terms, shows that performance by others was contemplated, within which it had the option to lease or purchase the
death does not terminate the contract or excuse property is not disputed. In fact, the payment of such
nonperformance. In the case at bar, there is no personal act reservation fees, except those for February and March,
required from the late Encarnacion Bartolome. Rather, the 1990 were admitted by Victor. Petitioner also paid the
obligation of Encarnacion in the contract to deliver P15,000.00 monthly rental fee on the subject property by
possession of the subject property to petitioner upon the depositing the same in China Bank Savings Account No. 1-
exercise by the latter of its option to lease the same may 04-02558-I-, in the name of Victor as the sole heir of
very well be performed by her heir Victor. Encarnacion Bartolome, for the months of March to July
30, 1990, or a total of five (5) months, despite the refusal of
HEIR SUCCEEDS TO WHAT RIGHTS HIS Victor to turn over the subject property. Likewise,
PREDECESSOR-IN-INTEREST HAD AND WHAT IS petitioner complied with its duty to inform the other party
VALID AND BINDING AGAINST THE LATTER IS of its intention to exercise its option to lease through its
ALSO VALID AND BINDING AGAINST HIM. As letter dated March 12, 1990, well within the two-year
early as 1903, it was held that "(H)e who contracts does so period for it to exercise its option. Considering that at the
for himself and his heirs." In 1952, it was ruled that if the time Encarnacion Bartolome had already passed away, it
predecessor was duty-bound to reconvey land to another, was legitimate for petitioner to have addressed its letter to
and at his death the reconveyance had not been made, the her heir. It appears, therefore, that the exercise by petitioner
heirs can be compelled to execute the proper deed for of its option to lease the subject property was made in
reconveyance. This was grounded upon the principle that accordance with the contractual provisions. Concomitantly,
heirs cannot escape the legal consequence of a transaction private respondent Victor Bartolome has the obligation to
entered into by their predecessor-in-interest because they surrender possession of and lease the premises to petitioner
have inherited the property subject to the liability affecting for a period of six (6) years, pursuant to the Contract of
their common ancestor. It is futile for Victor to insist that Lease with Option to Buy.
he is not a party to the contract because of the clear
provision of Article 1311 of the Civil Code. Indeed, being
an heir of Encarnacion, there is privity of interest between
him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against
her is also valid and binding as against him. This is clear
from Paraaque Kings Enterprises vs. Court of Appeals,
where the Court rejected a similar defense . . . .


MATTER THEREOF In the case at bar, the subject
matter of the contract is a lease, which is a property right.
The death of a party does not excuse nonperformance of a
contract which involves a property right, and the rights and