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91 Phil 10

Crown Life Insurance Co.’s whose home office is in Toronto Canada, issued to Ramon Gonzaga through its Manila branch office a 20-year endow-
ment policy for P15K. Ramon paid in due time the agreed yearly premium of P591 for 3 consecutive years, and last payment was on September 6,
On account of the outbreak of war, no premiums were paid after that date, although the policy continued in force up to June 12, 1943 under its
automatic premium loan clause.
When Ramon died in 1945 from an accident, his widow plaintiff Fidela Sales Gonzaga and beneficiary attempted to collect the amount of the policy
but was unsuccessful causing them to file a suit against Crown Life.
Crown Life argued that the policy had lapsed by non-payment of the stipulated premiums of the stipulated dates. The trial court ruled in favor of
Crown Life
Crown Life alleged that during the Japanese occupation, it had its offices open in Manila through its General Agents Hanson Orth and Stevenson,
Fidela asserts that it was Life Crown’s duty to notify her husband Ramon of its new postal address during the war, and that its failure to do so
excused delinquency in the payment of premiums.

ISSUE: WON plaintiff Fidela may claim for benefits even after non-payment due to the war outbreak-

-No. According to evidence, Crown being an enemy corporation, its offices were housed at the Chaco building when the hostilities broke out, were
ordered closed by Japanese Military authorities in January 1942, and officers of Hanson, Orth and Stevenson, Inc., Crown’s general agents, being
American citizens were interned.

-Japanese administration issued Instruction No. 71 by which enemy alien insurance companies were expressly prohibited from doing business.

-Before Instruction No. 71 was promulgated, Hanson Orth and Stevenson, had opened in the house of one of their Filipino employees, an office
with skeleton force, all Filipinos, for the purpose of receiving premiums from their policy holders; notwithstanding the prohibition that office was
not closed.

-In the face of the Japanese Military decrees, which found sanctions of international law, the failure of Crown or its Filipino employees to advice
the insured Ramon of Life Crown’s new address did not work as forfeiture of the right to have premiums satisfied promptly.

-While secret transactions between parties during the war might be binding, it was not obligatory on the insurer, and it was risky for its employees
to send out notices to its widely scattered policy holders, with the postal service under the control and administration of the Japanese. There is no
duty where the law forbids; and there is no obligation without a corresponding right enjoyed by another.

- Crown’s opening of an interim office partook the nature of the privilege to the policy holders to keep their policies operative rather than a duty to
them under the contract

-Furthermore, the policy carried a clause providing for its reinstatement under certain conditions within 3 years from the date of lapse on application
of the insured

Lapse of present policy: June 12, 1943

Opening of Crown Life in Manila (Wilson Building): May 1, 1945
Death of Ramon Gonzaga: June 27, 1945

- It is undoubted that Ramon knew the reopening and resuming of business of Crown since he was an employee of the US Navy, and that the US
Navy had an office in the same Wilson Building that he came to at least 2x a month for his salary

Petition is DISMISSED.


71 Phil 140

On May 9, 1912, Alejandra F. Callao, mother of defendant John F. Villarroel, obtained from the spouses Mariano Estrada and Severina a loan of
P1, 000 payable within seven aiios. Upon death of both creditors and debtors, On August 9, 1930, John F. Villarroel signed a document with
Bernardino Estrada by which the applicant must declare in the amount of P1, 000, with 12 percent of interest to be recovered.
Lower court ruled that payment should be made.

ISSUE: Whether action will prosper despite original debt has prescribed?


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Yes.The right to succeed her in his inheritance, that debt legally contracted by his mother, although it lost its effectiveness by prescription, is now,
however, for a moral obligation is sufficient consideration to create and make effective and enforceable obligation voluntarily contracted.
The rule that a new promise to pay a debt required to be made by the same person obligated or otherwise legally authorized by it, not applicable to
the present case is not required in compliance with the obligation of the originally required, but which later would voluntarily assume this obliga-

69 Phil 101
John C. Robb met A.O. Fisher in a business trip in Shanghai. The two became acquainted through friends and exchanged knowledge regarding dog
racing. Plaintiff as manager of a dog racing course, became interested with the business of the Philippine Greyhound Club, Inc., in Manila and later
informed defendant of his interest to subscribe and be a stockholder of said business. He sent his first installment via Manila telegram. Later, said
business was later change to The Philippine Racing Club, and upon asking for the second installment from plaintiff, he said he already did send the
second installment.

The defendant endeavored to save the investment of those who had subscribed to the Philippine Greyhound Club, Inc., by having the Philippine
Racing Club acquire the remaining assets of the Philippine Greyhound Club, Inc. Through exchange of letters, the plaintiff-appellee wrote the
defendant-appellant requiring him to return the entire amount paid by him to the Philippine Greyhound Club, Inc., Upon receiving this letter, the
defendant-appellant answered the plaintiff-appellee for any loss which he might have suffered in connection with the Philippine Greyhound Club,
Inc., in the same way that he could not expect anyone to reimburse him for his own losses which were much more than those of the plaintiff-appellee

ISSUE: Whether a moral obligation will sustain an express executory promise?

No. Defendant although was morally responsible because of the failure of the enterprise, is not the consideration required by article 1261 of the
Civil Code as an essential element for the legal existence of an onerous contract which would bind the promisor to comply with his promise.
The first essential requisite, therefore, required by the cited article 1261 of the Civil Code for the existence of a contract, does not exists.
As to the third essential requisite, namely, "A consideration for the obligation established," article 1274 of the same Code provides:
In onerous contracts the consideration as to each of the parties is the delivery or performance or the promise of delivery or
performance of a thing or service by the other party; in remuneratory contracts the consideration is the service or benefit for which the
remuneration is given, and in contracts of pure beneficence the consideration is the liberality of the benefactors.
And article 1275 of the same Code provides:
ART. 1275. Contracts without consideration or with an illicit consideration produce no effect whatsoever. A consideration is illicit
when it is contrary to law or morality.



SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos with the Securities, Investigation and Clearing
Department (SICD) of the Securities and Exchange Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE).

The Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of
his right to participate equally in the allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2) the delivery of the IPO
shares he was allegedly deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million as
exemplary damages, and P500,000.00 as attorney’s fees and litigation expenses.

The SICD issued an Order granting respondent’s prayer for the issuance of a Temporary Restraining Order to enjoin petitioners from implementing
or enforcing the Resolution of the MKSE Board of Directors. Subsequently issued another Order on 10 March 1994 granting respondent’s applica-
tion for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678, the implementation or force-
ment of the MKSE Board Resolution in question.

On 11 March 1994, petitioners filed a Motion to Dismiss respondent’s Petition based on the following grounds: (1) the Petition became moot due
to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a cause of action.
The SICD denied petitioner’s Motion to Dismiss. Petitioners again challenged Order of SICD before the SEC en banc through another Petition for

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The SEC en banc nullified the Order of SICD granting a Writ of Preliminary Injunction in favour of respondent. SEC en banc annulled the Order
of SICD in SEC Case No. 02-94-4678 denying petitioners’ Motion to Dismiss, and accordingly ordered the dismissal of respondent’s Petition
before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals. Petitioners filed a Motion for Reconsideration but was denied by the Court of


The petition filled by the respondent, Miguel Campos should be dismissed for failure to state a cause of action.

A cause of action is the act or omission by which a party violates a right of another. A complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to dismissal on the ground
of failure to state a cause of action.

However, the terms right and obligation are not magic words that would automatically lead to the conclusion that such Petition sufficiently states
a cause of action. Right and obligation are legal terms with specific legal meaning. A right is a claim or title to an interest in anything whatsoever
that is enforceable by law while an obligation is defined in the Civil Code as a juridical necessity to give, to do or not to do. Justice J.B.L. Reyes
offers the definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance
of a determinative conduct (the giving, doing or not doing), and in case of breach, may demand satisfaction from the assets of the latter .

Art. 1157 of the Civil Code provides that Obligations arise from (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by
law; and (5) Quasi-delicts.

The mere assertion of a right and claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis or
source thereof, is merely a conclusion of fact and law. (In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondent’s
right to subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners’ obligation to continue respecting
and observing such right, the Petition utterly failed to lay down the source or basis of respondent’s right and/or petitioners’ obligation.)

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989, granting him the position of Chairman Emeritus
of MKSE for life. However, there is nothing in the said Petition from which the Court can deduce that respondent, by virtue of his position as
Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to subscribe to the IPOs of corporations listed in
the stock market at their offering prices. (allocation of IPO shares was merely alleged to have been done in accord with a practice normally observed
by the members of the stock exchange) A practice or custom is, as a general rule, not a source of a legally demandable or enforceable right.


FACTS: An amended Complaint for Specific Performance was filed by petitioners Ang Yu Asuncion and others against Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan before RTC.

Petitioners Ang Yu alleged that they are the tenants or lessees of residential and commercial spaces owned by Bobby Unijeng and others lo-
cated in Binondo, Manila since 1935; that on several occasions before October 9, 1986, the lessors informed the lessees (petitioners) that they
are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price
of P6-million while they made a counter offer of P5-million; that they wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same

The RTC found that Cu Unjiengs’ offer to sell was never accepted by the petitioners (Ang Yu) for the reason that they did not agree
upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. The Court of Appeals affirmed the decision of
the lower court. This decision was brought to the Supreme Court by petition for review on certiorari which subsequently denied the appeal on
May 6, 1991 “for insufficiency in form and substance”. (Referring to the first case filed by Ang Yu)

On November 15, 1990, while the case was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
transferring the subject petitioner to petitioner Buen Realty and Development Corporation.

Petitioner Buen Realty and Development Corporation, as the new owner of the subject property, wrote a letter to the lessees de-
manding that the latter vacate the premises.

On August 30, 1991, the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of petitioners’ right of first refusal and that a
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new Transfer Certificate of Title be issued in favor of the buyer. The court also set aside the title issued to Buen Realty Corporation for having
been executed in bad faith. On September 22, 1991, the Judge issued a writ of execution.

The CA reversed the RTC ruling.

ISSUE: Can Beun Realty be bound be the writ of execution by virtue of the notice of lis pendens?

HELD: No. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concur-
rence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct, required to be ob-
served (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee)
and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its consummation.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.

The registration of the lis pendens are matters that must be independently addressed in appropriate proceedings. Buen Realty, not
having been impleaded cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court


FACTS: Respondent Republic-Asahi Glass Corporation entered into a contract with the proprietor of JDS Construction, for the construction of
roadways and a drainage system in where respondent was to pay JDS inclusive of value added tax for said construction, which was supposed to
be completed within a period of 240 days.

To guarantee the faithful and satisfactory performance of its undertakings, JDS shall post a performance bond of P795, 000. 00. JDS
executed, jointly and severally with petitioner Stronghold Insurance Co., Inc. the Performance Bond.

During the construction, Asahi called the attention of JDS to the alarmingly slow pace of the construction, which resulted in the fear
that the construction will not be finished within the stipulated 240-day period. However, said reminders went unheeded by JDS.

Dissatisfied the progress of the work undertaken by JDS, Asahi extrajudicially rescinded the contract. Because of the recission, Asahi
had to hire another contractor to finish the project, incurring an additional P3, 256, 874. 00.

Asahi then sent the letter to SICI filing its claim under the performance bond, but the letter went unheeded.

Asahi eventually filed a complaint against JDS and Stronghold for damages. However, Jose D. Santos, Jr. had already died and JDS
Construction was no longer at its registered address, with its whereabouts unknown.

In its defense, on July 10, 1991, Stroghold maintains that Asahi’s money claims against it and JDS have been extinguished by the death
of Jose D. Santos, Jr.

ISSUE: Whether or not the death of Santos can be a defense of Stronghold. Otherwise stated, whether or not Stronghold’s liability under the
performance bond was automatically extinguished by the death of Santos, the principal.

HELD: No. As a general rule, the death of either the creditor or the debtor does not extinguish the obligation. Obligations are transmissible to
the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the nature of the obligation. Only obligations
that are personal or are identified with the persons themselves are extinguished by death. Section 5 of Rule 86 of the Rules of Court expressly
allows the prosecution of money claims arising from a contract against the estate of a deceased debtor. Evidently, those claims are not actually
extinguished. What is extinguished is only the obligee’s action or suit filed before the court, which is not then acting as a probate court.

In the present case, whatever monetary liabilities or obligations Santos had under his contracts with respondent were not intransmis-
sible by their nature, by stipulation, or by provision of law. Hence, his death did not result in the extinguishment of those obligations or liabili-
ties, which merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out the obligations under the perfor-
mance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its performance bond.


FACTS: Fontanilla’s taxi collided with a “kalesa” thereby killing the 16 year old Faustino Garcia. Faustino’s parents filed a criminal suit against
Fontanilla and reserved their right to file a separate civil suit. Fontanilla was eventually convicted. After the criminal suit, Garcia filed a civil suit
against Barredo – the owner of the taxi (employer of Fontanilla). The suit was based on Article 1903 of the civil code (negligence of employers in
the selection of their employees). Barredo assailed the suit arguing that his liability is only subsidiary and that the separate civil suit should have
been filed against Fontanilla primarily and not him.
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ISSUE: Whether or not Barredo is just subsidiarily liable.

HELD: No. He is primarily liable under Article 1903 which is a separate civil action against negligent employers. Garcia is well within his rights in
suing Barredo. He reserved his right to file a separate civil action and this is more expeditious because by the time of the SC judgment Fontanilla
is already serving his sentence and has no property. It was also proven that Barredo is negligent in hiring his employees because it was shown
that Fontanilla had had multiple traffic infractions already before he hired him – something he failed to overcome during hearing. Had Garcia
not reserved his right to file a separate civil action, Barredo would have only been subsidiarily liable. Further, Barredo is not being sued for dam-
ages arising from a criminal act (his driver’s negligence) but rather for his own negligence in selecting his employee (Article 1903).

A quasi-delict or "culpa aquiliana" is a separate legal institution under the Civil Code, with a substantivity all its own, and individuality
that is entirely apart and independent from a delict or crime. Upon this principle, and on the wording and spirit of article 1903 of the Civil Code,
the primary and direct responsibility of employers may be safely anchored.

The individuality of cuati-delito or culpa extra-contractual looms clear and unmistakable. This legal institution is of ancient lineage,
one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal términology, this responsibility is often referred to as
culpa aquiliana. The Partidas also contributed to the genealogy of the present fault or negligence under the Civil Code.

The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources of obligations is this
legal institution of cuasi-delito or culpa extra-contractual. Then article 1093 provides that this kind of obligation shall be governed by Chapter II
of Title XVI of Book IV, meaning articles 1902-1910. This portion of the Civil Code is exclusively devoted to the legal institution of culpa aquili-

A distinction exists between the civil liability arising from a crime and the responsibility for cuasi-delitos or culpa extra-contractual.
The same negligent act causing damages may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create
an action for cuasi-delito or culpa extra-contractual under articles 1902-1910 of the Civil Code. Plaintiffs were free to choose which remedy to
enforce. Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasi-delito under the Civil Code are enumer-
ated in the decision.

CASE NO. 8. MENDOZA vs ARRIETA, 91 SCRA 113, JUNE 29, 1979

FACTS: A three- way vehicular accident occurred involving a car owned and driven by petitioner Edgardo Mendoza, a private jeep owned and
driven by respondent Rodolfo Salazar, and a gravel and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya.

As a consequence of said mishap, two separate Informations for Reckless Imprudence Causing Damage to Property were filed against
Rodolfo Salazar and FreddieMontoya with the CFI of Bulacan. The trial Court absolved jeep-owner-driver Salazar of any liability, civil and crimi-
nal, in view of its findings that the collision between Salazar’s jeep and petitioner’s car was the result of the former having been bumped from
behind by the truck driven by Montoya.

Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but only against jeep-owner-
driver Salazar. After the termination of the criminal cases, petitioner filed a civil case against respondents Salazar and Timbol for the damages
sustained by his car as a result of the collision involving their vehicle

ISSUE: Whether or not the lower court in dismissing petitioner’s complaint for damages based on quasi-delict against private respondents.

HELD: The owner of a car which was bumped by a jeep after the latter was bumped from behind by a truck may still file a civil action for dam-
ages against the truck driver and its owner even after the truck driver was adjudged guilty in the criminal case filed by the jeepney driver
against said truck driver and the jeepney driver, in the case filed by the car owner was acquitted in the criminal case for negligence filed by the
car owner against the jeepney driver.

Reason: There is no identity of cause of action between the civil case in question and the criminal case against the truck driver for
damage to the jeep. It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is no
identity of case of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal case truck driver
Montoya was not prosecuted for damage to petitioner’s car but for damage to the jeep.

Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it “the owner of the Mercedes Benz cannot re-
cover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No.
SM-228”. And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal negli-
gence under Article 100 of the Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Arti-
cle 2176 of the Civil Code.

PSBA vs CA 205 SCRA 729


Carlitos Bautista, a third-year commerce student of PSBA, was stabbed to death while on the second-floor premises of the school. The assailants
were not members of the schools’ academic community but were elements from outside the school. The parents of Carlitos filed a civil action
against the school authorities, alleging them negligent, reckless and with failure to take security precautions, means and methods before, during
Page 5 of 25
and after the attack on the victim. The appellate court found in their favor, primarily anchoring its decision on the law of quasi-delicts.

Hence, the petition.


o Whether or not the appellate court was correct in deciding the case based on Article 2180 (in loco parentis)
o Whether or not the application of the law on quasi-delict is proper when there is a pre-existing contract


The SC did not agree with the premises of the CA’s ruling. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule in
in loco parentis. It had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or
students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material
situation does not exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of PSBA, for whose acts the school
could have been made liable.


It does not necessarily follow. When an academic institution accepts students for enrollment, there is established a contract between them, resulting
in bilateral obligations which both parties are bound to comply with. Moreover, there is that “built-in” obligation to provide students with an
atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. The school must ensure that adequate steps are
taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.

Because the circumstances of the present case evince a contractual relation between PSBA and Carlitos, the rules on quasi-delict do not really
govern. However, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person.
When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the
contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties. Art. 21 of the Civil Code
comes to mind, so that should the act which breaches a contract be done in bad faith and violative of Art. 21, then there is a cause to view the act
as constituting a quasi-delict.

In the present case, there is no finding that the contract between the school and Carlitos had been breached thru the former’s negligence in providing
proper security measures.

Alfredo Amadora, while in the auditorium of the school, was mortally hit by a gun by Pablito Daffon resulting to the former’s death. Daffon was
convicted of homicide through reckless imprudence. The victim’s parents, herein petitioners, filed a civil action for damages against Colegio de
San Jose-Recoletos, its rectors, high school principal, dean of boys, the physics teacher together with Daffon and 2 other students. Complaints
against the students were dropped. Respondent Court absolved the defendants completely and reversed CFI Cebu’s decision for the following
reasons: 1. Since the school was an academic institution of learning and not a school of arts and trades 2. That students were not in the custody of
the school since the semester has already ended 3. There was no clear identification of the fatal gun, and 4. In any event, defendants exercised the
necessary diligence through enforcement of the school regulations in maintaining discipline. Petitioners on othe other hand claimed their son was
under school custody because he went to school to comply with a requirement for graduation (submission of Physics reports).
ISSUE: WON Collegio de San Jose-Recoletos should be held liable.
The time Alfredo was fatally shot, he was in the custody of the authorities of the school notwithstanding classes had formally ended when the
incident happened. It was immaterial if he was in the school auditorium to finish his physics requirement. What was important is that he was there
for a legitimate purpose. On the other hand, the rector, high school principal and the dean of boys cannot be held liable because none of them was
the teacher-in-charge as defined in the provision. Each was exercising only a general authority over the students and not direct control and influence
exerted by the teacher placed in-charge of particular classes.
In the absence of a teacher- in charge, dean of boys should probably be held liable considering that he had earlier confiscated an unlicensed gun
from a student and later returned to him without taking disciplinary action or reporting the matter to the higher authorities. Though it was clear
negligence on his part, no proof was shown to necessarily link this gun with the shooting incident.
Collegio San Jose-Recoletos cannot directly be held liable under the provision because only the teacher of the head of school of arts and trade is
made responsible for the damage caused by the student. Hence, under the facts disclosed, none of the respondents were held liable for the injury
inflicted with Alfredo resulting to his death.
In March 1958, Rafael Carrascoso and several other Filipinos were tourists en route to Rome from Manila. Carrascoso was issued a first class round
trip ticket by Air France. But during a stop-over in Bangkok, he was asked by the plane manager of Air France to vacate his seat because a white

Page 6 of 25
man allegedly has a “better right” than him. Carrascoso protested but when things got heated and upon advise of other Filipinos on board, Carrascoso
gave up his seat and was transferred to the plane’s tourist class.
After their tourist trip when Carrascoso was already in the Philippines, he sued Air France for damages for the embarrassment he suffered during
his trip. In court, Carrascoso testified, among others, that he when he was forced to take the tourist class, he went to the plane’s pantry where he
was approached by a plane purser who told him that he noted in the plane’s journal the following:

First-class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene Commented [1]:
The said testimony was admitted in favor of Carrascoso. The trial court eventually awarded damages in favor of Carrascoso. This was affirmed by
the Court of Appeals.
Air France is assailing the decision of the trial court and the CA. It avers that the issuance of a first class ticket to Carrascoso was not an assurance
that he will be seated in first class because allegedly in truth and in fact, that was not the true intent between the parties.
Air France also questioned the admissibility of Carrascoso’s testimony regarding the note made by the purser because the said note was never
presented in court.
ISSUE 1: Whether or not Air France is liable for damages and on what basis.
ISSUE 2: Whether or not the testimony of Carrasoso regarding the note which was not presented in court is admissible in evidence.
HELD 1: Yes. It appears that Air France’s liability is based on culpa-contractual and on culpa aquiliana.
Culpa Contractual
There exists a contract of carriage between Air France and Carrascoso. There was a contract to furnish Carrasocoso a first class passage; Second,
That said contract was breached when Air France failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when
Air France’s employee compelled Carrascoso to leave his first class accommodation berth “after he was already, seated” and to take a seat in the
tourist class, by reason of which he suffered inconvenience, embarrassments and humiliations, thereby causing him mental anguish, serious anxiety,
wounded feelings and social humiliation, resulting in moral damages.
The Supreme Court did not give credence to Air France’s claim that the issuance of a first class ticket to a passenger is not an assurance that he will
be given a first class seat. Such claim is simply incredible.
Culpa Aquiliana
Here, the SC ruled, even though there is a contract of carriage between Air France and Carrascoso, there is also a tortuous act based on culpa
aquiliana. Passengers do not contract merely for transportation. They have a right to be treated by the carrier’s employees with kindness, respect,
courtesy and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages against
the carrier. Air France’s contract with Carrascoso is one attended with public duty. The stress of Carrascoso’s action is placed upon his wrongful
expulsion. This is a violation of public duty by the Air France — a case of quasi-delict. Damages are proper.
HELD: 2: Yes. The testimony of Carrascoso must be admitted based on res gestae. The subject of inquiry is not the entry, but the ouster incident.
Testimony on the entry does not come within the proscription of the best evidence rule. Such testimony is admissible. Besides, when the dialogue
between Carrascoso and the purser happened, the impact of the startling occurrence was still fresh and continued to be felt. The excitement had not
as yet died down. Statements then, in this environment, are admissible as part of the res gestae. The utterance of the purser regarding his entry in
the notebook was spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been guaranteed. It thus escapes the
operation of the hearsay rule. It forms part of the res gestae.
1941, The Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte. Domingo De La Cruz was
employed whose duties were to guard the main entrance, to maintain peace and order and to report the commission of disorders within premises.
He carried a revolver.

Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the refusal of De la Cruz to let him in without first
providing himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which
moment to save himself he shot Martin, resulting in Benjamin Martin’s death.

De la Cruz was charged with homicide. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss the complaint,
which was granted by the court. De la Cruz was again accused of the same crime of homicide. After trial, he was finally acquitted of the charge.

He then demanded from former employer to repay the expenses but was refused thus filed present action against the Northern Theatrical
Enterprises Inc company and to three members of its Board of Directors to recover amounts he had paid his lawyers including moral damages
said to have been suffered due to his worry, neglect of his interests and his family as well in the supervision of the cultivation of his land, a total
of P 15,000.

Page 7 of 25
Court of First Instance of Ilocos Norte rejected the theory of De la Cruz because he was an agent of Northern Theatrical Enterprises Inc. and that
as such agent he was entitled to compensate the expenses incurred by him in connection with the agency.

The court found and decided that De La Cruz had no cause of action and dismissed the complaint without costs.

Whether or not an agent who’s in the line of duty performs an act that resulted in his incurring expenses caused by a stranger. May the latter
recover the said expenses against his former employer.

No, because the relationship between the Northern Theatrical Enterprises Inc. and plaintiff was not that of principal and agent because the
principle of representation as a characteristic of agency was in no way involved. Plaintiff was not employed to represent corporation in its dealings
with third parties. Plaintiff is a mere employee hired to perform a certain specific duty or task, that of acting as a special guard and staying at the
main entrance of the movie house to stop gate crashers and to maintain peace and order within the premises.


FACTS:In September 1975, Borilla was driving a jeep when he hit Arsenio Virata thereby causing the latter’s death. The heirs of Virata sued
Borilla through an action for homicide through reckless imprudence in the CFI of Rizal. Virata’s lawyer reserved their right to file a separate civil
action the he later withdrew said motion. But in June 1976, pending the criminal case, the Viratas again reserved their right to file a separate civil
action. Borilla was eventually acquitted as it was ruled that what happened was a mere accident. The heirs of Virata then sued Borilla and Ochoa
(the owner of the jeep and employer of Borilla) for damages based on quasi delict. Ochoa assailed the civil suit alleging that Borilla was already
acquitted and that the Virata’s were merely trying to recover damages twice. The lower court agreed with Ochoa and dismissed the civil suit.

ISSUE: Whether or not the heirs of Virata may file a separate civil suit.
HELD: Yes. It is settled that in negligence cases the aggrieved parties may choose between an action under the Revised Penal Code or of quasi-
delict under Article 2176 of the Civil Code of the Philippines. What is prohibited by Article 2177 of the Civil Code of the Philippines is to recover
twice for the same negligent act. Therefore, under the proposed Article 2177, acquittal from an accusation of criminal negligence, whether on
reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil liability arising from criminal negligence, but for damages due
to a quasi-delict or ‘culpa aquiliana’. But said article forestalls a double recovery.


FACTS: Charles Vallereja, a 7-year old son of the sps. Vallejera, was hit by a Ford Fiera van owned by L.G. Foods Corp. and driven at that time
by their employee Ferrer. The child died as a result of the accident. An Information for Reckless Imprudence Resulting to Homicide was filed
against the driver before the MTCC in Bacolod. Unfortunately, before the trial could be concluded, the accused driver committed suicide. Thus, the
MTCC dismissed the criminal case. Sps. Vallejera filed a complaint for damages against petitioner as employers of the deceased driver, alleging
that as such employers, they failed to exercise due diligence in the selection and supervision of their employees. Defendants denied liability and
asserted that they exercised due diligence in the selection and supervision of their employees. Petitioners insisted that their dismissal prayer be
resolved and the court required them to file within 10 days a memorandum of authorities supportive of their position. Instead of filing the required
memorandum, they filed a Motion to Dismiss, arguing that the complaint is a claim for subsidiary liability against an employed under Art. 103,
RPC. They contended that there must first be a judgment of conviction against their driver as a condition sine qua non to hold them liable. Ergo,
since the driver died during the pendency of the criminal action, the sine qua non condition for their subsidiary liability was not fulfilled, hence the
of lack of cause of action on the part of the plaintiffs. They further argue that since the plaintiffs did not make a reservation to institute a separate
action for damages when the criminal case was filed, the damage suit in question is thereby deemed instituted with the criminal action, which was
already dismissed. The trial court denied their motion for lack of merit and set the case for trial. Their motion for reconsideration was denied by the
same court. They filed a petition for review on certiorari before the CA but it only upheld the lower court's decision. It held that the case exacts
responsibility for fault or negligence under Article 2176, Civil Code, which is entirely separate and distinct from the civil liability arising from
negligence under the Revised Penal Code. Therefore, the liability under Article 2180, Civil Code, is direct and immediate, and not conditioned
upon prior recourse against the negligent employee or prior showing of the latter's insolvency.

ISSUE: Whether the spouses' cause of action in their civil case is founded on Article 103 RPC or derived from Article 2180 of the Civil Code

HELD: Civil Case No. 99-10845 is a negligence suit brought under Article 2176 - Civil Code to recover damages primarily from the petitioners as
employers responsible for their negligent driver pursuant to Article 2180 of the Civil Code. The obligation imposed by Article 2176 is demandable
not only for one's own acts or omissions, but also for those of persons for whom one is responsible. Thus, the employer is liable for damages caused
by his employees and household helpers acting within the scope of their assigned tasks, even though the former is not engaged in any business or
industry. The circumstance that no reservation to institute a separate civil action for damages was made when the criminal case was filed is of no
moment for the simple reason that the criminal case was dismissed without any pronouncement having been made therein. In reality, therefore, it
is as if there was no criminal case to speak of in the first place. And for the petitioners to insist for the conviction of their driver as a condition sine
qua non to hold them liable for damages is to ask for the impossible


FACTS: The day after the declaration of martial law, or on September 22, 1972, just before midnight, militarytroops arrived at the ABS-CBN
Broadcast Center ordering the closure of all radio and television stations in thecountry.

Page 8 of 25
Corollary thereto, sometime in November 1972, Eugenio Lopez, Jr., then president ofABS-CBN, wrote then Secretary of National Defense, Juan
Ponce Enrile, of their desire to sellABS-CBN to the government. In that same month, however, Eugenio Lopez, Jr. was arrested by themilitary, and
detained at Fort Bonifacio for almost five (5) years until his escape therefrom on September30, 1977.

Subsequently, after the proposal to sell ABS-CBN to the Marcos government did not materialize,

On even date, both Benedicto and Alfredo Montelibano, relaying his plan to temporarily use

ABS-CBN's broadcast studios in QuezonCity, from which to operate TV Channel 9, for such period of time as may be necessary to rebuild
KBS'burned studios.

In June 1986, President Corazon Aquino, acting on the request of ABS-CBN through Senator Tañada, returned to ABS-CBN these radio and TV
stations on a gradual and scheduled basis.

As required by the Ombudsman, the respondents, except for Garcia, filed their respective counter-affidavits, with Benedicto adopting that of Gon-
zales', denying petitioners' charges.

Thereafter, with the issues having been joined, the Ombudsman issued the herein assailed Joint Resolution dismissing petitioners' complaints. To
the Ombudsman, the following circumstances did not give rise to probable cause necessary to indict respondents for the various felonies charged.

ISSUE: whether the Ombudsman committed grave abuse of discretion in dismissing petitioners' complaint against the respondents.

RULING: We rule in the negative and, accordingly,dismiss the petition.

We cannot overemphasize the fact that the Ombudsman is a constitutional officer duty bound to "investigate on its own, or on complaint by any
person, any act or omission of any public official, employee, office or agency, when such act or omission appears to be illegal, unjust, improper, or
inefficient." The raison d 'etre for its creation and endowment of broad investigative authority is to insulate it from the long tentacles of officialdom
that are able to penetrate judges' and fiscals' offices, and others involved in the prosecution of erring public officials, and through the execution of
official pressure and influence, quash, delay, or dismiss investigations into malfeasances and misfeasances committed by public officers.

Indeed, the Ombudsman is empowered to determine whether there exist reasonable grounds to believe that a crime has been committed and that
the accused is probably guilty thereof and, thereafter, to file the corresponding information with the appropriate courts. The Ombudsman may thus
conduct an investigation if the complaint filed is found to be in the proper form and substance. Conversely, the Ombudsman may also dismiss the
complaint should it be found insufficient in form or substance.

Unless there are good and compelling reasons to do so, the Court will refrain from interfering with the exercise of the Ombudsman's powers, and
respect the initiative and independence inherent in the latter who, beholden to no one, acts as the champion of the people and the preserver of the
integrity of public service.

The rule is based not only upon respect for the investigatory and prosecutory powers granted by the Constitution to the Office of the Ombudsman
but upon practicality as well. Otherwise, the functions of the courts will be grievously hampered by innumerable petitions assailing the dismissal
of investigatory proceedings conducted by the Office of the Ombudsman with regard to complaints filed before it, in much the same way that the
courts would be extremely swamped if they would be compelled to review the exercise of discretion on the part of the fiscals or prosecuting
attorneys each time they decide to file an information in court or dismiss a complaint by private complainants.

As petitioners have ratified the letter-agreement, even after the lifting of martial law and the toppling of the Marcos government, and advanced the
validity of the letter-agreement in their claim against the estate of Benedicto, they cannot, in the same breath, aver that respondents' actuations in
the execution of the letter-agreement were criminal in nature, or that the letter-agreement was more ostensible than real and to insist on the prose-
cution of respondents for felonies supposedly committed in connection with this ubiquitous letter-agreement.[30]

In fine, the Ombudsman did not abuse his discretion in determining that the allegations of petitioners against respondents are civil in nature, bereft
of criminal character. Perforce, he was correct in dismissing petitioners' complaint-affidavits.

WHEREFORE, premises considered, the petition is hereby DISMISSED. Roberto S. Benedicto and Salvador Tan are dropped as private respond-
ents without prejudice to the filing of separate civil actions against their respective estates. The assailed Joint Resolution and Order of the Ombuds-
man in OMB-0-94-1109 are AFFIRMED.

People v. Ritter

Heinrich Ritter inserted something into the vagina of Rosario Baluyot, a street child, which eventually led to her death due to infection. The RTC
convicted him.

The SC acquitted Ritter, holding that no qualifying circumstances of rape were proven. However, in accordance with Art. 29 of the Civil Code,
Ritter was still made liable for damages to Baluyot’s family.


Page 9 of 25
Heinrich Stefan Ritter, an Austrian, was convicted of the rape with homicide of Rosario Baluyot. Ritter brought a boy and a girl with him to his
room at MGM Hotel. The 2 children were Jessie “Egan”Ramirez and Rosario Baluyot, both street children. Jessie testified that Ritter took out
pictures of young boys in various getups and showed him 3 objects “like a Vicks inhaler,” one of which was eventually left in Rosario’s vagina.

After Ritter carried out sexual acts, including masturbation and insertion of the object in Baluyot’s vagina, he left the children at the hotel and
gave them 200 and 300 pesos, respectively. Rosario said that the Ritter left something in her vagina. She later said that it had been removed from
inside of her, but she died 7 months later from infection. After a joint investigation between the Olongapo Police and the NISRA Subic Naval Base
Service, Ritter was arrested at the corner of A. Mabini and M.H. Del PilarStrets, as he was a male Caucasian who looked like a homo-sexual. Jessie
Ramirez identified him as the “American” who took him to the hotel. 3 inhalers and $1,500 were found on his person. At trial, Ritter’s defense
was that there was no way that he was the perpetrator, as the rapist was described as a black American with a beard, while he was a clean-shaven
white Austrian.
He also said that Baluyot was already 13 years old at the time of the incident. Finally, he could not be charged for homicide because a dildo is not
a weapon of death but a thing used for sexual pleasure; the death was not because of the vibrator, but because of the incompetence of the
Surgeon who operated on Baluyot.

The RTC convicted Ritter of rape with homicide. Hence, this appeal.
1. Whether or not Ritter’s conviction should be upheld. (No.)
2. Whether or not it was proven that Baluyot was under 12 years of age.
3. Whether or not he may still be civilly liable.

1. The Court found that there was reasonable doubt sufficient to cause an acquittal. To summarize:
a. The evidence to prove that Baluyot was less than 12 at the time of the incident was hearsay and not admissible. Testimonies from her
grandparents and father that they thought she was under 12 at the time of the incident, and the death certificate indicating she was 12
years old when she was admitted, based on Baluyot’s guardian were not admissible for not fulfilling the requirements of Evidence as to
Pedigree, namely that the declarants were still alive when they gave the information, or that the witnesses were not members of her
b. Her baptismal certificate created reasonable doubt as to age as well, as to believe it would mean that she was not yet born when
c. There is no proof as to any other qualifying circumstance for rape.
d. Ramirez’ testimony was likewise hearsay.
e. It was improbable for a foreign object with active properties to cause serious infection not immediately after insertion, but only after
seven months.
f. The testimony of Ramirez stated that “Ginamit siya ng Negro.” Ritter is not a black.

Thus, there was a reasonable doubt, and Ritter must be acquitted.

Phoenix Assurance Company VS United States Lines

On June 29, 1962, General Motors shipped and consigned on a CIF basis to Davao Parts and Service, Inc. at Davao City from New York aboard the
United States Lines' vessel SS "Pioneer Moor" a cargo of truck spare parts in 25 cases and 4 crates, for which United States Lines issues a short
form bill of lading No. T-1 and which shipment was insured against loss and damage with Phoenix Assurance Co., Ltd. The short form bill of lading
No. T-1 indicated Manila as the port of discharge and Davao City as the place where the goods were to be transshipped, and expressly incorpo-
rated by reference the provisions contained in the carrier's regular long form bill of lading.

Some of the crates were not delivered, prompting Davao Parts to file a claim of P2,010 for the 4 crates that were lost.

USL, after proper verification, paid Davao Parts the value of the just the 2 crates. The other 2 crates allegedly were lost in the custody of the
Manila Port Service. And USL refuse to pay for it.

Issue: Whether or not the lower court erred in dismissing the complaint and in exonerating defendant-appellee from liability for the value of the
two undelivered crates.


It must be stated at the outset that a bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract
to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity,
weight, dimensions, identification marks and condition, quality, and value. As a contract, it names the contracting parties, which include the
consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed by the parties.

It is admitted by both parties that the crates subject matter of this action were lost while in the possession and custody of the Manila Port Service.
Since the long form of Bill of Lading provides that "The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods

Page 10 of 25
while the goods are not in its actual custody," appellee cannot be held responsible for the loss of said crates. For as correctly observed by the
lower court, it is hardly fair to make appellee accountable for a loss not due to its acts or omissions or over which it had no control.

Pichel vs. Alonzo


This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14, 1968 and executed by Prudencio
Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded to the former by the Philippine Government under Republic
Act No. 477. That the sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for
future fruits to be produced on the said parcel of land during the years period; which shall commence to run as of SEPTEMBER 15,1968; up to
JANUARY 1, 1976. In July 1972, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of
the coconut trees in the land.


Whether or not the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's
land or it actually is, for all legal intents and purposes, a contract of lease of the land itself?


The Supreme Court ruled that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose
any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement
are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philip-
pines which provides that: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control ... . Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is
the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 9
The provisions of the contract itself and its characteristics govern its nature. 4 Simply and directly stated, the "Deed of Sale dated August 14,
1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21,
and not for the lease of the land itself as found by the lower Court. In clear and express terms, the document defines the object of the contract
thus: "the herein sale of the coconut fruits are for the fruits on the aforementioned parcel of land during the years (from) SEPTEMBER 15, 1968;
up to JANUARY 1, 1976." Moreover, as petitioner correctly asserts, the document in question expresses a valid contract of sale. It has the essen-
tial elements of a contract of sale as defined under Article 1485 of the New Civil Code which provides thus: Art. 1458. By the contract of sale
one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

The Bachrach Motor Co v. Faustino Espiritu, Ramon Espiritu

G.R. No. L-28497 November 6, 1928

1. This case involves two separate sale transactions. One in July 1925 when Faustino bought a truck from Bachrach Motor on installment. To
secure payment , Mr Espiritu mortgaged this truck together with two others (no. 77197 & 92744 in the subsequent sale transaction dated July
1925). The two of the other trucks were already paid. Faustino failed to pay the balance of this truck. It appears that in Feb 1925, Faustino pur-
chased another truck from Bachrach. The said truck, together with two other vehicles ((no. 77197 & 92744 ) were mortgaged to the plaintiff to
secure the remaining balance. Faustino failed to pay the balance for this truck (July 1925) obtained.

2. It was agreed in both sales that 12% interest will be paid on the unpaid price, and in case of non-payment of total debt at maturity, 25%
shall be the penalty. Mr Espiritu also signed a promissory note solidarily with his brother Rosario (acting as intervenor), the sums secured by
the mortgages. Rosario is alleged to be the owner of the two white trucks no. 77197 & 92744 mortgaged.

3. While these two cases were pending in the lower court, the mortgaged trucks were sold by virtue of the mortgage, all of them to-
gether bringing in, after deducting the sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.

4. Lower Court: ordered Faustino Espiritu and Rosario to pay plaintiff –

In case 28497 the sum of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until fully paid, and 25 per cent
thereof in addition as penalty. In case 28498, the sum of P4,208.28 with interest at 12 per cent per annum from December 1, 1925 until fully
paid, and 25 per cent thereon as penalty.

5. Faustino contend that (a) trucks 77197 and 92744 were not mortgaged, because, when he signed the mortgage deeds these trucks were not
included in those documents, and were only put in later, without his knowledge; (b) Faustino sold his rights in trucks Nos. 77197 and 92744 to
Rosario (who intervened in this case as owner of the 2 trucks), and that as Rosario did not sign the mortgage deeds, such trucks cannot be con-
sidered as mortgaged. c) that Faustino and Rosario did not sign the promissory notes, as he (Rosario) was in Ilocos Norte when doc was sup-
posed sign d) that the 25% penalty is usurious

Page 11 of 25

Is the 25% penalty upon the debt in addition to the 25% p.a. usurious. -- NO


Court said there is positive proof that the trucks were included at the time the Faustino signed the mortgage deeds. Besides, two of Faustino's
letters to Hidalgo, an employee of Bacharach Motors written a few days before the transaction, showed him to acquiesce in the inclusion of all
his White
trucks already paid for, in the mortgage (Exhibit H-I). Evidence also shows that, Faustino and Rosario, signed two promissory notes (Exhibits B
and D) secured by these two mortgages. All these instruments were executed at the same time, and when the trucks 77197 and 92744 were
included in the mortgages. Intervenor Rosario was aware of it and consented to such inclusion. These facts are supported by the testimony of
Bachrach, manager of the plaintiff corporation, of Agustin Ramirez, who witnessed the execution of all these documents, and of Angel Hidalgo,
who witnessed the execution of such documents. Claim of intervenor Rosario that he did not sign promissory notes is not sufficient to over-
throw the evidence. A comparison of his signature convinces us that the latter are his signatures. And such is our conclusion, notwithstanding
the evidence presented to establish that on the date when Exhibit B appears to have been signed, that is, July 25, 1925, the intervenor was in
Batac, Ilocos Norte, away from Manila, as this does not necessarily prove that the latter could not have been in Manila on the 25th of that
month. Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreement, the
penalty, as was held in the case of Lopez vs. Hernaez, does not include the interest, and which may be demanded separately. The penalty is not
to be added to the interest for the determination of whether the interest exceeds the rate fixed by the law, since said rate was fixed only for
the interest (and the penalty is separate) But considering that the obligation was partly performed, and making use of the power given to the
court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt. The penalty is however reduced from 25 %
upon the sum owed, Faustino and Rosario need to pay only 10 % thereon as penalty.

UST cooperative vs City of Manila

-UST cooperative store is a cooperative association registered with SEC on 1947
-Their net assets never exceeded P500k.
-RA 2023 was passed on 1957 which made registered cooperatives with net assets below P500k to be exempted from all taxes and government
-UST continued paying their taxes since 1957, hence, after realizing the effects of RA 2023, they filed for the recovery of their paid taxes.

Issue: Does the City of Manila have the obligation to refund UST cooperative in the erroneously paid taxes considering that it was done volun-

-Yes. It is based on equity and good conscience to the person who paid it. (4 AM. Jur. 514)

-The principle of unjust enrichment applies in this case.
-The sources of obligations are the law,contracts, quasi-contracts, delict, and quasi-delict. (I think, the rule on recovery is part of quasi-con-

This is an appeal by respondents from the decision of the Court of First Instance of Manila ordering them to refund to appellee the sums it had
paid to the City of Manila as municipal taxes and license fees for the period beginning July 1957 up to December 1958. The total amount in-
volved is P12,315.10.
The material facts were stipulated by the parties. Appellee is a duly organized cooperative association registered with the Securities and Exchange
Commission on March 18, 1947 in accordance with Commonwealth Act No. 565 as amended. Its net assets never exceeded P500.000 during the
years 1957, 1958 and 1959. From the time of its registration it was under the jurisdiction of the Cooperative Administration Office.
On June 22, 1957 Republic Act No. 2023, otherwise known as the Philippine Non-Agricultural Cooperative Act, was approved by Congress,
amending and consolidating existing laws on non-agricultural cooperatives in the Philippines. The two provisions of said Act which bear on the
present case are sections 4(1) and 66(1), which reads as follows:
"Sec. 4(1) Every co-operative under the jurisdiction of the Co-operatives Administration Office existing at the time of the approval of this Act
which has been registered under existing cooperative laws (Commonwealth Act five hundred sixty-five, Act Twenty five hundred eight and Act
Thirty-four hundred twenty-five, all as amended) shall be deemed to be registered under this Act, and its by-laws shall so far as they are not in-
consistent with the provisions of this Act, continue in force and be deemed to be registered under this Act."
"Sec. 66(1) Cooperatives with net assets of not more than five hundred thousand pesos shall be exempt from all taxes and government fees of
whatever name and nature except those provided for under this Act: * * *"
Unaware of the exemption provided for in section 66 (1) appellee paid to respondent City of Manila municipal taxes and license fees in the total
amount and for the Period already stated. In May 1959 appellee requested a Refund of said amount from the City Treasurer, but the request was
denied. Hence the present suit.

Page 12 of 25
Appellants contend that the exemption under section 66(1) does not apply to appellee because the latter was carrying business not only with its
members but also with the general public. It may be noted that this fact is not a ground for non-exemption from taxes and license fees. What the
law imposes and that under another section (Sec. 58) is a restriction to the effect that a cooperative shall not transact business with non-members
to exceed that done with members. There is no proof that this restriction has been violated; and in any case, the law does not provide that the pen-
alty for such violation is the non-exemption of the cooperative concerned. All that is required for purposes of exemption is that the cooperative be
registered under Republic Act 2023 and that its net assets be not more than P500,000. On the question of registration, section 4 is clear that every
cooperative under the jurisdiction of the Cooperatives Administration Office existing at the time of the approval of this Act which has been regis-
tered under existing cooperative laws (as in the case of appellee here) shall be deemed to be registered under this Act.
Appellant next argues that since the taxes and license fees in question were voluntarily paid they can no longer be recovered, as appellee was
presumed to know the law concerning its exemption and hence must be considered as having waived the benefit thereof. That the payment was
erroneously made there can be no doubt. The error consisted in appellee's not knowing of the enactment of Republic Act No. 2023, which alt-
hough passed in June 1957 was published only in the issue of the Official Gazette for December of the same year. The following authorities cited
by appellee appear to us to be of persuasive force:
"A payment of taxes under a mistake of fact has been not to be voluntary, and is therefore recoverable." (51 Am. 1023)
"On principle, a recovery should be allowed where money is paid under a mistake of fact although such mistake of fact may he induced by a mis-
take of law, or where there is both a mistake of fact and a mistake of law." (40 Am. Jur. 846)
"When money is paid to another under the influence of a mistake of fact that is, on the mistaken supposition of the existence of the specific fact
which would entitle the other to the money and it would not have been paid had the person making the payment known that the fact was other-
wise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs, in
equity and in good conscience, to the person who paid it." (4 Am. Jur. 514)We find no reason to attribute negligence to appellee in making the
payments in question especially considering that the new law involved a change in its status from a taxable to a tax-exempt institution; and if it
continued to pay for a time after the exemption became effective it did so in a desire to abide by what it believed to be the law. No undue disad-
vantage should be visited upon it as a consequence thereof.
The decision appealed from is affirmed, without pronouncement as to costs

On October 23, 1980, petitioner Filomeno Urbano was on his way to his ricefield. He found the place where he stored palay flooded with water
coming from the irrigation canal. Urbano went to the elevated portion to see what happened, and there he saw Marcelino Javier and Emilio Efre
cutting grass. Javier admitted that he was the one who opened the canal. A quarrel ensued, and Urbano hit Javier on the right palm with his bolo,
and again on the leg with the back of the bolo. On October 27, 1980, Urbano and Javier had an amicable settlement. Urbano paid P700 for the
medical expenses of Javier. On November 14, 1980, Urbano was rushed to the hospital where he had lockjaw and convulsions. The doctor found
the condition to be caused by tetanus toxin which infected the healing wound in his palm. He died the following day. Urbano was charged with
homicide and was found guilty both by the trial court and on appeal by the Court of Appeals. Urbano filed a motion for new trial based on the
affidavit of the Barangay Captain who stated that he saw the deceased catching fish in the shallow irrigation canals on November 5. The motion
was denied; hence, this petition.
Whether the wound inflicted by Urbano to Javier was the proximate cause of the latter’s death
A satisfactory definition of proximate cause is... "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result would not have occurred."And more comprehensively, "the proximate legal cause is that
acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of
events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a
natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an
ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might
probably result therefrom."
If the wound of Javier inflicted by the appellant was already infected by tetanus germs at the time, it is more medically probable that Javier should
have been infected with only a mild cause of tetanus because the symptoms of tetanus appeared on the 22nd day after the hacking incident or
more than 14 days after the infliction of the wound. Therefore, the onset time should have been more than six days. Javier, however, died on the
second day from the onset time. The more credible conclusion is that at the time Javier's wound was inflicted by the appellant, the severe form of
tetanus that killed him was not yet present. Consequently, Javier's wound could have been infected with tetanus after the hacking incident. Con-
sidering the circumstance surrounding Javier's death, his wound could have been infected by tetanus 2 or 3 or a few but not 20 to 22 days before
he died.
The rule is that the death of the victim must be the direct, natural, and logical consequence of the wounds inflicted upon him by the accused. And
since we are dealing with a criminal conviction, the proof that the accused caused the victim's death must convince a rational mind beyond rea-
sonable doubt. The medical findings, however, lead us to a distinct possibility that the infection of the wound by tetanus was an efficient interven-
ing cause later or between the time Javier was wounded to the time of his death. The infection was, therefore, distinct and foreign to the crime.
There is a likelihood that the wound was but the remote cause and its subsequent infection, for failure to take necessary precautions, with tetanus
may have been the proximate cause of Javier's death with which the petitioner had nothing to do. "A prior and remote cause cannot be made the
be of an action if such remote cause did nothing more than furnish the condition or give rise to the occasion by which the injury was made possi-
ble, if there intervened between such prior or remote cause and the injury a distinct, successive, unrelated, and efficient cause of the injury, even
though such injury would not have happened but for such condition or occasion. If no danger existed in the condition except because of the inde-
pendent cause, such condition was not the proximate cause. And if an independent negligent act or defective condition sets into operation the
instances which result in injury because of the prior defective condition, such subsequent act or condition is the proximate cause."

Page 13 of 25
A person while not criminally liable may still be civilly liable; a well-settled doctrine.—We must stress, however, that our discussion of proximate
cause and remote cause is limited to the criminal aspects of this rather unusual case. It does not necessarily follow that the petitioner is also free of
civil liability. The well-settled doctrine is that a person, while not criminally liable, may still be civilly liable.


Reginald Hill, a minor, caused the death of Agapito (son of Elcano). Elcano filed a criminal case against Reginald but Reginald was acquitted for
“lack of intent coupled with mistake.” Elcano then filed a civil action against Reginald and his dad (Marvin Hill) for damages based on Article
2180 of the Civil Code. Hill argued that the civil action is barred by his son’s acquittal in the criminal case; and that if ever, his civil liability as a
parent has been extinguished by the fact that his son is already an emancipated minor by reason of his marriage.
ISSUE: Whether or not Marvin Hill may be held civilly liable under Article 2180.
HELD: Yes. The acquittal of Reginald in the criminal case does not bar the filing of a separate civil action. A separate civil action lies against the
offender in a criminal act, whether or not he is criminally prosecuted and found guilty or acquitted, provided that the offended party is not allowed,
if accused is actually charged also criminally, to recover damages on both scores, and would be entitled in such eventuality only to the bigger award
of the two, assuming the awards made in the two cases vary. In other words, the extinction of civil liability referred to in Par. (e) of Section 3, Rule
111, refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act considered as
a quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case that the criminal act charged has not happened
or has not been committed by the accused. Briefly stated, culpa aquiliana includes voluntary and negligent acts which may be punishable by law.
While it is true that parental authority is terminated upon emancipation of the child (Article 327, Civil Code), and under Article 397, emancipation
takes place “by the marriage of the minor child”, it is, however, also clear that pursuant to Article 399, emancipation by marriage of the minor is
not really full or absolute. Thus “Emancipation by marriage or by voluntary concession shall terminate parental authority over the child’s person.
It shall enable the minor to administer his property as though he were of age, but he cannot borrow money or alienate or encumber real property
without the consent of his father or mother, or guardian. He can sue and be sued in court only with the assistance of his father, mother or guardian.”
Therefore, Article 2180 is applicable to Marvin Hill – the SC however ruled since at the time of the decision, Reginald is already of age, Marvin’s
liability should be subsidiary only – as a matter of equity.

Lao Chit v Security Bank & Trust Co. and Consolidated Investment, Inc. (17 April 1959)

 Consolidated Investments (lessor), leaser to Domingo Dikit part of the lobby of the Consolidated Building at Plaza Goiti, Manila to be
used as offices for a proposed Bank of Manila to be organized by Dikit and Jose Silva.
 The lessee undertook to construct walls, partitions, and other improvements; such improvements “shall become the property” of the lessor
“upon the termination and/or rescission” of the lease contract.
 Dikit and Silva entered into a contract with plaintiff Lao Chit for the latter to furnish the materials and the work for the improvements at
a total cost of P59,365 payable “as soon as the Bank of Manila opens for business, and is given permit by the Central Bank.” The permit
was never issued.
 The rentals for the lease of the space were also not paid. The lessor then instituted an unlawful detainer action.
 Municipal Court of Manila: rendered judgment sentencing Dikit.
 Dikit appealed to the CFI and eventually the Supreme Court.
 The cases were soon dismissed upon agreement of the parties that Dikit will relinquish whatever rights he might have to the possession
of the leased premises and disclaimed all rights to and over any and all improvements introduced therein.
 Lao filed a separate civil action against Dikit and Silva for recovery of whatever was due from them.
 CFI of Manila: ruled in favor of Lao and sentenced Dikit and Silva as solidarily liable for the sum of P59,365.
 A writ of execution was issued but remained unsatisfied. Dikit nor Silva had any properties registered in their respective names and Silva
was nowhere to be found.
 Lao Chit then brought the present action against Security Bank and (Bank) to which lessor had leased the property, together with the
improvements. He demanded a payment of P1,000/month by way of rentals.
 In its answer, the Bank alleged that it used the improvements pursuant to its contract of lease with the lessor.
 Soon after, Lao demanded the amount of the improvements plus P1000/month from the lessor, which did not heed said demand.
 According to the lessor, it had no contractual or juridical relation with Lao and that the improvements belonged to it and not to Lao.
 CFI of Manila: sentenced Consolidated Investments and Security Bank solidarily to pay P59,365 and rentals at the rate of P1,000/mo.
 Defendants filed a motion for reconsideration and new trial, but were denied. Hence, this appeal.


WoN the lower court erred in rendering judgment against the Bank. YES.
 It is clear that the Bank entered into the premises in question pursuant to a lease contract with the lessor.
 The Bank paid the rentals and fulfilled its obligations under the contract.
 It cannot be denied that the improvements introduced became property of the lessor pursuant to the provision in the contract between it
and Dikit and Silva that the former shall own said improvements upon expiration and/or rescission of the contract.
 Although Lao Chit was not a party to said contract, this stipulation is binding upon him, he having introduced said improvements pursuant
to his contract with Dikit, from whom he derived, therefore, his right to enter the building and make the improvements.
o In short, insofar as the construction thereof, Lao Chit was, vis-a-vis the lessor, a mere agent or representative of Dikit and, as
such, was privy to the undertakings of Dikit under his contract of lease with the lessor.

Page 14 of 25
WoN the lessor is liable to Lao Chit for the improvements. NO.
 The lower court held the lessor liable to Lao upon the ground that he was a builder in good faith, and under the theory of unjust enrichment.
 Art. 361 (now 448) of the [Old] Civil Code provides:
o The owner of land on which anything has been built, sown, or planted, in good faith, shall be entitled to appropriate the thing
so built, sown, or planted, upon paying the compensation mentioned in Articles 453 and 454, or to compel the person who has
built or planted to pay him the value of the land, and the person who sowed thereon to pay the proper rent therefor.
 However, this provision refers to one who builds upon a land which he believes to be his property. Neither Lao nor Dikit claimed the
building as their own.
 Moreover, the provision is limited in its application to “buddings” constructed on another’s land, and not to partitions, railing, counters,
shelves, and the like.
 Moreover, there was no bad faith on the part of the lessor since it was bound to permit Dikit and Lao as his agent to construct improve-
 The lower court also relied on Art. 356 (now 443) in ruling that there should be no unjust enrichment:
o He who receives fruits is obliged to pay any expenses which may have been incurred by another in the production, gathering,
and preservation thereof.
 The Supreme Court ruled, however, that the provision is not on point since it refers to "expenses" of production, gathering and preserva-
tion" of fruits received by the owner of a property, not to improvements, whereas the claim of Lao Chit is based upon "improvements"
introduced, not "expenses" incurred by him for the "production, gathering and preservation" of fruits.
 The provision on quasi-contracts (Art. 2142) of the Civil Code cannot likewise be applied. It provides:
o Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be
unjustly enriched or benefited at the expense of another.
 The construction of the improvements in question was not a "purely voluntary act" or "unilateral act" of Lao Chit.
 He introduced them in compliance with a bilateral "obligation" he undertook under his contract with Dikit.
 For the principle of undue enrichment to apply, there must be "enrichment" and the same must be "undue" or "unjust".
 In the case at bar, Dikit failed to pay the agreed monthly rental of P5,000 from October, 1949. Up to July 1, 1951, when the premises in
question were leased to the Bank, the rentals due from Dikit aggregated, therefore, P105,000.
 Thus, despite the fact that the lessor had become the owner of the improvements in question, worth P59,365.00, it still suffered a loss of
over P45,000.00. Such "loss" negates the idea of "enrichment".
 Had he been reasonably vigilant, Lao Chit could have demanded from Dikit a mortgage, or a bond, or some other security, for the
protection of his rights, yet he did not do so.
 Should the lessor be required to pay Lao Chit what he is entitled to recover from Dikit, but which he (Lao Chit) cannot—due to his
oversight, carelessness or negligence—collect from Dikit, the effect would be to relieve Lao Chit of the consequences of his own inad-
vertence or negligence, and hold the lessor responsible therefor.

DISPOSITION: Reversed. Costs against Lao Chit.

PNB vs. CA and BP Mata and Co.

This is a case wherein a well-known financial institution had an internal problem and they only realized and took action to regularize it, seven
years too late


· A US company, Star Kist Foods, Inc. USA (Star Kist) engaged local B.P. Mata Co. Inc (Mata) in providing manning and crewing services for
their company located in the United States. Payment is settled through telegraphic transfer involving several banks namely Security Pacific Na-
tional Bank (SEPAC) of Los Angeles as the bank of Star Kist, Philippine National Bank (PNB) as the bank with the agency arrangement with
Star Kist, and Insular Bank of Asia and America (IBAA) as the bank of Mata.
· February 24, 1975: PNB issued a Cashier’s Check amounting to $1,400 for the account of Mata representing payment for services rendered by
Mata to Star Kist.
· March 11, 1975: PNB effected another payment amounting to $14,000, which was said to be another payment made by Star Kist. Prior February
24, the PNB International Department received notice for payment for $14,000 to Mata but they returned the missive to SEPAC Bank noting an
error. It was cleared by SEPAC Bank that the notice should only be for $1,400 and NOT $14,000.
· May 31, 1981: PNB requested Mata for refund of $14,000, which was mistakenly paid to them.
· February 4, 1982: PNB filed a civil case for collection and refund of $14,000 against Mata using Article 14561 as basis for their argument.


Regional Trial Court

The RTC dismissed the complaint stating that the case falls under Article 21542 instead of Article 1456. They ruled that the trust code does not
apply in this case by using the technical definition of trust that is “a right of property, real or personal, held by one party for the benefit of another,
that there is a fiduciary relation between a trustee and a cestui que trust as regards certain property, real, personal, money or chooses in action.”

Page 15 of 25
Court of Appeals

PNB elevated the case to the Court of Appeals wherein said court affirmed the decision of the lower court. The appellate court also added that the
case would not prosper due to the prescription provided in Article 1145 that states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)

Supreme Court

The Supreme Court applied both Art. 1456 which is on constructive trust and Art. 2154 which is on solutio indebiti to the case.

They determined that there is constructive trust involved enforcing Art. 1456. A constructive trust is a form of implied trust. Implied trusts are
“those which, without being expressed, are deducible from the nature of the transaction as matters of the intent or which are superinduced on the
transaction by operation of the law as matters of equity, independently of the particular intention of the parties.” Constructive trusts occur when
“there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the prop-
erty for the beneficiary.” Following the aforementioned definitions, there is trust involved. There was no expression or contract stipulating that
Mata and PNB have a fiduciary relationship, however, the point that there was a transaction that would infer such an arrangement (payment),
constructive trust has been established.

The Supreme Court also adapted Art. 2154 for the case clearly falls in this article. Mata received money, which had not right to demand it, and
there was also a mistake of delivery.

. However, due to the prescription of Art. 2154, quasi-contract can no longer be an alternative leaving constructive trust as the applicable option.

As for the issue whether or not PNB can still claim the $14,000, the Supreme Court ruled that it couldn’t be possible. Even though the case is still
within the prescription period, the petitioner cannot do so because they were proved to be negligent in exercising their legal right. It took them
seven years to realize their error and for a big bank such as PNB, that is very remarkable. Banks are subject to audits and an error such as that
should have been spotted within the year. The bank should, therefore, bear the cost of their own negligence.


It is becoming clear to me that the law does not tolerate negligence. It maybe argued that it is not just nor equitable for PNB not be able to claim
the money that they mistakenly paid Mata, but they have to suffer the cost of their own negligence.

Working for a bank for the past 4 years, we have been taught to be meticulous and careful in every transaction that we undertake. Audit, spot
checks and counter checkings have been established to prevent erroneous entries and mitigate possible mistakes. Fear motivates us actually. Fear
that we’ll lose our jobs or that we’ll find ourselves defendants in a civil case.

That’s why I find it really unbelievable that a big bank, such as PNB, should only spot its error 7 years after the transaction.

There also is a thing, not only for banks, but also for companies, called a fiscal year. At the end of a fiscal year, everything and I mean EVERY-
THING should be balanced. $14,000 is a big amount, which should have been easily traced.

1 Art. 1456: If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust
for the benefit of the person from whom the property comes.

2Art. 2154: If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it
PADCOM Condominium Corporation vs. Ortigas Center Association, Inc.,
G.R. No. 146807, May 9, 2002
Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office Condominium Building
(PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The land on which the building stands was originally acquired from
the Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September 1974.
Among the terms and conditions in the deed of sale was the requirement that the transferee and its successor-in-interest must become members of
an association for realty owners and long-term lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with
improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer dated 25 February 1975.
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the interests and promote the general
welfare of the real estate owners and long-term lessees of lots in the Ortigas Center. It sought the collection of membership dues in the amount of
two thousand seven hundred twenty-four pesos and forty centavos (P2, 724.40) per month from PADCOM. The corporate books showed that
PADCOM owed the Association P639, 961.47, representing membership dues, interests and penalty charges from April 1983 to June 1993. The
letters exchanged between the parties through the years showed repeated demands for payment, requests for extensions of payment, and even a
settlement scheme proposed by PADCOM in September 1990.

Page 16 of 25
In view of PADCOM's failure and refusal to pay its arrears in monthly dues, including interests and penalties thereon, the Association filed a
complaint for collection of sum of money before the trial court. The Association averred that purchasers of lands within the Ortigas Center com-
plex from OCLP are obligated under their contracts of sale to become members of the Association. This obligation was allegedly passed on to
PADCOM when it bought the lot from TDC, its predecessor-in-interest.
The trial court dismissed the case. However, the Court of Appeals reversed the same in favor of the Association.

Whether or not PADCOM is a member of the Ortigas Center Association, Inc.

As a lot owner, PADCOM is a regular member of the Association. No application for membership is necessary. If at all, acceptance
by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a regular member upon the acquisition of the lot
pursuant to the automatic membership clause annotated in the Certificate of Title of the property and the Deed of Transfer. PADCOM’s conten-
tion that the automatic membership clause is a violation of its freedom of association because it was never forced to join the association is like-
wise untenable. Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of
Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association.
Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental thereto as mandated by Article 1159 of the
Civil Code which states that “obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith”.
Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade payment without violating the equitable princi-
ples underlying quasi-contracts. Article 2142 of the Civil Code provides that “certain lawful, voluntary and unilateral acts give rise to the juridi-
cal relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another”.


Andres, using the business name “Irene’s Wearing Apparel” was engaged in the manufacture of ladies garments, children’s wear, men’s apparel
and linens for local and foreign buyers. Among its foreign buyers was Facts of the United States.

Sometime in August 1980, Facts instructed the First National State Bank (FNSB) of New Jersey to transfer $10,000 to Irene’s Wearing Apparel via
Philippine National Bank (PNB) Sta. Cruz, Manila branch. FNSB instructed Manufacturers Hanover and Trust Corporation (Mantrust) to effect the
transfer by charging the amount to the account of FNSB with private respondent.

After Mantrust effected the transfer, the payment was not effected immediately because the payee designated in the telex was only “Wearing
Apparel.” Private respondent sent PNB another telex stating that the payment was to be made to “Irene’s Wearing Apparel.”

On August 28, 1980, petitioner received the remittance of $10,000.

After learning about the delay, Facets informed FNSB about the situation. Facts, unaware that petitioner had already received the remittance,
informed private respondent and amended its instruction y asking it to effect the payment to Philippine Commercial and Industrial Bank (PCIB)
instead of PNB.

Private respondent, also unaware that petitioner had already received the remittance, instructed PCIB to pay $10,000 to petitioner. Hence, petitioner
received another $10,000 which was charged again to the account of Facets with FNSB.

FNSB discovered that private respondent had made a duplication of remittance. Private respondent asked petitioner to return the second remittance
of $10,000 but the latter refused to do so contending that the doctrine of solution indebiti does not apply because there was negligence on the part
of the respondents and that they were not unjustly enriched since Facets still has a balance of $49,324.

ISSUE: Whether or not the private respondent has the right to recover the second $10,000 remittance it had delivered to petitioner

HELD: Yes. Art 2154 of the New Civil Code is applicable. For this article to apply, the following requisites must concur: 1) that he who paid was
not under obligation to do so; and 2) that payment was made by reason of an essential mistake of fact.

There was a mistake, not negligence, in the second remittance. It was evident by the fact that both remittances have the same reference invoice

In 1992, respondent Primetown Property Group, Inc. Entered into a contract with petitioner Titan-Ikeda Construction and Development
Corporation for the structural works of its 32-storey Makati Prime Tower (MPT)
This case involved two contracts entered into by the parties with regard to the project.
The parties first entered into a contract for a piece of work when they executed the supplemental agreement. Petitioner as contractor bound
itself to execute the project for respondent, the owner/developer, in consideration of a price certain (P130,000,000).

Page 17 of 25
The supplemental agreement was reciprocal in nature because the obligation of respondent to pay the entire contract price depended on the
obligation of petitioner to complete the project (and vice versa).
Thereafter, the parties entered into a second contract. They agreed to extinguish the supplemental agreement as evidenced by the October 12,
1995 letter-agreement which was duly acknowledged by their respective representatives.
Despite ongoing negotiations, respondent did not obtain petitioner’s consent in hiring ITI as the project’s construction manager. Neither did it
inform petitioner of ITI’s September 7, 1995 report.
On October 12, 1995, petitioner sought to confirm respondent's plan to take over the project. Its letter stated:
....to take over the construction supervision of the balance of the project from [petitioner's] engineering staff and complete the same by December
31, 1995 as promised by [petitioner's] engineer.
However records showed that respondent Primetown did not merely take over the supervision of the project but took full control thereof.
1. Whether or not CA erred in giving weight to ITI's report because the project evaluation was commissioned only by respondent, in
disregard of industry practice
2. Whether or not Titan Incurred delay
1. A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or
to render some service.
Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage (as
stated in their Article XIV.DELAYS AND ABANDONMENT of their contract)
If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction
contract. Moreover, according to the October 12, 1995 letter-agreement, respondent took over the project for the sole reason that such
move was part of its (respondent's) long-term plan.
Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction contract named GEMM, not ITI, as construction
manager. Because petitioner did not consent to the change of the designated construction manager, ITI's September 7, 1995 report could
not bind it.
2. Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to
have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor
incurs mora or delay.
Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obli-
gations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire
contract price. However, respondent, by executing the June 30, 1994 deed of absolute sale, was deemed to have paid P112,416,716.88.
Nevertheless, because petitioner applied part of what it received to respondent’s outstanding liabilities, it admitted overpayment.
Because petitioner acknowledged that it had been overpaid, it was obliged to return the excess to respondent. Embodying the principle of
solutio indebiti,
In this instance, respondent paid part of the contract price under the assumption that petitioner would complete the project within the
stipulated period. However, after the supplemental agreement was extinguished, petitioner ceased working on the project. Therefore, the
compensation petitioner received in excess of the cost of its actual accomplishment as of October 12, 1995 was never due. The condominium
units and parking slots corresponding to the said excess were mistakenly delivered by respondent and were therefore not due to petitioner.
Stated simply, respondent erroneously delivered excess units to petitioner and the latter, pursuant to Article 2154, was obliged to the return
them to respondent.
One who receives payment by mistake in good faith is, as a general rule, only liable to return the thing delivered. If he benefited therefrom,
he is also liable for the impairment or loss of the thing delivered and its accessories and accessions.60 If he sold the thing delivered, he
should either deliver the proceeds of the sale or assign the action to collect to the other party.
Case remanded to identify the ff:
The RTC must first determine the percentage of the project petitioner actually completed and its proportionate cost. This will be the amount
due to petitioner.
We hold that petitioner did not incur delay
The supplemental agreement was a contract for a stipulated price. In such contracts, the recovery of additional costs (incurred due to
changes in plans or specifications) is governed by Article 1724 of the Civil Code.

Page 18 of 25
Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and
specifications agreed upon with the landowner, can neither withdraw from the contract nor demand an increase in the price on account of
higher cost of labor or materials, save when there has been a change in plans and specifications, provided:
1. such change has been authorized by the proprietor in writing; and
2. the additional price to be paid to the contractor has been determined in writing by both parties.
Both must concur to recover damages. Petitioner submitted neither one.Other than bare assertions, petitioner submitted no proof that the
rental pool was in fact able to lease out the units.
Decision of CA set aside.
Metropolitan Bank vs. Absolute Management Corp
Metrobank deposited the AMC checks to Ayala Lumber and Hardware’s account; because of Chua’s control over AMC’s operations,
Metrobank assumed that the checks payable to AMC could be deposited to Ayala Lumber and Hardware’s account. Ayala Lumber and Hardware
had no right to demand and receive the checks that were deposited to its account; despite Chua’s control over AMC and Ayala Lumber and Hard-
ware, the two entities are distinct, and checks exclusively and expressly payable to one cannot be deposited in the account of the other. In its fourth-
party complaint, Metrobank claims that Chua’s estate should reimburse it if it becomes liable on the checks that it deposited to Ayala Lumber and
Hardware’s account.
Whether or not Ayala Lumber must return the amount of said checks to Metrobank.
Metrobank acted in a manner akin to a mistake when it deposited the AMC checks to Ayala Lumber and Hardware’s account because it
assumed that the checks payable to AMC could be deposited to Ayala Lumber and Hardware’s account. This disjunct created an obligation on the
part of Ayala Lumber and Hardware, through its sole proprietor, Chua, to return the amount of these checks to Metrobank. This fulfills the requisites
of solutio indebiti. Metrobank’s fourth-party complaint falls under the quasi-contracts enunciated in Article 2154 of the Civil Code. Article 2154
embodies the concept "solutio indebiti" which arises when something is delivered through mistake to a person who has no right to demand it. It
obligates the latter to return what has been received through mistake. Solutio indebiti, as defined in Article 2154 of the Civil Code, has two indis-
pensable requisites: first, that something has been unduly delivered through mistake; and second, that something was received when there was no
right to demand it.
Fidelity v William
Defendant Wilson was a disbursing officer of the Bureau of Coast Guard and Transportation. The plaintiff company and another com-
pany named American Surety Company of New York became sureties on the official bond of Wilson for the sum of $15,000.00. Wilson defaulted
the sum of $8,931.80 and the two surety companies were compelled to pay to the government after the government’s demand. They paid the
sum of $4,465.90 each. Wilson was captured in Montreal, Canada for the trial of his defalcation of money. When Wilson was captured he had the
sum of $785 with him, which was turned over to Mr. Branagan whom is the insular treasurer. Petitioner filed a petition against Wilson for the
sum of $4,464.90 which is the same amount the petitioner paid to the government under Wilson’s surety bond and to have the right over the
sum of $785 which was found in the possession of Wilson. On October 17, a depositary was named by the court to take care of the $785 of Wilson.
On October 26,1904, H.D. Terrell intervened in the case. He alleges that Wilson had already transferred his rights of the $785 to him for
payment of professional services that Wilson owes him. Terrell claims he has notified Mr. Bragan prior to his appointment as depositary in the
principal case. The court ruled in favor of Terrell for the sum of $785 hence this review.

Whether or not intervenor Terrell has the right to the sum of $785

No, Article 1095 prescribes the following: “A creditor has the rights to the fruits of a thing from the time the obligation to deliver it
arises. However, he shall not acquire a real right until the property is delivered to him.” And as Manresa has states:” Our law does not admit the
doctrine of the transfer of property by mere consent but limits the effect of the agreement to the due execution of the contract.” Through these
doctrines the court finds that Terrell did not acquire the ownership of the property to him by Wilson because it was not delivered to him. In this
case it was neither Terrell nor the petioner who had the right to the $785 in question.

Bishop v Dela Pena

The dependant appeal from the judgment of the CFI of Iloilo awarding the plaintiff the sum of 6, 641 with interest on the legal rate from
the beginning of the action. The plaintiff is the trustee of a charitable bequest made for the construction of a leader hospital and that father Agustin
De La Pena was the duly authorized representative of the plaintiff to receive the legacy.
In 1898, he deposited in his personal account 19 000 in the Hongkong and Shanghai Bank at Iloilo. Father Dela Pena was arrested by the
military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the US Army officer under whose charge

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he then was for the sum thus deposited in the said bank. The money was taken from the bank by the military authorities by virtue of the said order
and was confiscated and turned into the government.

Whether or not Father Dela Pena is liable for the said 6 641

No. According to Article 1105 of the Civil Code “No one shall be liable for event which could not be foreseen, or which having been
foreseen were inevitable with the exception of the cases expressly mentioned by the law or those in which the obligation so declares”

By placing the money in the bank and mixing it with his personal funds, Dela Pena did not hereby assume an obligation different from
that under which he would have lain if such deposit had not benn made nor did he thereby make himself liable to repay the money at all hazards. It
is clear that under the provision of the Civil Code he would have been excempt from the responsibility.

33. Cruzado v. Bustos (34 phil 17)

This case is about an appeal from the judgment of CFI Pampanga allowing declaring defendant Bustos as the rightful owner of
the property in question. Bustos and Escaler who has said to be detaining such land, refused to deliver the possession thereof to plaintiff and
refused to recognize his ownership of the same.
Agapito Cruzado was a poor man living in Pampanga, he had a job in court but was still not enough to support his family. He
aspired to hold the office of procurador in the CFI of Pampanga but he was unable to give the required bond, an indispensable condition for
his appointment. Since Cruzado was friends with Bustos, a rich woman in their place. He begged the latter to simulate a mortgage deed of a
certain property and have it executed in court in his favor only to pose that he has real property to enable him to qualify to such position of
procurador. In truth, the said mortagage was a front and fraudulent but was effected by making a pretended contract which bore the appearance
of truth.
It is unquestionable that the contract of sale was perfect and binding upon both contracting parties since their names both appear
in that instrument to have agreed upon the thing sold. But it is also undeniable that the said contract was not consummated. 1.) Cruzado did
not pay the purchase price of P2,200 2.) he never took possession of the land apparently sold in the said deed. All that the vendee did was to
pledge the land as a security for the faithful discharge of the duties of his office.
Santiago Cruzado, the son, brought an action for recovery of possession, founded on the right transmitted to him by his father
at his death – a right arising from the said simulated deed of sale of the land in question.

1. W/N the said deed of sale was simulated, not with the intent to defraud 3rd persons, but for the sole purpose of making it
appear that Agapito Cruzado has real property?
2. W/N rights of transmission acquired by Santiago Cruzado from the death of his father, pertaining to the said land in contest
is valid and without defect?

Under the law, the contract of purchase and sale, as consensual, is perfected by consent as to the price and the thing and is
consummated by the reciprocal delivery of the one and the other. Full ownership of the thing sold being conveyed to the vendee, from which
moment the right of action derived from this right may be exercised. – the record discloses that there was no payment made by Cruzado to
Bustos, thus, rendering the contract not to be consummated.
Art 1164 states that, a creditor has a right to the fruits of the time the obligation to deliver it arise. However, he shall not acquire
a property right thereto until it has been delivered to him.
Besides the failure to pay the purchase price, neither the vendee nor his heirs, had at any time taken possession of the land.
Seven witnesses attest to the fact, Bustos and her husband while still living, continued to possess the said land supposedly sold to Agapito
Cruzado and cultivated it, as she had done long before the sale of September 1875 to September 1891, the date of complaint by Santiago
Consequently, at the death of Agapito, he could not have transmitted to the Santiago as his successor any greater right than a
personal right to exact fulfillment of a contract, as plaintiff was not the owner of the said land, he could not validly register it. This fulfillment
of a right has already prescribed since, under the law, prescription towards real property shall be 30 years. In the case at bar, the action to
recover took 34 years to bring it to court, thus has already prescribed. Petition is denied.

34. Caleon vs Agus Development Corporation

Agus Development Corporation (ADC) is the owner of a parcel of land located at Lealtad, Sampaloc, Manila, which it leased
to Rita Caleon for a monthly rental of P180.00. ADC constructed on the lot leased a 4-door apartment building. Without the consent of ADC,
Caleon sub-leased 2 of the 4 doors of the apartment to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each. Upon
learning of the sub-lease, ADC through counsel demanded in writing that Caleon vacate the leased premises. For Caleon’s failure to comply
with the demand, ADC filed a complaint for ejectment with Metropolitan Trial Court (MTC) of Manila (Branch 12), citing the provisions of
Batas Pambansa 25, Section 5, as ground, which is the unauthorized sub-leasing of part of the leased premises to third persons without securing
the consent of the lessor within the required 60-day period from the promulgation of the new law (BP 25). After trial, the court a quo rendered

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its decision ordering Caleon and all persons claiming possession under her (a) to vacate the premises alluded to in the complaint; (b) to remove
whatever improvement she introduced on the property; (c) to pay ADC the amount of P2,000.00 as attorney’s fees; and (d) to pay the costs.
Caleon appealed the decision to the Regional Trial Court (RTC) and on 24 November 1980, the RTC affirmed in toto the decision of the MTC.
The RTC decision was appealed to the Court of Appeals for review. The appellate court, on 28 January 1987, dismissed the petition outright
for not being prima facie meritorious. Caleon filed the petition for review on certiorari with the Supreme Court.

Whether or notapplication of BP No. 25 is unconstitutional as it impairs obligation of contracts?
No. BP 25 is constitutional. The constitutional guaranty of non-impairment of obligations of contract is limited by and subject
to the exercise of police power of the State in the interest of public health, safety, morals and general welfare. In spite of the constitutional
prohibition, the State continues to possess authority to safeguard the vital interests of its people. Legislation appropriate to safeguarding said
interest may modify or abrogate contracts already in effect. Every contract affecting public interest suffers a congenital infirmity in that it
contains an implied reservation of the police power as a postulate of the existing legal order. This power can be activated at anytime to change
the provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not militate
against the impairment clause, which is subject to and limited by the paramount police power. Batas Pambansa 25, “An Act Regulating Rentals
of Dwelling Units or of Land On Which Another’s Dwelling is Located and For Other Purposes” shows that the subject matter is the regulation
of rentals and is intended only for dwelling units with specified monthly rentals constructed before the law became effective. BP 25 is derived
from PD 20 which has been declared by the Court as a police power legislation, applicable to leases entered into prior to 14 July 1971 (effec-
tivity date of RA 6539), so that the applicability thereof to existing contracts cannot be denied.

35. Song Fo and Co v Hawaiian Philippine Co.

Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co where it would deliver molasses to the latter. A letter ad-
dressed by the administrator of the HPC to SFC on December 13, 1922 contains their contract in writing. It states the ff: (1) Mr. Song Fo agreed to
the delivery of 300,000 gallons of molasses; (2) Mr. Song Fo also asked if HPC could supply him with another 100,000 gallons of molasses to
which the latter replied that they believe it is possible and that they will do their best to let Mr. Song Fo have the extra 100,000 gallons during the
next year.
HPC was able to deliver 55,006 gallons of molasses before the breach of contract.
SFC filed a complaint with two causes of action for breach of contract against the HPC and asked for P70,369.50
HPC answered that there was a delay in the payment from SFC and that HPC has the right to rescind the contract due to that and claims
it as a special defense.
The judgment of the trial court condemned HPC to pay SFC a total of P35,317.93, with legal interest from the date of the presentation of
the complaint, and with costs.

1. W/N HPC agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses.
2. W/N HPC has the right to rescind the contract of sale made with SFC?
3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by HPC, what is the
measure of damages?

1. Only 300,000 gallons of molasses was agreed to by HPC as seen in the documents presented in court. HPC also believed it possible to
accommodate SFC by supplying the latter company with an extra 100,000 gallons. However, the language used with reference to the additional
100,000 gallons was not a definite promise. Still less did it constitute an obligation

2. With reference to the second issue, doubt has risen as to when SFC was supposed to make the payments for the delivery of molasses
as shown in the documents presented by the parties. It was ultimately settled that payment had to be made upon presentation of accounts at the end
of each month.
SFC should have paid for the molasses delivered in December 1922, not later than January 31 1923. Instead payment was not made until
February 20, 1923. All the rest of the molasses was paid for either on time or ahead of time.HPC does not have the right to rescind the contract. It
should be noted that the time of payment stipulated for in the contract should be treated as of the essence of the contract. There was only a slight
breach of contract when the payment was delayed for 20 days after which HPC accepted the payment of the overdue accounts and continued with
the contract, waiving its right to rescind the contract. The delay in the payment of SFC was not such a violation for the contract. As a GENERAL
RULE: rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental.

3. The first cause of action of SFC is based on the greater expense to which it was put in being compelled to secure molasses from other
sources to which Supreme Court ruled that P3,000 should be paid by HPC with legal interest from October 2, 1923 until payment.
o 55,006 gallons were delivered before the breach. (This leaves 244,994 gallon)
o 100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc at 2 cents a gallon, so plaintiff suffered no
material loss in having to make this purchase. (this leaves as a result 144,994 gallons)
o 100,000 gallons were secured from Central Victorias Milling at 3.5 cents per gallon. This meant a loss of approximately P2,174.91

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The second cause of action was based on the lost profits on account of the breach of contract. Supreme Court said that SFC is not entitled
to recover anything under the second cause of action because the testimony of Mr. Song Heng will follow the same line of thought as that of the
trial court which in unsustainable and there was no means for the court to find out what items make up the P14,000 of alleged lost profits.

36. Velarde vs. Court of Appeals (361 SCRA 57)

The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance of P1.8 million, in favor of the petitioners.
Pursuant to said agreements, plaintiffs paid the bank (BPI) for three (3) months until they were advised that the Application for Assumption of
Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private respondent wrote the petitioners informing the non-
fulfillment of the obligations. Petitioners, thru counsel responded that they are willing to pay in cash the balance subject to several conditions.
Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale. Petitioners filed a complaint which was consequently
dismissed by an outgoing judge but was reversed by the assuming judge in their Motion for Reconsideration. The Court of Appeals reinstated the
decision to dismiss.

Whether or not there is a substantial breach of contract that would entitle its rescission.

YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8
million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale.
Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.

CASE: An appeal from the decision of the CFI of Rizal, declaring the contract to sell as not having been validly cancelled and ordering the
defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.

FACTS: On December 19, 1957, defendants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs Buenaventura Angeles and Teofila Juani
entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P
41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs paid the monthly installments until July
1966, when their payment already amounted to P4,533.38. On numerous occasions, the defendants accepted and received delayed installment
payments from the plaintiffs. The defendants-appellants wrote the plaintiffs a letter requesting the remittance of past due accounts. Later on, they
cancelled the said contract because the plaintiffs failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the
said cancellation was denied by the defendants.

The plaintiffs filed Civil Case to compel the defendants to execute in their favor the final deed of sale alleging that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land.

The defendants alleged in their answer that the complaint states no cause of action and that the plaintiffs violated paragraph six (6) of the contract
to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more than
five (5) months, thereby constraining the defendants to cancel the said contract.

The lower court rendered judgment in favor of the plaintiffs. A motion for reconsideration filed by the defendants was denied.

Hence, this petition.

ISSUE: Whether or not the contract to sell has been automatically and validly cancelled by the defendants.

HELD: NO. The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself
provides was qualified by this Court in University of the Philippines v. De los Angeles, where the court explained (paraphrased) that:

Of course, the act of a party in treating a contract as canceled or resolved on account of infractions by the other must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is
free to bring the matter to court. Then, should the court decide that the resolution of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will be affirmed and indemnity awarded to the party prejudiced.

In short, the party who deems the contract violated many consider it resolved or rescinded without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the court that will conclusively and finally settle whether the action taken was or was not correct in law.

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The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corporation vs. Court
of Appeals (33 SCRA 1) the Court stated that:
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) The
question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus vs. Alikpala, GR L-23707 & L-23720,
January 17, 1968)

The breach of the contract alleged by Calasanz is so slight considering that Angeles had already paid monthly installments for almost nine years.
In only a short time, the entire obligation would have been paid. To sanction the rescission made by Calasanz will work injustice to Angeles and
unjustly enrich Calasanz.

Article 1234 of the Civil Code which provides that:

If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.

Also, militates against the unilateral act of the Calasanz in cancelling the contract.


Doctrine: Rescission will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the
agreement. It will not be granted where the breach is slight or casual. Further, the question of whether a breach of a contract is substantial depends
upon the attendant circumstances.
FACTS: Private respondents are owners of an iceplant and cold storage who ordered black iron pipes from Delta Motors, for which the latter
provided two letter quotations indicating the selling price and delivery of said pipes. Terms of payment are also included. Genuino made initial
payments on both contracts but delivery of pipes was not made by Delta, thus, Genuino did not made subsequent payments notwithstanding
agreed terms of payment. On July 1972, Delta offered to deliver the pipes but Genuino refused because construction of ice plant building where
pipes were to be installed was not yet finished.
Three years later, Genuino asked Delta to deliver the iron pipes within 30 days upon receipt of request. Delta is unwilling to deliver unless Genuino
agree to a new quotation price set by former. Respondent rejected new quoted price ad instead filed a complaint for specific performance with
damages seeking Delta to deliver the pipes. Meanwhile, Delta in its answer prayer for rescission of contract pursuant to Art. 1191 of NCC.
After trial the Court of First Instance ruled in favor of Delta. On appeal, the Court of Appeals reversed CFI decision. MR was filed but was denied.
Hence, this petition.
ISSUES: Whether or Not Genuinos' non-performance of its obligations was a substantial breach, let alone a breach of contract, as would warrant
rescission under Art. 1191 of NCC.
HELD: NO. In construing Art. 1191, the Supreme Court has stated that, "rescission will be ordered only where the breach complained of is sub-
stantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual." [Phil.
Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "the question of whether a breach
of a contract is substantial depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May
In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its obligations was not a substantial breach, let alone a
breach of contract, as would warrant rescission.
First, Delta did not do anything when Genuinos refused to accept the delivery of the pipes two months after the execution of contract.
Secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any argument but merely demanded that the
quoted prices be increased. Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a contract as cancelled
or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject
to scrutiny and review by the proper court." In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts
with the Genuinos. It only raised rescission as a defense when it was sued for specific performance by private respondents.
Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact that not only does it have in its
possession and ownership the black iron pipes, but also the P15,900.00 down payments private respondents have paid. And if petitioner Delta
claims the right to rescission, at the very least, it should have offered to return the P15,900.00 down payments [See Art. 1385, Civil Code and
Hodges v. Granada, 59 Phil. 429 (1934)].
WHEREFORE, the decision of CA is AFFIRMED.


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FACTS: On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and private respondent Seneca Hardware Co.,
Inc., as Second Party, entered into a contract denominated as "Offsetting Agreement". The said agreement contained the following stipulations:

1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM located at Bakakeng Road, Baguio City;
2. That the SECOND PARTY is in business of construction materials and other hardware items;
3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential condominium units, studio type, with a total
floor area of 76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS only;
4. That the FIRST PARTY desires to but from the SECOND PARTY construction materials mostly steel bars, electrical materials and
other related items worth FIVE HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;
cash upon delivery of said construction materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS
shall be paid in the form of two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or
less also worth P276,000.00;
6. That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM PHASE II which is the subject of this contract,
shall deliver to the SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601 and 602, studio type with a total
area of 76.22 square meters or less, worth P276,000.00;
7. That after the completion of Vermen Pines Condominium Phase II, the SECOND PARTY shall be given by the FIRST PARTY the
first option to transfer from Phase I to Phase II under the same price, terms and conditions.

As found by the appellate court and admitted by both parties, private respondent had paid petitioner the amount of P110,151.75, and at
the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner
delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums. In 1982, the petitioner repossessed unit 602. On
May 10, 1982, the officers of the private respondent corporation requested for a clarification of the petitioner's action of preventing them and their
families from occupying condominium unit 602.

In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another tenant because private respondent
corporation had not paid anything for purchase of the condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the
balance of the purchase price of Room 601.

In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied. Consequently, construction of
the condominium project stopped and has not been resumed since then.

On June 21, 1985, private respondent filed a complaint with the RTC for rescission of the Offsetting Agreement with damages. In said
complaint, private respondent alleged that petitioner Vermen Realty Corporation had stopped issuing purchase orders of construction materials after
April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation
of the Offsetting Agreement.
In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff therein): although petitioner
issued purchase orders, it was private respondent, who could not deliver the supplies ordered, alleging that they were out of stock.

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (private respondent in
this petition) to pay defendant (petitioner in this petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the
purchase price of condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

Hence the present petitioner for review of CA decision.

ISSUE: Whether or Not, the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Private Respondent when
he instituted the case before the trial court.

HELD: Yes. We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement are reciprocal in
nature. Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual relationship
of creditor and debtor between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other
obligation. Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal
obligations, where one of the obligors fails to comply with that is incumbent upon him.

The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in executing the agreement.

It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting Agreement. The discon-
tinuance of delivery of construction materials to petitioner stemmed from the failure of petitioner to send purchase orders to private respondent.
Since the construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give
private respondent the option to transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may
never come.

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The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the non-
fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the option of
whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private respondent when it entered
into the agreement

WHEREFORE, the petition is DENIED for lack of merit.


FACTS: On November 29, 1947, the Woodhouse entered in a written agreement with, the most important that they shall organize a partnership
for the bottling and distribution of Mision soft drinks and that Woodhouse was to secure the Mission Soft Drinks franchise for and in behalf of
the proposed partnership and receive 30 per cent of the net profits of the business.

On that day Woodhouse and Halili went to the United States, a franchise agreement was entered into the Mission Dry Corporation and granted
Halili the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the Philippines.

When the bottling plant was already on operation, Woodhouse demanded of Halili that the partnership papers be executed. In his complaint
Woodhouse asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof of 30 per cent, as well as

Halili's contends that his consent to the agreement was secured by the representation of Woodhouse that he was about to become owner of an
exclusive bottling franchise, which representation was false.

The Court of First Instance rendered judgment ordering Halili to render an accounting of the profits of the bottling and distribution business,
subject of the action, and to pay Woodhouse 15 percent thereof.

ISSUE: Whether or not Woodhouse had falsely represented that he had an exclusive franchise to bottle Mission beverages, and whether this
false representation or fraud, if it existed, annuls the agreement to form the partnership?

HELD: The first draft that Woodhouse’s lawyer, prepared expressly states that Woodhouse had the exclusive franchise. Woodhouse did actually
represent to Halili that he was the holder of the exclusive franchise and Halili was made to believe, and he actually believed, that Woodhouse had
the exclusive franchise. The main cause that induced Halili to enter into the partnership agreement with Woodhouse, was the ability of Woodhouse
to get the exclusive franchise to bottle and distribute for the Halili or for the partnership.
While the representation that Woodhouse had the exclusive franchise did not vitiate Halili's consent to the contract, it was used by Woodhouse
to get from Halili a share of 30 per cent of the net profits. In other words, by pretending that he had the exclusive franchise and promising to
transfer it to Halili, he obtained the consent of the latter to give him a big slice in the net profits. But when Woodhouse learned about such, he
reduced Halili’s share to 15 per cent.

As to the agreement being executed, Halili may not be compelled against his will to carry out the agreement nor execute the partnership papers.
The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.

The Supreme Court ruled that Woodhouse's share of 15 per cent of the net profits shall continue to be paid while Halili uses the franchise from
the Mission Dry Corporation.

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