Juan Nakpil & Sons v. Court of Appeals 144 SCRA 597, G.R. No. L- 1.
1. No, they are not exempted from liability. There is no dispute that the
47851 (October 3, 1996)
Facts:
1. Philippine Bar Association (PBA) decided to construct an office building at
Intramuros, Manila.
2. The construction was undertaken by the United Construction, Inc. (United) on
an “administration basis”, on the suggestion of Juan J. Carlos (Carlos), the
president and general manager of United.
3. Plans and specifications for the building were prepared by the third-party
defendants Juan F. Nakpil & Sons(Nakpil)
4. The building was completed on June 1966.
5. On August 2, 1968, an unusually strong earthquake hit Manila and its environs
and the building in question sustained major damage.
6. PBA commenced an action for the recovery of damages arising from the partial
collapse of the building against United. In turn, United filed a third-party
complaint against the architects (Nakpil) who prepared the plans and
specifications.
7. Parties agreed to refer the technical issues involved in the case to a
Commissioner, Mr. Andres O. Hizon (Hizon).
8. On April 30, 1979 the building was authorized to be demolished at the expense
of United and Nakpil.
9. Hizon submitted his report with the findings that while the damage sustained
by the PBA building was caused by the earthquake, they were also caused by
the (1) defects in the plans and specifications prepared by the architects, (2)
deviations from said plans and specifications by United and (3) failure of United
to observe the requisite workmanship in construction of the building and of the
contractors and architects to exercise the requisite degree of supervision in
the construction of the said building.
10. The United Architects of the Philippines, the Association of Civil Engineers,
and the Philippine Institute of Architects filed with the Court a motion to
intervene as amicus curiae.
11. The amicus curiae gave the opinion that the plans and specifications of the
Nakpils were not defective. (In contradiction to the opinion of Hizon)
Issue/s:
 (New Civil Code) Art. 1723. The engineer or architect who drew up the plans
1. Whether or not an act of God – an unusually strong earthquake – which caused
the failure of the building, exempts from liability, parties who are otherwise
liable because of their negligence.
Ruling:
earthquake is a fortuitous event or an act of god. But, if upon the happening of
a fortuitous event or an act of God, here concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor of
the obligation, which results in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God doctrine strictly requires that the act
must be one occasioned exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be considered, is found to
be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
HUMANIZED, as it were, and removed from the rules applicable to the acts of
God.
United was found to have made substantial deviations from the plans and
specifications and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision. And the
Nakpins were found to have inadequacies or defects in the plans and
specifications prepared by them. The deviations made by United caused
indirectly the damage sustained and that those deviations not only added but
also aggravated the damage caused by the defects made by the Nakpins.
Thus, one who negligently creates a dangerous condition cannot escape
liability for the natural and probably consequences thereof, although the act of
a third person, or an act of God for which he is not responsible, intervenes to
precipitate the loss. The destruction was not purely an act of God. Truth to tell
hundreds of ancient buildings in the vicinity were hardly affected by the
earthquake. Only one thing spells out the fatal difference; gross negligence
and evident bad faith, without which the damage would not have occurred.
Notes / Law / Doctrine:
and specifications for a building is liable for damages if within fifteen years from
the completion of the structure the same should collapse by reason of a defect
in those plans and specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damage if the edifice fags within the
same period on account of defects in the construction or the use of materials
of inferior quality furnished by him, or due to any violation of the terms of the
contract. If the engineer or architect supervises the construction, he shall be
solidarily liable with the contractor.
 Acceptance of the building, after completion, does not imply waiver of any of
the causes of action by reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years following the collapse of the
building.
 (New Civil Code) Art. 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were
inevitable.
 A Breach of an obligation due to an “Act of God”, the following must concur:
1. The cause of the breach of the obligation must be independent of the will
of debtor;
2. The event must be either unforeseeable or unavoidable;
3. The event must be such as to render it impossible for the debtor to fulfil
his obligation in a normal manner;
4. The debtor must be free from any participation in, or aggravation of the
injury to the creditor.
 “There is no mystery about these acts of negligence. The collapse of the PBA
building was no wonder performed by God. It was a result of the imperfections
in the work of the architects and the people in the construction company. More
relevant to our mind is the lesson from the parable of the wise man in the
Sermon on the Mount “which built his house upon a rock; and the rain
descended and the floods came and the winds blew and beat upon that house;
and it fen not; for it was founded upon a rock” and of the “foolish upon the
sand. And the rain descended and man which built his house the floods came,
and the winds blew, and beat upon that house; and it fell and great was the fall
of it. (St. Matthew 7: 24-27).” The requirement that a building should withstand
rains, floods, winds, earthquakes, and natural forces is precisely the reason
why we have professional experts like architects, and engineers. Designs and
constructions vary under varying circumstances and conditions but the
requirement to design and build well does not change.” – Justice Gutierrez
National Power Corporation v. Court of Appeals 161 SCRA 334, G.R. No.
L-47379 (May 16, 1998)
Facts:
1. Engineering Construction, Inc. (petitioner, ECI for brevity), being a successful
bidder, executed a contract in Manila with the National Waterworks and
Sewerage Authority (NAWASA), whereby the former undertook:
1. to furnish all tools, labor, equipment and materials, and
2. to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and Appurtenant Features at
Norzagaray, Bulacan and to complete said works within 800 calendar
days. (Angat Hydro-electric Project and Dam)
2. The project involves two (2) major phases: (1) tunnel work covering a
distance of 7 kilometres and (2) the outworks at both ends of the tunnel.
3. The ECI already had completed the first major phase of the work (Tunnel
Excavation Work), all the equipment no longer needed there were transferred
to another site where some projects were yet to be completed. Some portion
of the Bicti site were still under construction (2 nd phase).
4. On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing
through corporations’ Angat Hydro-electric Project and Dam.
5. Due to the heavy downpour, the water in the reservoir of the Angat Dam was
rising perilously at the rate of 60 cm per hour. To prevent an overflow of
water from the dam, the National Power Corporation(NPC) caused the
opening of the spillway gates.
6. Extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at Ipo site with terrific impact, as a
result of which the latter’s stockpile of materials supplies, camp facilities and
permanent structures and accessories whether washed away, lost or
destroyed.
Issue/s:
1. Whether or not the destruction and loss of ECI’s equipment and facilities
were due to force majeure, which will exempt NPC from liability.
Ruling:
1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of
typhoon “Welming” when it knew very well that it was safer to have opened
the same gradually and earlier, as it was also undeniable that NPC know of
the coming typhoon at least four days before it actually struck.
The typhoon was an act of God or what we may call force majeure, NPC
cannot escape liability because its negligence was the proximate cause of
the loss and damage.
 As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:
“If upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any
manner of the tenor of the obligation, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and human
agencies are to be excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be considered, is found to
be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
HUMANIZED, as it were, and removed from the rules applicable to the acts
of God.
Republic v. Luzon Stevedoring Corporation 21 SCRA 279, G.R. No. L-
21749 (September 29, 1967)
Facts:
1. Barge owned by Luzon Stevedoring Corporation(defendant, LSC for brevity)
was being towed down the Pasig river by tugboats belonging to the same
corporation.`
2. The barge rammed against one of the wooden piles of the Nagtahan Bailey
Bridge, smashing the posts and causing the bright to list. The river, at that time,
was swollen and the current swift, on account of the heavy downpour of Manila
and the surrounding provinces.
3. Republic of the Philippines (PH) sued LSC for actual and consequential
damages caused by its employees.
Issue/s:
1. Whether or not the collision of LSC’s barge with the supports or piers of the
Nagtahan bridge was in law caused by fortuitous event or force majeure.
Ruling:
1. No. Considering that the Nagtahan bridge was an immovable and stationary
object and uncontrovertibly provided with adequate openings for the passage
of water craft, including barges like of NSC’s, it is undeniable that the unusual
event that the barge, exclusively controlled by appellant, rammed the bridge
supports raises a presumption of negligence on the part of appellant or its
employees manning the barge or the tugs that towed it. For in the ordinary
course of events, such a thing does not happen if proper case is used. Res
ipsa loquitur.
NLS stresses the precautions (due diligence) taken by it: (1) that it assigned
two of its most powerful tugboats to tow down river its barge, and (2) that it
assigned to the task the more competent and experienced among its patrons,
(3) had the towlines, engines and equipment double-checked and inspected;
(4) that it instructed its patrons to take extra precautions. These very
precautions, completely destroy the NLS’defense.
Caso fortuito or force majeure by definition, are extraordinary events not
foreseeable or avoidable, events that could not be foreseen, or which, though
foreseen, were inevitable.” It is, therefore, not enough that the event should
not have been foreseen or anticipated, as is commonly believed, but it must
be one impossible to foresee or to avoid. The more difficulty to foresee the
happening is not impossibility to foresee the same. The very measures
adopted by NSC prove that the possibility of danger was not only foreseeable,
but actually foreseen, and was not caso fortuito.
LSC, knowing and appreciating the perils posed by the swollen steam and its
swift current, voluntarily entered into a situation involving obvious danger; it
therefore assured the risk, and cannot shed responsibility merely because the
precautions it adopted turned out to be insufficient.
Philcomsat v. Globe Telecom 429 SCRA 153, G.R. No. 147324 (May
25, 2004)
Facts:
1. Globe Telecom, Inc. (Globe) is engaged in the coordination of the provision of
various communication facilities for the military bases of the United States of
America (US) in the Clark Air Base and Subic Naval Base.
2. Saud communication facilities were installed and configured for the exclusive
use of the US Defense Communications Agency (USDCA).
3. Globe contracted Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.
4. Philcomsat and Globe entered into an agreement whereby Philcomsat obliged
itself to establish, operate and provide an IBS Standard B earth station (earth
station) for the exclusive use of the USDCA. Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.
5. Philcomsat installed and established the earth station and the USDCA made
use of the same.
6. Senate passed and adopted its resolution, expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements that was supposed to extend the term of
the use by the US of Subic Naval Base, among others.
7. PH government sent a Note Verbale to the US government through the US
Embassy, notifying it of the Philippine termination of the RP-US Military Base
Agreement. The withdrawal of all US military forces from Subic Naval Base
should be completed by December 31. 1992.
8. Globe notified Philcomsat of its intention to discontinue the use of the earth
station.
9. Philcomsat demand payment of rentals for the balance of lease term, despite
the non-use of earth station.
Issue/s:
1. Whether the termination of the RP-US Military Base Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and personnel from Cubi Point
constitute force majeure which would exempt Globe from complying with its
obligation to pay rentals under its Agreement with Philcomsat.
2. Whether Globe is liable to pay rentals under the Agreement for the month of
December 1992.
3. Whether Philcomsat is entitled to attorney’s fees and exemplary damages.
Ruling:
1. Yes. Philcomsat and Globe had no control over the non-renewal of the term of
the RP-US Military Base Agreement when the same expired in 1991, because
the prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent withdrawal
of the US military forces and personnel from Cubi Point in December 1992.
As a consequence of the termination of the RP-US Military Base Agreement
the continued stay of all US Military forces and personnel from Subic Naval
Base would no longer be allowed, hence, plaintiff would no longer be in any
position to render service it was obligated under the Agreement.
Events made impossible the continuation of the Agreement until the end of its
five-year term without fault on the part of either party. Such fortuitous events
rendered Globe exempt from payment of rentals for the remainder of the term
of the Agreement.
Philcomsat would like to charge globe rentals for the balance of the lease term
without being any corresponding telecommunications service subject of the
lease. It will be grossly unfair and iniquitous to hold globe liable for lease
charges for a service that was not and could not have been rendered due to
an act of the government which was clearly beyond globes control.
2. Yes. The US military forces and personnel completely withdrew from Cubi
Point only on December 31, 1992. Thus, until that date, USDCA had control
over the earth station and had the option of using the same. Furthermore,
Philcomsat could not have removed or rendered ineffective said
communication facility until after December 31, 1992 because Cubi Point was
accessible only to US naval personnel up to that time.
3. No. The award of attorney’s fees is the exemption rather than the rule. In cases
where both parties have legitimate claims against each other and no party
actually prevailed, such as in the present case where the claims of both parties
were sustained in part, an award of attorney’s fees would not be warranted.
Exemplary damages may be awarded in cases involving contracts, if the erring
party acted in wanton, fraudulent, reckless, oppressive or malevolent manner.
It was not shown that Globe acted wantonly or oppressively in not heeding
Philcomsats demands for payment of rentals. Globe had valid grounds for
refusing to comply with its contractual obligations after 1992.
Yobido v. Court of Appeals 281 SCRA 1, G.R. No. 113003 (October
17, 1997)
Facts:
1. Spouses Tito and Leny Tumboy and their minor children named Ardee and
Jasmin boarded a Yobido Liner bus.
2. The left front tire of the bus exploded.
3. The bus fell into a ravine which resulted in the death of 28-year old Tumboy
and physical injuries to other passengers.
Issue/s:
1. Whether or not the Yobido (bus-owner) be exempt from liability because the
tire blowout was no more than a fortuitous event that could not have foreseen.
Ruling:
1. No. Under the circumstances of the present case, the explosion of the new tire
may not be considered a fortuitous event. It is settled that an accident caused
either by defects in the automobile or through the negligence of its driver is not
a caso fortuito that would exempt the carrier from liability for damages.
A common carrier may not be absolved from liability in case of force majeure
or fortuitous event alone. The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an accident.
In culpa contractual, once a passenger dies or injured, the carrier is presumed
to have been at fault or to have acted negligently. This presumption may only
be overcome by evidence that the carrier had observed extraordinary
diligence.
The Yobido failed to rebut the testimony of Leny Tumboy that the bus was
running so fast that she cautioned the driver to slow down. These contradictory
facts must, be resolved in favor of liability in view of the presumption of
negligence of the carrier in the law. Coupled with this is the established
condition of the road tough, winding and wet due to rain. It was incumbent
upon the defense to establish that it took precautionary measures considering
partially dangerous condition of the road.
Yobido failed to discharge its duty to overthrow the presumption of negligence
with clear and convincing evidence.
Bacolod-Murcia Milling v. Court of Appeals 182 SCRA 24, G.R. No.
81100-01 (February 7, 1990)
Facts:
1. Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar
central in Bacolod.
2. Alonso Gatuslao (Gatuslao) is a registered plantor of the Bacolod-Muria Mill
District.
3. BMMC and Gatuslao executed an “Extension and Modification of Milling
Contract.
4. From crop year 1957-1958 up to crop year 1967-1968, Gatuslao has been
milling all the sugarcane grown and produced with the Mill of BMMC.
5. From crop year 1920-21 to crop year 1967-68, the canes of planters adhered
to the mill of BMMC were transported from the plantation to the mill by means
of cane cars and through railway system operated by BMMC.
6. BMMC has been hauling planter Gatuslao’s sugar cane to its mill or factory
continuously until crop year 1967 – 1968.
7. The milling contract between BMMC and owners of the hacienda Helvetica
expired at the end of the 1964-1965 crop year.
8. The portion of the railway traversing the hacienda Helvetica was closed as per
decision of the court.
9. The use of the railroad tracks(traversing hacienda Helvetica) was temporarily
allowed due to the intervention of the President of the Philippines, which is until
1967-1978 milling season only.
10. Gatuslao loaded their cut cranes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-MACMA) during 1968-
1969 crop year.
11. BMMC had not been able to use its cane cars and railway system for the cargo
crop year 1968-1989.
Issue/s:
1. Whether or not the termination of petitioner’s right of way over the hacienda
Helvetica caused by the expiration of its amended milling contracts with the
landowners of the land in question is fortuitous event or force majeure which
will exempt petitioner BMMC from fulfillment of its contractual obligation.
2. Whether or not BMMC was able to provide adequate and efficient
transportation facilities of the canes of Gatuslao and the other planters milling
with BMMC during the crop year 1968-69.
Ruling:
1. No. The terms of the milling contracts were clear and undoubtedly there was
no reason for BMMC to expect otherwise. The closure of any portion of the
railroad track, not necessarily in the hacienda Helvetica but in any of the
properties whose owners decided not to renew their milling contracts with the
Central upon their expiration, was foreseeable and inevitable.
Despite its awareness that the conventional contract of lease would expire in
crop year 1964-1965 and that refusal on the part of any one of the landowners
to renew their milling contracts and the corresponding use of the right of way
on their lands would render impossible compliance of its commitments, BMMC
took a calculated risk that all the landowners would renew their contracts.
 The closure of the railway lines was not an act of God nor it constitute force
majeure. It was due to the termination of the contractual relationships of the
parties, for which BMMC is charged with knowledge. Owners of the hacienda
Helvetica notified BMMC as far back as August 1965 of its intention not to
allow the passage of the railway system thru its land after the aforesaid crop
year. Adequate measures should have been adopted by BMMC to forestall
such paralyzations but the records show none.
2. No, BMMC failed to provide adequate transportation facilities to Gatuslao and
other adherent parties.
The inadequacies of the reparto or trailer allotment as well as the state of
unpreparedness on the part of BMMC to meet the problem posed by the
closure of the railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no
trailers arrived and when two trailers finally arrived on October 1968 after
several unheeded requests, they were left on the national highway about one
kilometer away from the loading station, the means of transportation provided
by BMMC is very inadequate to answer the needs of Gatuslao.
Austria v. Court of Appeals 31 SCRA 527, G.R. No. L-29640 (June
10, 1971)
Facts:
1. Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds
to be sold on commission basis or to be returned on demand.
2. Maria Abad while walking home, two men snatched her purse containing
jewelry and cash, and ran away.
3. Thus, Abad failed to return the jewelry or pay its value notwithstanding
demands.
4. Austria filed an action against Abad and Abad’s husband for recovery of the
pendant or of its value, and damages.
5. Abad raised the defense that the alleged robbery had extinguished their
obligation.
Issue/s:
1. Whether or not in a contract of agency (consignment of good for sole) it is
necessary that there be prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss.
2. Whether or not Abad was negligent.
Ruling:
1. No. To avail of the exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be found or punished, it would
only be sufficient to establish that the enforceable event, the robbery in this
case did take place without any concurrence fault on the debtor’s part, and this
can be done by preponderance of evidence.
A court finding that a robbery has happened would not necessary mean that
those accused in the criminal action should be found guilty of the crime; nor
would a ruling that those actually accused did not commit the robbery be
inconsistent with a finding that a robbery did take place.
2. No. In 1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present day. The
diligence that Abad portrayed when she went home before she was robbed
was not a sign of negligence on her part.
Khe Hong Cheng v. Court of Appeals 355 SCRA 701, G.R. No. 144169
(March 20, 2001)
Facts:
1. The Philippine Agricultural Trading Corporation shipped on board the vessel
M/V PRINCE ERIC, owned by Khe Hong Cheng (petitioner, Cheng for brevity),
3,400 bags of copra at Masbate, for delivery to Zamboanga del Norte.
2. The shipment of copra was covered by a marine insurance policy issued by
American Home Insurance Company (respondent Philam’s assured).
3. M/V/ PRINCE ERIC, sank, resulting in the total loss of the shipment. Because
of the loss, the insurer, American Home, paid the amount of P354,000.00.
4. American Home instituted a Civil Case to recover the money paid to the
consignee, based on breach of contract of carriage.
5. While the case was still pending, on December 20, 1989, Cheng executed
deeds of donations of parcels of land in favour of his children. (The same deed
was registered on December 27, 1989)
6. The trial court rendered judgement against Cheng on December 29, 1993, four
years after the donations were made and the TCTs were registered in the
donees names.
7. A writ of execution was issued; however, it was not served. An alias writ of
execution was, thereafter, applied for and granted. Despite earnest efforts, the
sheriff found no property under the name of Butuan Shipping Lines and/or
Cheng to levy or garnish the satisfaction of the trial court’s decision.
8. On January 17, 1997, the sheriff, accompanied by counsel of respondent
Philam, went to Butuan City to enforce the alias writ of execution, they
discovered that petitioner Cheng no longer had any property and he had
conveyed the subject properties to his children.
9. Philam filed a complaint for the rescission of the deeds of donation executed
by Cheng in favour of his children and for the nullification of their titles.
Issue/s:
1. Whether or not the action to rescind the subject deeds of donations already
prescribed.
Ruling:
1. No. An accion pauliana accrues only when the creditor discovers that he has
no other legal remedy for the satisfaction of his claim against the debtor other
than an accion pauliana. The accion pauliana is an action of a last resort.
Respondent Philam only learned about the unlawful conveyances made by
petitioner Cheng in January 1997 when its counsel accompanied the sheriff to
Butuan City to attach the properties of Cheng. There they found that he no
longer had any properties in his name. it was only then that respondent
Philam’s action for rescission of the deeds of donation accrued because then
it could be said that respondent Philam had exhausted all legal means to
satisfy the trial court’s judgement in its favour.
Since respondent Philam filed its complain for accion pauliana against Cheng
on February 25, 1997, barely a month from its discovery that Cheng had no
property to satisfy the judgement award against him, its action for rescission
of the subject deeds clearly had not yet prescribed.
Note / Doctrine:
 Alias executionis a second writ of execution issued in the same cause, to
enforce a judgment not fully satisfied by the original writ.
 (New Civil Code) Article 1389. The action to claim rescission must be
commenced within four years.
 (New Civil Code) Article 1150. The time for prescription for all kinds of
actions, when there is no special provision which ordains otherwise, shall be
counted from the day they may be brought.
 (New Civil Code) Article 1383. An action for rescission is subsidiary; it cannot
be instituted except when the party suffering damage has no other legal means
to obtain reparation for the same.
 Requisites of accion pauliana
1. Plaintiff asking for rescission has a credit prior to the alienation, although
demandable later.
2. Debtor has made a subsequent contract conveying a patrimonial benefit to a
third persons.
3. Creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the person.
4. Act being impugned is fraudulent.
5. The third parsons who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.
 Accion pauliana presupposes the following:
1. A judgment;
2. Issuance by the trial court of a writ of execution for the satisfaction of the
judgement; and
3. The failure of the sheriff to enforce and satisfy the judgement of the court.
4. It requires that the creditor has exhausted the property of the debtor.
 Successive measures must be taken by a creditor
1. Exhaust the properties of the debtor through levying by attachment and
execution upon all the property of the debtor; except such as are exempt from
execution;
2. Exercise all the rights and actions of the debtor, save those personal to him
(accion subrogatoria);
3. Seek rescission of the contracts executed by the debtor in fraud of their rights
(accion pauliana).
Siguan v. Lim 318 SCRA 725, G.R. No. 134685 (November 19, 1999)
Facts:
1. On 25 and 26 August 1990, Rosa Lim (respondent, LIM) issued two Metrobank
checks to satisfy her debts to Maria Antonia Siguan (petitioner, SIGUAN).
2. Upon presentment by SIGUAN with the drawee bank, the checks were
dishonoured for the reason account closed.
3. Criminal case for violation of BP 22 was filed by SIGUAN against LIM.
4. On December 29 1992, RTC convicted LIM as charged. The case is pending
before this Court for review.
5. On August 10, 1989, LIM executed a Deed of Donation in favour of her
children, and the same was registered with the Office of the Register of Deeds
on July 2, 1991.
6. June 23, 193, SIGUAN filed an accion pauliana against LIM and her children,
to rescind the questioned Deed of Donation and to declare as null and void the
new transfer certificates of title.
Issue/s:
1. Whether or not the questioned Deed of Donation was made in fraud of
petitioner and, therefore, rescissible.
Ruling:
1. No. The rescission required the existence of creditors at the time of alleged
fraudulent alienation, and this must be proved as one of the bases of the
judicial pronouncement setting aside the contract. Without prior existing debt,
there can neither be injury nor fraud. While it is necessary that the credit of the
plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the
date of the judgment enforcing it is immaterial.
Since LIMs indebtedness to SIGUAN was incurred in August 1990, or a year
after the execution of the Deed of Donation, the first requirement of accion
pauliana was not met.
Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not
fare well because the third requisite was not met. It is essential that the party
asking for rescission prove that he has exhausted all other legal means to
obtain satisfaction of his claim. SIGUAN neither alleged nor proved that she
did so. On his score, her action for rescission of the questioned deed is not
maintainable even if the fraud charged actually did exist.
The fourth requisite for an accion pauliana to prosper is not present either. (4)
the act being impugned is fraudulent. It was not sufficiently established that
the properties left behind by LIM were not sufficient to cover her debts existing
before the donation was made.
Note / Doctrine:
 Requisites of accion pauliana
1. Plaintiff asking for rescission has a credit prior to the alienation, although
demandable later.
2. Debtor has made a subsequent contract conveying a patrimonial benefit to a
third persons.
3. Creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the person.
4. Act being impugned is fraudulent.
5. The third parsons who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.
 (New Civil Code) Article 1381. Contracts entered into in fraud of creditors
may be rescinded only when the creditors cannot in any manner collect the
claims due to them.
 (New Civil Code) Article 1383. The action for rescission is but a subsidiary
remedy which cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
 (New Civil Code) Article 1387(1). All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into
in fraud of creditors when donor did not reserve sufficient property to pay all
debts contracted before the donation.
 (New Civil Code) Article 759. Donation is always presumed to be in fraud of
creditors when at the time thereof the donor did not reserve sufficient property
to pay his debts prior to the donation.
 (New Civil Code) Article 1384. Rescission shall only be to the extent
necessary to cover the damages caused.
 Only the creditor who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit from its
effects.
 Revocation is only to the extent of the plaintiff creditors unsatisfied debts;
as to the excess, alienation is maintained.
EASTERN SHIPPING LINES, INC. vs. CA, GR. No. 97412, July 12, 1994
FACTS: Two fiber drums of riboflavin were shipped from Yokohama, Japan
on board the vessel owned by herein petitioner Eastern Shipping Lines. When
it arrives in Manila, it was put unto the custody of Metro Port Service, Inc. The
latter excepted to one drum which is said to be in bad order and which damage
was unknown to Eastern Shipping Lines. Later, Allied Brokerage Corporation
received the shipment from Metro Port Service, Inc. With one drum damaged,
Allied Brokerage Corporation made deliveries to the consignee's warehouse.
The latter excepted to one drum that is damaged. Eastern Shipping Lines
averred that due to the one drum that is damaged and due to the fault and
negligence of Metro Port Service, Inc. and Allied Brokerage Corporation, the
consignee suffered losses. The two failed and refused to pay the claims for
damages. Consequently, Eastern Shipping Lines was compelled to pay the
consignee being subrogated to all the rights of action of said consignee against
Metro Port Service, Inc. and Allied Brokerage Corporation. Trial ensued and
on appeal of the case, the appellate court affirmed the decision of the trial court
ordering Metro Port Service and Allied Brokerage to pay Eastern Shipping
Lines, jointly and severally, the amount of P19,032.95, with the present legal
interest of 12% per annum from the date of filing of the complaints, until fully
paid. Metro Port Service and Allied Brokerage opposed especially as to the
payment of interest contending that the legal interest on an award for loss or
damage should be 6% in view of Article 2209 of the Civil Code.
ISSUE: Whether or not the payment of legal interest on an award for loss or
damage is twelve percent (12%) or six percent (6%).
HELD: Article 2209 of the New Civil Code provides that if the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of stipulation, the legal
interest which is six percent per annum. With regard particularly to an award
of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
Dario Nacar vs Gallery Frames
FACTS:
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe
Bordey, Jr. Nacar alleged that he was dismissed without cause by Gallery
Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA)
found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded
Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme
Court affirmed the decision of the Labor Arbiter and the decision became final
on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from the
time of his illegal dismissal (January 24, 1997) until the finality of the SC
decision (May 27, 2002) with interest. The LA denied the motion as he ruled
that the reckoning point of the computation should only be from the time Nacar
was illegally dismissed (January 24, 1997) until the decision of the LA (October
15, 1998). The LA reasoned that the said date should be the reckoning point
because Nacar did not appeal hence as to him, that decision became final and
executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal dismissal
cases (referring to cases where the dismissed employee wins, or loses but
wins on appeal). The first part is the ruling that the employee was illegally
dismissed. This is immediately final even if the employer appeals – but will be
reversed if employer wins on appeal. The second part is the ruling on the
award of backwages and/or separation pay. For backwages, it will be
computed from the date of illegal dismissal until the date of the decision of the
Labor Arbiter. But if the employer appeals, then the end date shall be extended
until the day when the appellate court’s decision shall become final. Hence, as
a consequence, the liability of the employer, if he loses on appeal, will increase
– this is just but a risk that the employer cannot avoid when it continued to
seek recourses against the Labor Arbiter’s decision. This is also in accordance
with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory
damages, the Supreme Court ruled that the old case of Eastern Shipping Lines
vs CA is already modified by the promulgation of the Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of
interest from 12% to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial
demand or upon judicial demand whichever is appropriate and subject to the
provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable
from date of judicial or extra-judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per
annum demandable from the date of judgment because such on such date, it
is already deemed that the amount of damages is already ascertained.
3. Compounded Interest
– This is applicable to both monetary and non-monetary obligations
– 6% per annum computed against award of damages (interest) granted by
the court. To be computed from the date when the court’s decision becomes
final and executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
– Final and executory judgments awarding damages prior to July 1, 2013 shall
apply the 12% rate;
– Final and executory judgments awarding damages on or after July 1, 2013
shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid
obligations with respect to said judgments on or after July 1, 2013 shall still
incur the 6% rate.
SPOUSES ANDAL vs PNB
FACTS:
Sept. 7, 1995, petitioners obtained a loan from respondent bank (P21.8M) for
which 12 promissory notes were executed, with varying interest rates (17.5-
27%). It was agreed that the rate of interest may be increased or decreased
with prior notice to the petitioners in the event of changes in interest rates
prescribed by law or the Monetary Board.
Petitioners also executed a real estate mortgage in favor of the respondent
bank over 5 parcels of lands, including all improvements thereon, covered by
Transfer of Certificate Titles of the Registry of Deeds.
Respondent bank advised petitioners to pay their loan, otherwise they would
declare it due and demandable. Petitioners paid P14.8M to avoid foreclosure.
Respondent bank executed a release of real estate mortgage over two of the
parcels of land. Despite payment, respondent foreclosed the remaining real
estate mortgage over the remaining three parcels of land.
A public auction sale resulted in respondent bank as the winning bidder. A
Certificate of sale of the properties was issued.
Petitioners filed a complaint for annulment of mortgage, sheriff’s certificate of
sale, declaration of nullity of the increased interest rates and penalty charges
plus damages.
CONTENTION OF THE PETITIONERS:
1. They tried to pay their loan obligation but the exorbitant rate
of interest unilaterally determined and imposed by the
respondent bank.
2. They signed the promissory notes in blank, relying on the
representation that they were bank requirements
3. The exobrbitant and unilateral interest rates are a form of
unjust enrichment, giving respondent
4. bank no right to foreclose the mortgages
RTC Ruling: In favor of petitioners, ordering that the rate of interest be reduced
to 6% in accordance with Art. 2209, NCC and declaring the foreclosure sales
as void.
CA Ruling: Affirmed the RTC decision with the modification that the interest
be 12% per annum instead of 6%. Stipulations in a contract have the force of
law between the parties so long as they are not contrary to law, morals, etc.
Since parties expressly stipulated in the promissory notes that a rate of interest
would be applied, the petitioners are bound thereby.
The CA finds it more credible that the petitioners had signed blank promissory
notes which respondent bank had filled with high interest rates. This violates
the principle of mutuality of contracts. Since the interest rates in the promissory
notes are void, the rate of interest should be 12% (since what is involved is a
loan or forebearance of money).
Petitioners-spouses insist that "if the application of the doctrine of operative
facts is upheld, as applied in Caraig vs. Alday, interest in the instant case would
be computed only from the finality of judgment declaring the foreclosure sale
null and void. If Mercado vs. China Banking Corporation, applying by analogy
the rule on void usurious interest to void potestative interest rate, is further
sustained, no interest is due when the potestative interest rate stipulation is
declared null and void, as in the instant case.
ISSUES: Whether interest should be imposed on the loan.
RULING: Yes. The petitioners had agreed to payment of interest on
their loan obligation. The subsequent declaration that the rate of interest was
illegal does not entitle them to stop payment of interest. Only the rate was
declared void, but the stipulation requiring them to pay interest remains valid
and binding. They are liable to pay interest from the time they defaulted until
the obligation is fully paid.
Petition is DENIED and the CA decision is AFFIRMED with the
MODIFICATION that the 12% interest per annum shall be applied from the
date of default until June 30, 2013, after which date and until fully paid, the
obligation shall earn interest at 6% per annum.
ADVOCATES FOR TRUTH IN LENDING, INC. VS. BANGKO SENTRAL
MONETARY BOARD, ET.AL.
Parties of the Case
Petitioners: Advocates for Truth in Lending, INC. & Eduardo B. Olaguer
(President of AFTIL).
Respondents: Bangko Sentral Monetary Board
Facts of the Case
Advocates for Truth in Lending, Inc. (AFTIL) is a non-profit, non-stock
corporation organized to engage in pro bono concerns and activities relating
to money lending issues. It was incorporated in July 9, 2010, and a month later,
it filed this petition, joined by its founder and president, Eduardo Olaguer, suing
as a taxpayer and a citizen.
History of Central Bank’s power to fix max interest rates
1. R.A. No. 265, which is created the Central Bank on June 15, 19481.
R.A. No. 265, which is created the Central Bank on June 15, 1948,
empowered the CB-MB to set the maximum interest rates which banks
may charge for all types of loans and other credit operations.
2. The Usury Law was amended by P.D. 1684 giving the CB-MB
authority to prescribe different maximum rates of interest which may
be imposed for a loan or renewal thereof of the forbearance of any
money, goods or credits, provided that the changes are affected
gradually and announced in advance. Section 1-a of Act No. 2655 now
reads:
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued
CB Circular No. 905, Series of 1982, effective on January 1, 1983. It
removed the ceilings on interest rates on loans or forbearance of any
money, goods or credits: Sec. 1. The rate of interest, including
commissions, premiums, fees and other fees charges, on loan or
forbearance of any money be charged or collected by any person,
 whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury law, as amended.
4. R.A. No. 7653 establishing the BSP (Bangko Sentral ng Pilipinas) to
replace CB:
Sec. 135. Repealing Clause – except as may be provided for in
Sections 46 and 132 of this Act, Republic Act No. 265, as amended,
the provisions of any other law, special charters, rule or regulation
issued pursuant to said Republic Act No. 265, as amended, or parts
thereof, which may be inconsistent with the provisions of this Act are
hereby repealed. President Decree No. 1792 is likewise repealed.
Issues of the Case
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had
the statutory or constitutional authority to prescribe the maximum rates
of interest for all kinds of credit transactions and forbearance of
money, goods or credit beyond the limits prescribed in the Usury Law;
2. If so, whether the CB-MB exceeded its authority when it issued CB
Circular No. 905, which removed all interest ceilings and thus
suspended Act No. 2655 as regards usurious interest rates;
3. Whether under R.A. No. 7653, the new BSP-MB may continue to
enforce CB Circular No. 905.
Ruling of the SC
1. CB-MB has the statutory or constitutional authority to prescribe
the max rates of interest for all kinds of credit transactions and
forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law both under RA 265 and PD 1684
2. The CB-MB merely suspended the effectivity of the Usury Law
when it issued CB Circular No. 905.
Dispositive portion:
Petition for certiorari is DISMISSED.
The power of the CB to effectively suspend the Usury Law pursuant to
P.D. No. 1684 has long been recognized and upheld in many cases.
As the Court explained in the landmark case of Medel v. CA, citing
several cases, CB Circular No. 905 “ did not repeal nor in anyway
amend the Usury Law but simply suspended the latter’s effectivity”.
Thus, according to the Court, by lifting the interest ceiling, CB Circular
No. 905 merely upheld the parties’ freedom of contract to agree freely
on the rate of interest. It cited Art. 1306 of the New Civil Code, under
which the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public
policy.
3. The BSP-MB has authority to enforce CB Circular No. 905.
Moreover, the rule is settled that repeals by implication are not
favored, because laws are presumed to be passed with deliberation
and full knowledge of all laws existing pertaining to the subject. An
implied repeal is predicated upon the condition that a substantial
conflict or repugnancy is found between the new and prior laws unless
irreconcilable inconsistency and repugnancy exists in the terms of the
new and old laws. We find no such conflict between the provisions of
Act 2655 and RA NO. 7653.
The lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and iniquitous
interest.
With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
The 12% per annum rate under CB Circular No. 416 shall
apply only to loans or forbearance of money, goods, or credits, as well
as to judgments involving such loan or forbearance of money, goods,
or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies “when the transaction involves the payment of indemnities in
the concept of damage arising from the breach or a delay in the
performance of obligations in general with the application of both rates
reckoned from the time the complaint was filed until the amount is fully
paid. In either instance, the reckoning period for the commencement
of the running of the legal interest shall be subject to the condition that
the courts are vested with discretion, depending on the equities of
each case, on the award of interest.”