1 Civil Law Review 2 (Atty.
Legarda)
1. THE METROPOLITAN BANK AND TRUST COMPANY vs.
ANA GRACE ROSALES AND YO YUK TO G.R. No. 183204,
January 13, 2014, DE CASTILLO, J.
The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in
Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts,
delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-
contract, delict, or quasi-delict.
FACTS:
Respondents opened a Joint Peso Account with
petitioner. Respondent Rosales accompanied her client Liu
Chiu Fang, a Taiwanese National applying for a retiree’s visa
from the Philippine Leisure and Retirement Authority (PLRA),
to petitioner’s branch in Escolta to open a savings account, as
required by the PLRA.Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.
On March 3, 2003, respondents opened with petitioner’s Pritil-
Tondo Branch a Joint Dollar Account with an initial deposit of
US$14,000.00
Thereafter, petitioner issued a "Hold Out" order against
respondents’ accounts. Petitioner filed before the Office of the
Prosecutor of Manila a criminal case for Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents against respondent Rosales. Petitioner accused
respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with
petitioner’s Escolta Branch. Petitioner alleged that on February
5, 2003, its branch in Escolta received from the PLRA a
Withdrawal Clearance for the dollar account of Liu Chiu
Fang; that in the afternoon of the same day, respondent
Rosales went to petitioner’s Escolta Branch to inform its
Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang
was going to withdraw her dollar deposits in cash;22 that
Gutierrez told respondent Rosales to come back the following
day because the bank did not have enough dollars; that on
February 6, 2003, respondent Rosales accompanied an
unidentified impostor of Liu Chiu Fang to the bank; that the
impostor was able to withdraw Liu Chiu Fang’s dollar deposit
in the amount of US$75,000.00; that on March 3, 2003,
respondents opened a dollar account with petitioner; and that
the bank later discovered that the serial numbers of the dollar
notes deposited by respondents in the amount of US$11,800.00
were the same as those withdrawn by the impostor.
Petitioner contends that the CA erred in not applying the
"Hold Out" clause stipulated in the Application and Agreement
for Deposit Account It posits that the said clause applies to any
and all kinds of obligation as it does not distinguish between
obligations arising ex contractu or ex delictu. Petitioner also
contends that the fraud committed by respondent Rosales was
clearly established by evidence; thus, it was justified in issuing
the "Hold-Out" order. On the other hand, Respondents, argue
that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to
petitioner. They insist that petitioner miserably failed to prove
its accusations against respondent Rosales. In fact, no
documentary evidence was presented to show that respondent
Rosales participated in the unauthorized withdrawal. They also
question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was
not signed or acknowledged by the alleged impostor.
ISSUE:
(1) Whether petitioner breached its contract with respondents
(2) If so, whether it is liable for damages
RULING:
(1) Petitioner breached its contract with respondents.
The "Hold Out" clause does not apply to the instant
case.
Petitioner claims that it did not breach its contract with
respondents because it has a valid reason for issuing the "Hold
Out" order. Petitioner anchors its right to withhold
respondents’ deposits on the Application and Agreement for
Deposit Account.
Petitioner’s reliance on the "Hold Out" clause in the
Application and Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and
existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to
wit: law, contracts, quasi-contracts, delict, and quasi-
delict. In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract, quasi-
contract, delict, or quasi-delict. And although a criminal case
was filed by petitioner against respondent Rosales, this is not
enough reason for petitioner to issue a "Hold Out" order as the
case is still pending and no final judgment of conviction has
been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold
Out" order, the criminal complaint had not yet been filed.
Thus, considering that respondent Rosales is not liable under
any of the five sources of obligation, there was no legal basis
for petitioner to issue the "Hold Out" order. In view of the
foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release
respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for
damages.
2. PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION,
JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M.
MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO vs.
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COURT OF APPEALS, HON. REGINA ORDOÑEZ-BENITEZ, in
her capacity as Presiding Judge of Branch 47, Regional
Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA
D. BAUTISTA
G.R. No. 84698, February 4, 1992, PADILLA, J.
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. For its part,
the school undertakes to provide the student with an education that
would presumably suffice to equip him with the necessary tools and
skills to pursue higher education or a profession. On the other hand,
the student covenants to abide by the school's academic requirements
and observe its rules and regulations.
FACTS:
A stabbing incident on 30 August 1985 which caused the death
of Carlitos Bautista while on the second-floor premises of the
Philippine School of Business Administration (PSBA) prompted
the parents of the deceased to file suit for damages against the
said PSBA and its corporate officers. At the time of his death,
Carlitos was enrolled in the third year commerce course at the
PSBA. It was established that his assailants were not members
of the school's academic community but were elements from
outside the school.
Defendants (now petitioners) sought to have the suit
dismissed, alleging that since they are presumably sued under
Article 2180 of the Civil Code, the complaint states no cause of
action against them, as jurisprudence on the subject is to the
effect that academic institutions, such as the PSBA, are beyond
the ambit of the rule in the afore-stated article.
The respondent trial court overruled petitioners' contention
and denied their motion to dismiss. The appellate court
affirmed the trial court's orders.
ISSUE:
Whether the PSBA are liable under Article 2180 of the Civil
Code
RULING:
No. Article 2180, in conjunction with Article 2176 of the Civil
Code, establishes the rule of in loco parentis. 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 the PSBA, for whose acts
the school could be made liable.
However, it does not necessarily mean the exculpation of the
petitioners from liability. 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. For its part,
the school undertakes to provide the student with an
education that would presumably suffice to equip him with
the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants
to abide by the school's academic requirements and
observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-
in" obligation of providing their students with an atmosphere
that promotes or assists in attaining its primary undertaking of
imparting knowledge. Necessarily, 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 the PSBA and Carlitos Bautista,
the rules on quasi-delict do not really govern. A perusal of
Article 2176 shows that obligations arising from quasi-delicts
or tort, also known as extra-contractual obligations, arise only
between parties not otherwise bound by contract, whether
express or implied. However, this impression has not
prevented this Court from determining the existence of a tort
even when there obtains a contract.
In the circumstances obtaining in the case at bar, however,
there is, as yet, no finding that the contract between the school
and Bautista had been breached thru the former's negligence
in providing proper security measures. This would be for the
trial court to determine. And, even if there be a finding of
negligence, the same could give rise generally to a breach of
contractual obligation only. Using the test of Cangco, supra, the
negligence of the school would not be relevant absent a
contract. In fact, that negligence becomes material only
because of the contractual relation between PSBA and Bautista.
In other words, a contractual relation is a condition sine qua
non to the school's liability. The negligence of the school
cannot exist independently of the contract, unless the
negligence occurs under the circumstances set out in Article 21
of the Civil Code.
3. RODOLFO G. CRUZ and ESPERANZA IBIAS vs. ATTY.
DELFIN GRUSPE
G.R. No. 191431, March 13, 2013, BRION, J.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the denomination
or title given by the parties in their document is not conclusive of the
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nature of its contents. In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be
pursued. If the terms of the document are clear and leave no doubt on
the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the
parties’ evident intention, the latter shall prevail over the former.
FACTS:
The claim arose from an accident that occurred on October 24,
1999, when the mini bus owned and operated by Cruz and
driven by one Arturo Davin collided with the Toyota Corolla
car of Gruspe; Gruspe’s car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias went to
Gruspe’s office, apologized for the incident, and executed a
Joint Affidavit of Undertaking promising jointly and severally
to replace the Gruspe’s damaged car in 20 days, or until
November 15, 1999, of the same model and of at least the same
quality; or, alternatively, they would pay the cost of Gruspe’s
car amounting to ₱350,000.00, with interest at 12% per month
for any delayed payment after November 15, 1999, until fully
paid. When Cruz and Leonardo failed to comply with their
undertaking, Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspe’s allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon,
without explaining and informing them of its contents; Cruz
affixed his signature so that his mini bus could be released as it
was his only means of income; Leonardo, a barangay official,
accompanied Cruz to Gruspe’s office for the release of the mini
bus, but was also deceived into signing the Joint Affidavit of
Undertaking.
The RTC ruled in favor of Gruspe and ordered Cruz and
Leonardo to pay ₱220,000.00 plus 15% per annum from
November 15, 1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the
interest rate to 12% per annum pursuant to the Joint Affidavit
of Undertaking.
ISSUE:
Whether the Joint Affidavit of Undertaking is a contract that
can be the basis of an obligation to pay a sum of money in favor
of Gruspe
RULING:
The Joint Affidavit of Undertaking is a contract.
Contracts are obligatory no matter what their forms may
be, whenever the essential requisites for their validity are
present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of
the document, since the denomination or title given by the
parties in their document is not conclusive of the nature of
its contents. In the construction or interpretation of an
instrument, the intention of the parties is primordial and
is to be pursued. If the terms of the document are clear
and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall
control. If the words appear to be contrary to the parties’
evident intention, the latter shall prevail over the former.
A simple reading of the terms of the Joint Affidavit of
Undertaking readily discloses that it contains stipulations
characteristic of a contract. As quoted in the CA decision, the
Joint Affidavit of Undertaking contained a stipulation where
Cruz and Leonardo promised to replace the damaged car of
Gruspe, 20 days from October 25, 1999 or up to November 15,
1999, of the same model and of at least the same quality. In the
event that they cannot replace the car within the same period,
they would pay the cost of Gruspe’s car in the total amount of
₱350,000.00, with interest at 12% per month for any delayed
payment after November 15, 1999, until fully paid. These, as
read by the CA, are very simple terms that both Cruz and
Leonardo could easily understand.
There is also no merit to the argument of vitiated consent. An
allegation of vitiated consent must be proven by
preponderance of evidence; Cruz and Leonardo failed to
support their allegation.
Although the undertaking in the affidavit appears to be
onerous and lopsided, this does not necessarily prove the
alleged vitiation of consent. They, in fact, admitted the
genuineness and due execution of the Joint Affidavit and
Undertaking when they said that they signed the same to
secure possession of their vehicle. If they truly believed that
the vehicle had been illegally impounded, they could have
refused to sign the Joint Affidavit of Undertaking and filed a
complaint, but they did not. That the release of their mini bus
was conditioned on their signing the Joint Affidavit of
Undertaking does not, by itself, indicate that their consent was
forced – they may have given it grudgingly, but it is not
indicative of a vitiated consent that is a ground for the
annulment of a contract.
Although the CA upheld the Joint Affidavit of Undertaking, we
note that it imposed interest rate on a per annum basis, instead
of the per month basis that was stated in the Joint Affidavit of
Undertaking without explaining its reason for doing
so. Neither party, however, questioned the change.
Nonetheless, the Court affirms the change in the interest rate
from 12% per month to 12% per annum, as we find the interest
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rate agreed upon in the Joint Affidavit of Undertaking
excessive.
4. ACE FOODS, INC. vs. MICRO PACIFIC TECHNOLOGIES CO.,
LTD
G.R. No. 200602, December 11, 2013, PERLAS-BERNABE, J.
A contract is what the law defines it to be, taking into consideration
its essential elements, and not what the contracting parties call it.
The real nature of a contract may be determined from the express
terms of the written agreement and from the contemporaneous and
subsequent acts of the contracting parties. However, in the
construction or interpretation of an instrument, the intention of the
parties is primordial and is to be pursued. The denomination or title
given by the parties in their contract is not conclusive of the nature of
its contents.
Facts:
MTCL sent a letter-proposal for the delivery and sale of the
subject products to be installed at various offices of ACE Foods.
ACE Foods accepted MTCL’s proposal and accordingly issued
Purchase Order No. 100023 (Purchase Order) for the subject
products. Thereafter, MTCL delivered the said products to ACE
Foods as reflected in Invoice No. 7733 (Invoice Receipt). The
fine print of the invoice states, inter alia, that "[t]itle to
sold property is reserved in MICROPACIFIC TECHNOLOGIES
CO., LTD. until full compliance of the terms and conditions
of above and payment of the price" (title reservation
stipulation).
MTCL’s demands against ACE Foods to pay the purchase price,
however, remained unheeded. Instead of paying the purchase
price, ACE Foods sent MTCL a Letter stating that it will be
returning the subject products.
Eventually, or on October 16, 2002, ACE Foods lodged a
Complaint against MTCL before the RTC, praying that the latter
pull out from its premises the subject products since MTCL
breached its "after delivery services" obligations to it. For its
part, MTCL, in its Answer with Counterclaim, maintained that
it had duly complied with its obligations to ACE Foods and that
the subject products were in good working condition when
they were delivered, installed and configured in ACE Foods’s
premises. Further, MTCL posited that ACE Foods refused and
failed to pay the purchase price for the subject products
despite the latter’s use of the same for a period of nine (9)
months. As such, MTCL prayed that ACE Foods be compelled to
pay the purchase price, as well as damages related to the
transaction.
Issue:
Whether ACE Foods should pay MTCL the purchase price for
the subject products.
Ruling:
YES. ACE Foods should pay MTCL the purchase price for the
subject products.
A contract is what the law defines it to be, taking into
consideration its essential elements, and not what the
contracting parties call it.33 The real nature of a contract may
be determined from the express terms of the written
agreement and from the contemporaneous and subsequent
acts of the contracting parties. However, in the construction or
interpretation of an instrument, the intention of the parties
is primordial and is to be pursued. The denomination or title
given by the parties in their contract is not conclusive of the
nature of its contents.
The very essence of a contract of sale is the transfer of
ownership in exchange for a price paid or promised. This
may be gleaned from Article 1458 of the Civil Code which
defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional. (Emphasis
supplied)
Corollary thereto, a contract of sale is classified as
a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity.
Upon perfection of the contract, the parties may reciprocally
demand performance, i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold.36
In contrast, a contract to sell is defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, i.e., the full payment of the purchase
price. A contract to sell may not even be considered as
a conditional contract of sale where the seller may likewise
reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent
event which may or may not occur.37
In this case, the Court concurs with the CA that the parties
have agreed to a contract of sale and not to a contract to
sell as adjudged by the RTC. Bearing in mind its consensual
nature, a contract of sale had been perfected at the precise
moment ACE Foods, as evinced by its act of sending MTCL the
Purchase Order, accepted the latter’s proposal to sell the
subject products in consideration of the purchase price of
₱646,464.00. From that point in time, the reciprocal obligations
of the parties – i.e., on the one hand, of MTCL to deliver the said
products to ACE Foods, and, on the other hand, of ACE Foods to
pay the purchase price therefor within thirty (30) days from
delivery – already arose and consequently may be demanded.
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5. ANTONIO LOCSIN, II vs. MEKENI FOOD CORPORATION
G.R. NO. 192105, December 9, 2013, DEL CASTILLO, J.
There is unjust enrichment ''when a person unjustly retains a benefit
to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and
good conscience." The principle of unjust enrichment requires two
conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at the expense of
another. The main objective of the principle against unjust
enrichment is to prevent one from enriching himself at the expense of
another without just cause or consideration.
Facts:
Respondent Mekeni Food Corporation(Mekeni) offered
petitioner Antonio Locsin II the position of Regional Sales
Manager to oversee Mekeni’s National Capital Region
Supermarket/Food Service and South Luzon operations. In
addition to a compensation and benefit package, Mekeni
offered petitioner a car plan, under which one-half of the cost
of the vehicle is to be paid by the company and the other half
to be deducted from petitioner’s salary.
Subsequently, Locsin resigned effective February 25, 2006. By
then, a total of ₱112,500.00 had been deducted from his
monthly salary and applied as part of the employee’s share in
the car plan. Petitioner made personal and written follow-ups
regarding his unpaid salaries, commissions, benefits, and offer
to purchase his service vehicle. Mekeni replied that the
company car plan benefit applied only to employees who have
been with the company for five years; for this reason, the
balance that petitioner should pay on his service vehicle stood
at ₱116,380.00 if he opts to purchase the same.
On May 3, 2007, petitioner filed against Mekeni and/or its
President, Prudencio S. Garcia, a Complaint for the recovery
of monetary claims consisting of unpaid salaries,
commissions, sick/vacation leave benefits, and recovery of
monthly salary deductions which were earmarked for his
cost-sharing in the car plan.
Issue:
Whether petitioner is entitled to a refund of all the amounts
applied to the cost of the service vehicle under the car plan.
Ruling: NO. Locsin can only be allowed to refund the ½
value of the vehicle which he contributed.
From the evidence on record, it is seen that the Mekeni car
plan offered to petitioner was subject to no other term or
condition than that Mekeni shall cover one-half of its value,
and petitioner shall in turn pay the other half through
deductions from his monthly salary. Mekeni has not shown, by
documentary evidence or otherwise, that there are other
terms and conditions governing its car plan agreement with
petitioner. There is no evidence to suggest that if petitioner
failed to completely cover one-half of the cost of the vehicle,
then all the deductions from his salary going to the cost of the
vehicle will be treated as rentals for his use thereof while
working with Mekeni, and shall not be refunded.
The Court cannot allow that payments made on the car
plan should be forfeited by Mekeni and treated simply as
rentals for petitioner’s use of the company service vehicle.
Nor may they be retained by it as purported loan
payments, as it would have this Court believe. In the first
place, there is precisely no stipulation to such effect in their
agreement. Secondly, it may not be said that the car plan
arrangement between the parties was a benefit that the
petitioner enjoyed; on the contrary, it was an absolute
necessity in Mekeni’s business operations, which benefit edit
to the fullest extent. Any benefit or privilege enjoyed by
petitioner from using the service vehicle was merely incidental
and insignificant, because for the most part the vehicle was
under Mekeni’s control and supervision. Given the vast
territory petitioner had to cover to be able to perform his work
effectively and generate business for his employer, the service
vehicle was an absolute necessity, or else Mekeni’s business
would suffer adversely. Thus, it is clear that while petitioner
was paying for half of the vehicle’s value, Mekeni was
reaping the full benefits from the use thereof.
In light of the foregoing, it is unfair to deny petitioner a refund
of all his contributions to the car plan. Under Article 22 of the
Civil Code, "[e]very person who through an act of
performance by another, or any other means, acquires or
comes into possession of something at the expense of the
latter without just or legal ground, shall return the same
to him." Article 214227of the same Code likewise clarifies that
there are certain lawful, voluntary and unilateral acts which
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. In the absence of specific terms and
conditions governing the car plan arrangement between the
petitioner and Mekeni, a quasi-contractual relation was
created between them. Consequently, Mekeni may not enrich
itself by charging petitioner for the use of its vehicle which is
otherwise absolutely necessary to the full and effective
promotion of its business. It may not, under the claim that
petitioner’s payments constitute rents for the use of the
company vehicle, refuse to refund what petitioner had paid,
for the reasons that the car plan did not carry such a condition;
the subject vehicle is an old car that is substantially, if not
fully, depreciated; the car plan arrangement benefited Mekeni
for the most part; and any personal benefit obtained by
petitioner from using the vehicle was merely incidental.
Conversely, petitioner cannot recover the monetary value of
Mekeni’s counterpart contribution to the cost of the vehicle;
that is not property or money that belongs to him, nor was it
intended to be given to him in lieu of the car plan. In other
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words, Mekeni’s share of the vehicle’s cost was not part of
petitioner’s compensation package.
There is unjust enrichment ''when a person unjustly retains a
benefit to the loss of another, or when a person retains money
or property of another against the fundamental principles of
justice, equity and good conscience." The principle of unjust
enrichment requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that
such benefit is derived at the expense of another. The main
objective of the principle against unjust enrichment is to
prevent one from enriching himself at the expense of another
without just cause or consideration.
6. ANTONIO M. GARCIA vs. FERRO CHEMICALS, INC.
G.R. No. 172505, October 1, 2014, LEONEN, J
The civil liability arising from the offense or ex delicto is based on the
acts or omissions that constitute the criminal offense; hence, its trial
is inherently intertwined with the criminal action. For this reason, the
civil liability ex delicto is impliedly instituted with the criminal
offense. If the action for the civil liability ex delicto is instituted prior
to or subsequent to the filing of the criminal action, its proceedings
are suspended until the final outcome of the criminal action.
Facts:
Antonio Garcia, as seller, and Ferro Chemicals, Inc., through
Ramon Garcia, as buyer, entered into a deed of absolute· sale
and purchase of shares of stock. The deed was for the sale and
purchase of shares of stock from various corporations,
including one class "A" share in Alabang Country Club, Inc. and
one proprietary membership in the Manila Polo Club,
Inc. These shares of stock were in the name of Antonio
Garcia. The contract was allegedly entered into to prevent
these shares of stock from being sold at public auction to pay
the outstanding obligations of Antonio Garcia.
On September 6, 1989, the class "A" share in Alabang Country
Club, Inc. and proprietary membership in the Manila Polo Club,
Inc., which were included in the contracts entered into
between Antonio Garcia and Ferro Chemicals, Inc., were sold at
public auction to Philippine Investment System Organization.
On September 3, 1990, the information based on the complaint
of Ferro Chemicals, Inc. was filed against Antonio Garcia before
the Regional Trial Court. He was charged with estafa under
Article 318 (Other Deceits) of the Revised Penal Code for
allegedly misrepresenting to Ferro Chemicals, Inc. that the
shares subject of the contracts entered into were free from all
liens and encumbrances.
In the decision dated December 12, 1996 of the Regional Trial
Court, Antonio Garcia was acquitted for insufficiency of
evidence.
On August 25, 1997, Ferro Chemicals, Inc. appealed (Notice
of Appeal) to the Court of Appeals the July 29, 1997 order
of the Regional Trial Court as to the civil aspect of the
case.
On October 15, 1997, the Makati City Prosecutor’s Office and
Ferro Chemicals, Inc. also filed a petition for
certiorari with this court, assailing the Regional Trial
Court’s December 12, 1996 decision and July 29, 1997 order
acquitting Antonio Garcia. This court however dismissed the
said petition for certiorari.
The Court of Appeals, in its decision dated August 11, 2005,
granted the appeal. Antonio Garcia filed a motion for
reconsideration which was denied by the CA. Hence, this case.
Issue:
Whether the act of Ferro Chemicals, Inc. in filing the notice of
appeal before the Court of Appeals and the petition for
certiorari assailing the same trial court decision amounted to
forum shopping (since there was identity of rights asserted and
reliefs prayed for, that is, recovery of civil liability ex delicto).
Ruling:
Yes. The act of Ferro Chemicals, Inc. in filing the notice of
appeal before the Court of Appeals and the petition for
certiorari assailing the same trial court decision amounted to
forum shopping.
There is no question that Ferro Chemicals, Inc. committed
forum shopping when it filed an appeal before the Court of
Appeals and a petition for certiorari before this court assailing
the same trial court decision. This is true even if Ferro
Chemicals, Inc.’s notice of appeal to the Court of Appeals
was entitled "Notice of Appeal Ex Gratia Abudantia Ad
Cautelam (Of The Civil Aspect of the Case)." The "civil
aspect of the case" referred to by Ferro Chemicals, Inc. is
for the recovery of civil liability ex delicto. However, it
failed to make a reservation before the trial court to
institute the civil action for the recovery of civil liability
ex delicto or institute a separate civil action prior to the
filing of the criminal case.
There is identity of the rights asserted and reliefs prayed for in
both actions. At a glance, it may appear that Ferro Chemicals,
Inc. asserted different rights: The appeal before the Court of
Appeals is purely on the civil aspect of the trial court’s decision
while the petition for certiorari before this court is allegedly
only on the criminal aspect of the case. However, the civil
liability asserted by Ferro Chemicals, Inc. before the Court of
Appeals arose from the criminal act. It is in the nature of civil
liability ex delicto. Ferro Chemicals, Inc. did not reserve the
right to institute the civil action for the recovery of civil
liability ex delicto or institute a separate civil action prior to
the filing of the criminal case. Thus, it is an adjunct of the
criminal aspect of the case.
The civil liability arising from the offense or ex delicto is based
on the acts or omissions that constitute the criminal offense;
hence, its trial is inherently intertwined with the criminal
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action. For this reason, the civil liability ex delicto is impliedly
instituted with the criminal offense. If the action for the civil
liability ex delicto is instituted prior to or subsequent to the
filing of the criminal action, its proceedings are suspended
until the final outcome of the criminal action. The civil liability
based on delict is extinguished when the court hearing the
criminal action declares that ‘the act or omission from which
the civil liability may arise did not exist’."
When the trial court’s decision was appealed as to its criminal
aspect in the petition for certiorari before this court, the civil
aspect thereof is deemed included in the appeal. Thus, the
relief prayed for by Ferro Chemicals, Inc., that is, recovery
of civil liability ex delicto, is asserted in both actions
before this court and the Court of Appeals.
[T]he extinction of the penal action does not necessarily carry
with it the extinction of the civil action, whether the latter is
instituted with or separately from the criminal action. The
offended party may still claim civil liability ex delicto if there is
a finding in the final judgment in the criminal action that the
act or omission from which the liability may arise exists.
Jurisprudence has enumerated three instances when,
notwithstanding the accused’s acquittal, the offended
party may still claim civil liability ex delicto: (a) if the
acquittal is based on reasonable doubt as only
preponderance of evidence is required; (b) if the court
declared that the liability of the accused is only civil; and
(c) if the civil liability of the accused does not arise from or
is not based upon the crime of which the accused is
acquitted.
However, if the state pursues an appeal on the criminal
aspect of a decision of the trial court acquitting the
accused and private complainant/s failed to reserve the
right to institute a separate civil action, the civil liability
ex delicto that is inherently attached to the offense is
likewise appealed. The appeal of the civil liability ex delicto is
impliedly instituted with the petition for certiorari assailing
the acquittal of the accused. Private complainant cannot
anymore pursue a separate appeal from that of the state
without violating the doctrine of non-forum shopping.
On the other hand, the conclusion is different if private
complainant reserved the right to institute the civil action for
the recovery of civil liability ex delicto before the Regional
Trial Court or institute a separate civil action prior to the filing
of the criminal case in accordance with Rule 111 of the Rules of
Court. In these situations, the filing of an appeal as to the civil
aspect of the case cannot be considered as forum shopping.
7.. Barredo vs. Garcia
73 Phil. 607 (1942)
FACTS:
- A head-on collision between a taxicab owned by Barredo
and a carretela occurred. The carretela was overturned and
one of its passengers, a 16-year old boy, the son of Garcia and
Almario, died as a result of the injuries which he received. The
driver of the taxicab, an employee of Barredo, was prosecuted
for the crime and was convicted. When the criminal case was
instituted, Garcia and Almario reserved their right to
institute a separate civil action for damages. Subsequently,
Garcia and Almario instituted a civil action for damages
against Barredo, the employer of the taxicab driver.
- The defendant maintains that Fontanilla’s negligence
being punishable by the Penal Code, his (defendant’s)
liability as an employer is only subsidiary, according to
said Penal Code, but Fontanilla has not been sued in a civil
action and his property has not been exhausted.
Issue:
-Whether or not they can file a separate civil action against
Fausto Barredo making him primarily and directly responsible?
Ruling:
(Foreword: The Barredo case was decided by the Supreme
Court prior to the present Civil Code. However, the principle
enunciated in said case, that responsibility for fault or
negligence as quasi-delict is distinct and separate from
negligence penalized under the Revised Penal Code, is now
specifically embodied in Art. 2177 of the Civil Code.)
- YES. To decide the main issue, we must cut thru the tangle
that has, in the minds of many, confused and jumbled
together delitos and cuasi delitos, or crimes under the
Penal Code and fault or negligence under Articles 1902-
1910 of the Civil Code. According to the Supreme Tribunal
of Spain:
“Authorities support the proposition that 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.
“It will thus be seen that while the terms of Article 1902 of the
Civil Code seem to be broad enough to cover the driver’s
negligence in the instant case, nevertheless Article 1903 limits
cuasi-delitos TO ACTS OR OMISSIONS ‘NOT PUNISHABLE BY
LAW.’ But inasmuch as Article 365 of the Revised Penal Code
punishes not only reckless but even simple imprudence or
negligence, the fault or negligence under Article 1902 of the
Civil Code has apparently been crowded out. It is this
overlapping that makes the “confusion worse confounded.’
However, a closer study shows that such a concurrence of
scope in regard to negligent acts does not destroy the
distinction 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-
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contractual under Articles 1902-1910 of the Civil Code. “Some
of the differences between crimes under the Penal Code are:
“1. That crimes affect the public interest, while quasi-delitos
are only of private concern.
“2. That consequently, the Penal Code punishes or corrects
the criminal act, while the Civil Code, by means of
indemnification, merely repairs the damage.
“3. That delicts are not as broad as quasi-delicts, because for
the former are punished only if there is a penal law clearly
covering them, while the latter, cuasi-delitos, include all acts in
which ‘ any kind of fault or negligence intervenes.’ However, it
should be noted that not all violations of the penal law produce
civil responsibility, such as begging in contravention of
ordinances, violation of the game laws, infractionof the rules of
traffic when nobody is hurt.
“The foregoing authorities clearly demonstrate the
separate individuality of cuasi-delitos or culpa aquiliana under
the Civil Code. Specifically they show that there is a distinction
between civil liability arising from criminal negligence
(governed by the Penal Code) and responsibility for fault or
negligence under Articles 1902 to 1910 of the Civil Code, and
that the same negligent act may produce either a civil liability
arising from a crime under the Penal Code, or a separate
responsibility for fault or negligence under Articles 1902 to
1910 of the Civil Code. Still more concretely the authorities
above cited render it inescapable to conclude that the
employer – in this case the defendant-petitioner – is primarily
and directly liable under Article 1903 of the Civil Code.
8. GUTIERREZ vs. GUTIERREZ
G.R. No. 34840, September 23, 1931.
Based on Art. 1903 of the Civil Code, the father alone would be
liable for the damages caused by the minor. This is based on the
Common law rule that: the head of a house, the owner of an
automobile, who maintains it for the general use of his family is liable
for its negligent operation by one of his children. The theory of the law
is that the running of the machine by a child to carry other members
of the family is within the scope of the owner's business, so that he is
liable for the negligence of the child because of the relationship of
master and servant.
Facts:
February 2, 1930, a passenger truck and private automobile
collided while attempting to pass each other on the Talon
Bridge on the Manila South Road, Las Piñas, Rizal.At the time of
the collision, the father was not in the car. But the mother,
together with several other members of the Gutierrez family,
seven members in all, were in the car.
A passenger on the autobus, Narciso Gutierrez, who was en
route from San Pablo, Laguna to Manila, suffered a fractured
right leg as a result of the collision. At the time of the trial, it
appears that it had not yet healed properly.It is conceded that
the collision was caused by negligence, neither of the drivers
willing to slow down as they approached the said bridge.
Bonifacio was driving at an excessive speed, as found by the
lower court, and evidence showing that there is lack of care
employed by the truck driver, in its position and speed.
The owner of the passenger truck blames the owner of the
automobile. The owner of the automobile blames the truck.
Aside from that, it is alleged that there existed contributory
negligence on the part of the plaintiff in keeping his foot
outside of the truck, causing his injury. The Court ruled that
this was mere speculation.
Issue/s:
1. Whether or not the Spouses Gutierrez are liable?
2. Whether or not the driver and the owner of the truck
are liable?
Ruling:
1. Yes, but only the father is liable. it may be explained that
the youth Bonifacio was in incompetent chauffeur, that he
was driving at an excessive rate of speed, and that, on
approaching the bridge and the truck, he lost his head and
so contributed by his negligence to the accident. As such,
The guaranty by the father at the time the son was granted
a license to operate motor vehicles made the father
responsible for the acts of his son. Based on Art. 1903 of
the Civil Code, the father alone would be liable for the
damages caused by the minor. This is based on the
Common law rule that: the head of a house, the owner of
an automobile, who maintains it for the general use of his
family is liable for its negligent operation by one of his
children. The theory of the law is that the running of the
machine by a child to carry other members of the family is
within the scope of the owner's business, so that he is
liable for the negligence of the child because of the
relationship of master and servant.
2. The basis of the liability of Saturnino Cortez and his
chauffeur is that of contract to carry. In failing to do
so, he is still liable for damages.
9. LLANA v. BIONG
Very case essentially turns on two basic questions: questions of fact
and questions of law. Questions of fact are the parties and their
counsel to respond to, based on what supporting facts the legal
questions require; the court can only draw conclusion from the facts
or evidence adduced. When the facts are lacking because of the
deficiency of presented evidence, then the court can only draw one
conclusion: that the cause must fail for lack of evidentiary support.
Facts:
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The car being occupied by Dra. Leila dela Llana (Dra. dela
Llana) stopped due to a red light, and a few seconds later, a
dump truck driven by Joel Primero (Joel) suddenly rammed the
car’s rear end. Glass splinters flew, puncturing Dra. dela Llana.
Apart from these minor wounds, Dra. dela Llana did not appear
to have suffered from any other visible physical injuries.
The traffic investigation report stated that Joel was recklessly
imprudent in driving the truck, and that his employer was
respondent Rebecca Biong (Rebecca), doing business under the
name and style of "Pongkay Trading" and was engaged in a
gravel and sand business.
After the incident, Dra. dela Llana could no longer move her
left arm. She found out that she suffered from a whiplash inury
and required her to undergo physical therapy to alleviate her
condition. However, Dra. dela Llana’s condition did not
improve despite three months of extensive physical therapy.
Because of such, she underwent a surgery. After the surgery,
Dra. Dela Llana was incapacitated to practice her profession.
Consequently, Dra. dela Llana sued Rebecca for damages
before the Regional Trial Court of Quezon City (RTC). In
defense, Rebecca maintained that Dra. dela Llana had no cause
of action against her as no reasonable relation existed
between the vehicular accident and Dra. dela Llana’s injury;
that Dra. dela Llana’s illness became manifest one month and
one week from the date of the vehicular accident. As a
counterclaim, she demanded the payment of attorney’s fees
and costs of the suit.
Issue: Whether Joel’s reckless driving is the proximate cause of
Dra. dela Llana’s whiplash injury.
Ruling:
No. Dra. dela Llana failed to establish her case by
preponderance of evidence.
Article 2176 of the Civil Code provides that "[w]hoever by act
or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation
between the parties, is a quasi-delict." Under this provision,
the elements necessary to establish a quasi-delict case are:
(1) damages to the plaintiff;
(2) negligence, by act or omission, of the defendant or by some
person for whose acts the defendant must respond, was guilty;
and
(3) the connection of cause and effect between such negligence
and the damages.
These elements show that the source of obligation in a quasi-
delict case is the breach or omission of mutual duties that
civilized society imposes upon its members, or which arise
from non-contractual relations of certain members of society
to others.
Based on these requisites, Dra. dela Llana must first establish
by preponderance of evidence the three elements of quasi-
delict before we determine Rebecca’s liability as Joel’s
employer. She should show the chain of causation between
Joel’s reckless driving and her whiplash injury.
Only after she has laid this foundation can the presumption -
that Rebecca did not exercise the diligence of a good father of a
family in the selection and supervision of Joel - arise.
Once negligence, the damages and the proximate causation are
established, this Court can then proceed with the application
and the interpretation of the fifth paragraph of Article 2180 of
the Civil Code.
Under Article 2176 of the Civil Code, in relation with the fifth
paragraph of Article 2180, "an action predicated on an
employee’s act or omission may be instituted against the
employer who is held liable for the negligent act or omission
committed by his employee."
The rationale for these graduated levels of analyses is that it is
essentially the wrongful or negligent act or omission itself
which creates the vinculum juris in extra-contractual
obligations.
In civil cases, a party who alleges a fact has the burden of
proving it.
He who alleges has the burden of proving his allegation by
preponderance of evidence or greater weight of credible
evidence.34 In the present case, the burden of proving the
proximate causation between Joel’s negligence and Dra. dela
Llana’s whiplash injury rests on Dra. dela Llana. She must
establish by preponderance of evidence that Joel’s negligence,
in its natural and continuous sequence, unbroken by any
efficient intervening cause, produced her whiplash injury, and
without which her whiplash injury would not have occurred.
Notably, Dra. dela Llana anchors her claim mainly on three
pieces of evidence:
(1) the pictures of her damaged car, (2) the
medical certificate dated November 20, 2000, and
(3) her testimonial evidence. However, none of
these pieces of evidence show the causal relation
between the vehicular accident and the whiplash
injury.
10. CHAVES v. GONZALES
Facts:
The plaintiff delivered to the defendant, a portable
typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff.
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In October, 1963, the defendant asked from the plaintiff the
sum of P6.00 for the purchase of spare parts, which amount the
plaintiff gave to the defendant.
On October 26, 1963, the plaintiff went to the house of the
defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff found out that the same was
in shambles, with the interior cover and some parts and
screws missing.
On October 29, 1963. the plaintiff sent a letter to the defendant
formally demanding the return of the missing parts, the
interior cover and the sum of P6.00. The following day, the
defendant returned to the plaintiff some of the missing parts,
the interior cover and the P6.00.
On August 29, 1964, the plaintiff had his typewriter repaired
by Freixas Business Machines, and the repair job cost him
a total of P89.85, including labor and materials.
The plaintiff commenced this action before the City Court
of Manila, demanding from the defendant the payment of
P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and
P500.00 as attorney’s fees.
The defendant made no denials of the facts narrated above,
except the claim of the plaintiff that the typewriter was
delivered to the defendant through a certain Julio Bocalin,
which the defendant denied allegedly because the typewriter
was delivered to him personally by the plaintiff.
Issue: Whether or not Gonzales should be liable for the full
amount paid by Chaves for the repair of his typewriter?
Ruling: Yes.
It is clear that the defendant-appellee contravened the tenor of
his obligation because he not only did not repair the
typewriter but returned it "in shambles", according to the
appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code. jam
quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case
should be the cost of the labor or service expended in the
repair of the typewriter, which is in the amount of P58.75.
because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under
Article 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it
in the same condition it was when he received it.
11. TANGUILIG v. CA
Facts:
Sometime in April 1987 petitioner proposed to respondent to
construct a windmill system for him. On 14 March 1988, due
to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount.
Respondent, in his Answer before the trial court, denied the
claim saying that he had already paid this amount to the
San Pedro General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill system was to
be connected. According to respondent, since the deep well
formed part of the system the payment he tendered to SPGMI
should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this
should be offset by the defects in the windmill system
which caused the structure to collapse after a strong wind
hit their place.
Petitioner denied that the construction of a deep well was
included in the agreement to build the windmill system, for
the contract price of P60,000.00 was solely for the windmill
assembly and its installation, exclusive of other incidental
materials needed for the project. He also disowned any
obligation to repair or reconstruct the system and insisted that
he delivered it in good and working condition to respondent
who accepted the same without protest. Besides, its collapse
was attributable to a typhoon, a force majeure, which
relieved him of any liability.
Issue:
1. Whether or not the agreement to construct the windmill
system included the installation of a deep well
2. Whether or not petitioner is under obligation to reconstruct
the windmill after it collapsed
3. Whether or not private respondent should bear his own loss
since his failure to pay his outstanding balance puts him in
default
Ruling:
1. No. The preponderance of evidence supports the finding of
the trial court that the installation of a deep well was not
included in the proposals of petitioner to construct a windmill
system for respondent. There were in fact two (2) proposals:
one dated 19 May 1987 which pegged the contract price at
P87,000.00 (Exh. "1"). This was rejected by respondent. The
other was submitted three days later, i.e., on 22 May 1987
which contained more specifications but proposed a lower
contract price of P60,000.00 (Exh. "A"). The latter proposal was
accepted by respondent and the construction immediately
followed
Nowhere in either proposal is the installation of a deep well
mentioned, even remotely. Neither is there an itemization or
description of the materials to be used in constructing the deep
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well. There is absolutely no mention in the two (2)
documents that a deep well pump is a component of the
proposed windmill system. The contract prices fixed in both
proposals cover only the features specifically described therein
and no other. While the words "deep well" and "deep well
pump" are mentioned in both, these do not indicate that a
deep well is part of the windmill system. They merely describe
the type of deep well pump for which the proposed windmill
would be suitable.
2. Yes. in order for a party to claim exemption from liability by
reason of fortuitous event under Art. 1174 of the Civil Code the
event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of
Appeals, four (4) requisites must concur: (a) the cause of
the breach of the obligation must be independent of the
will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such
as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and, (d) the debtor must be
free from any participation in or aggravation of the injury
to the creditor.
Petitioner failed to show that the collapse of the windmill was
due solely to a fortuitous event. Interestingly, the evidence
does not disclose that there was actually a typhoon on the day
the windmill collapsed. Petitioner merely stated that there was
a "strong wind." But a strong wind in this case cannot be
fortuitous — unforeseeable nor unavoidable. On the
contrary, a strong wind should be present in places where
windmills are constructed, otherwise the windmills will
not turn.
The appellate court correctly observed that "given the newly-
constructed windmill system, the same would not have
collapsed had there been no inherent defect in it which could
only be attributable to the appellee.” It emphasized that
respondent had in his favor the presumption that "things have
happened according to the ordinary course of nature and the
ordinary habits of life.” This presumption has not been
rebutted by petitioner.
3. No. In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. When the
windmill failed to function properly it became incumbent upon
petitioner to institute the proper repairs in accordance with
the guaranty stated in the contract. Thus, respondent cannot
be said to have incurred in delay; instead, it is petitioner who
should bear the expenses for the reconstruction of the
windmill. Article 1167 of the Civil Code is explicit on this
point that if a person obliged to do something fails to do it,
the same shall be executed at his cost.
12. CHARLES F. WOODHOUSE v. FORTUNATO F. HALILI
G.R. No. L-4811, July 31, 1953
There are two kinds of (civil) fraud, the causal fraud, which may be a
ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This
Court had held that in order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo
causante), inducement to the making of the contract. The record
abounds with circumstances indicative that the fact that the
principal consideration, the main cause that induced defendant to
enter into the partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and distribute for the
defendant or for the partnership.
FACTS:
Charles Woodhouse (plaintiff) entered on a written agreement
with Fortunato Halili (defendant). One of the provisions of the
agreement was that they shall organize a partnership for the
bottling and distribution of Mision soft drinks, plaintiff to act
as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be
executed. At first defendant executed himself, saying there was
no hurry. Then he promised to do so after the sales of the
product had been increased to P50,000. As nothing definite was
forthcoming, after this condition was attained, and as
defendant refused to give further allowances to plaintiff, the
latter caused his attorneys to take up the matter with the
defendant with a view to a possible settlement. As none could
be arrived at, the present action was instituted.
In his complaint plaintiff 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 damages in the amount of
P200,000. In his answer defendant alleges by way of defense (1)
that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the
owner, or was about to become owner of an exclusive bottling
franchise, which representation was false, and plaintiff did not
secure the franchise, but was given to defendant himself; (2)
that defendant did not fail to carry out his undertakings, but
that it was plaintiff who failed; (3) that plaintiff agreed to
contribute the exclusive franchise to the partnership, but
plaintiff failed to do so. He also presented a counter-claim for
P200,000 as damages.
ISSUES:
1. Did plaintiff represent to defendant that he had an
exclusive franchise to bottle Mission beverages?
2. Whether or not the false representation amounts to fraud
that would vitiate the contract.
3. Whether or not the plaintiff or defendant is/are entitled to
damages?
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RULING:
1) YES. Plaintiff's attorney, Mr. Laurea, testified that
Woodhouse presented himself as being the exclusive
grantee of a franchise. As a matter of fact, the first draft
that Mr. Laurea prepared, which was made before the
Manila Hotel conference on November 27th, expressly
states that plaintiff had the exclusive franchise.
These statements written in his letters to Mission Dry
Corporation confirm the conclusion that defendant believed,
or was made to believe, that plaintiff was the grantee of an
exclusive franchise. Thus it is that it was also agreed upon that
the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
We conclude from all the foregoing that plaintiff did actually
represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually
believed, that plaintiff had the exclusive franchise. Defendant
would not perhaps have gone to California and incurred
expenses for the trip, unless he believed that plaintiff did have
that exclusive privilege, and that the latter would be able to
get the same from the Mission Dry Corporation itself. Plaintiff
knew what defendant believed about his (plaintiff's) exclusive
franchise, as he induced him to that belief, and he may not be
allowed to deny that defendant was induced by that belief.
2) No.
In consequence, article 1270 of the Spanish Civil Code
distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court had held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo causante), inducement to the
making of the contract. (Article 1270, Spanish Civil Code; Hill
vs. Veloso, 31 Phil. 160.) The record abounds with
circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability
of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The
original draft prepared by defendant's counsel was to the
effect that plaintiff obligated himself to secure a franchise for
the defendant. Correction appears in this same original draft,
but the change is made not as to the said obligation but as to
the grantee. In the corrected draft the word
"capitalist"(grantee) is changed to "partnership." The contract
in its final form retains the substituted term "partnership."
The defendant was, therefore, led to the belief that plaintiff
had the exclusive franchise, but that the same was to be
secured for or transferred to the partnership. The plaintiff no
longer had the exclusive franchise, or the option thereto, at
the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into),
the principal obligation that he assumed or undertook was to
secure said franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We declare,
therefore, that if he was guilty of a false representation, this
was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 percent granted
him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits
because he was transferring his exclusive franchise to the
partnership. Plaintiff had never been a bottler or a chemist; he
never had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant being
built, all that he suggested was about the toilet facilities for the
laborers.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant 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 defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidente defined in article 1270 of the Spanish
Civil Code, because it was used to get the other party's consent
to a big share in the profits, an incidental matter in the
agreement.
13. LYDIA L. GERALDEZ v. HON. COURT OF APPEALS and
KENSTAR TRAVEL CORPORATION
G.R. No. 108253, February 23, 1994
In either case, whether private respondent has committed dolo
causante or dolo incidente by making misrepresentations in its
contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary
to its representations, it employed an inexperienced tour guide,
housed the tourist group in substandard hotels, and reneged on its
promise of a European tour manager and the visit to the leather
factory, it is indubitably liable for damages to petitioner.
FACTS:
Geraldez availed the tour package of Kentar Travel Corporation
and chose the classification “VOLARE 3”. Petitioner claimed
that, during the tour, she was very uneasy and disappointed
when it turned out that, contrary to what was stated in the
brochure, there was no European tour manager for their group
of tourists, the hotels in which she and the group were bullited
were not first-class, the UGC Leather Factory which was
specifically added as a highlight of the tour was not visited, and
the Filipino lady tour guide by private respondent was a first
timer, that is, she was performing her duties and
responsibilities as such for the first time. Hence, an action for
damages by reason of contractual breach was filed by
petitioner against private respondent.
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13 Civil Law Review 2 (Atty. Legarda)
ISSUE: Whether or not private respondent acted in bad faith or
with gross negligence in discharging its obligations under the
contract.
RULING: Yes.
After thorough and painstaking scrutiny of the case records of
both the trial and appellate courts, we are satisfactorily
convinced, and so hold, that private respondent did commit
fraudulent misrepresentations amounting to bad faith, to the
prejudice of petitioner and the members of the tour group.
Moreover, a tour guide is supposed to attend to the routinary
needs of the tourists, not only when the latter ask for
assistance but at the moment such need becomes apparent. In
other words, the tour guide, especially by reason of her
experience in previous tours, must be able to anticipate the
possible needs and problems of the tourists instead of waiting
for them to bring it to her attention. While this is stating the
obvious, it is her duty to see to it that basic personal necessities
such as soap, towels and other daily amenities are provided by
the hotels. It is also expected of her to see to it that the tourists
are provided with sanitary surroundings and to actively
arrange for medical attention in case of accidents, as what
befell petitioner's sister and wherein the siblings had to
practically fend for themselves since, after merely calling for
an ambulance, Zapanta left with the other tour participants.
Private respondent's choice of Zapanta as the tour guide is a
manifest disregard of its specific assurances to the tour group,
resulting in agitation and anxiety on their part, and which
deliberate omission is contrary to the elementary rules of good
faith and fair play. It is extremely doubtful if any group of
Filipino tourists would knowingly agree to be used in effect as
guinea pigs in an employees' training program of a travel
agency, to be conducted in unfamiliar European countries with
their diverse cultures, lifestyles and languages.
Private respondent contends that the term "European Tour
Manager" does not refer to an individual but to an
organization, allegedly the Kuoni Travel of Switzerland which
supposedly prepared the itinerary for its "Volare Europe
Tour," negotiated with all the hotels in Europe, selected tourist
spots and historical places to visit, and appointed experienced
local tour guides for the tour group. We regret this unseemly
quibbling which perforce cannot be allowed to pass judicial
muster.
Furthermore, the private respondent had the obligation to
provide the tour group not only with a European tour
manager, but also with local European tour guides. The latter,
parenthetically, were likewise never made available. Zapanta
claims that she was accompanied by a European local tour
guide in most of the major cities in Europe. We entertain
serious doubts on, and accordingly reject, this pretension for
she could not even remember the name of said European tour
guide. If such a guide really existed, it is incredible why she
could not even identify the former when she testified a year
later, despite the length of their sojourn and the duration of
their association.
While, generally, the terms of a contract result from the
mutual formulation thereof by the parties thereto, it is of
common knowledge that there are certain contracts almost all
the provisions of which have been drafted by only one party,
usually a corporation. Such contracts are called contracts of
adhesion, because the only participation of the party is the
affixing of his signature or his "adhesion" thereto. In
situations like these, when a party imposes upon another a
ready-made form of contract, and the other is reduced to the
alternative of taking it or leaving it, giving no room for
negotiation and depriving the latter of the opportunity to
bargain on equal footing, a contract of adhesion results. While
it is true that an adhesion contract is not necessarily void, it
must nevertheless be construed strictly against the one who
drafted the same. This is especially true where the stipulations
are printed in fine letters and are hardly legible as is the case
of the tour contract involved in the present controversy.
Yet, even assuming arguendo that the contractual limitation
aforequoted is enforceable, private respondent still cannot be
exculpated for the reason that responsibility arising from
fraudulent acts, as in the instant case, cannot be stipulated
against by reason of public policy. Consequently, for the
foregoing reasons, private respondent cannot rely on its
defense of "substantial compliance" with the contract.
The fact that the tourists were to pay a supposedly lower
amount, such that private respondent allegedly retained
hardly enough as reasonable profit, does not justify a
substandard form of service in return. It was private
respondent, in the first place, which fixed the charges for the
package tour and determined the services that could be availed
of corresponding to such price. Hence, it cannot now be heard
to complain that it only made a putative marginal profit out of
the transaction. if it could not provide the tour participants
with first-class lodgings on the basis of the amount that they
paid, it could and should have instead increased the price to
enable it to arrange for the promised first-class
accommodations.
On the foregoing considerations, respondent court erred in
deleting the award for moral and exemplary damages. Moral
damages may be awarded in breaches of contract where the
obligor acted fraudulently or in bad faith. From the facts
earlier narrated, private respondent can be faulted with fraud
in the inducement, which is employed by a party to a contract
in securing the consent of the other.
This fraud or dolo which is present or employed at the time of
birth or perfection of a contract may either be doloc
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14 Civil Law Review 2 (Atty. Legarda)
ausante or dolo incidente. The first, or causal fraud referred to in
Article 1338, are those deceptions or misrepresentations of a
serious character employed by one party and without which
the other party would not have entered into the contract. Dolo
incidente, or incidental fraud which is referred to in Article
1344, are those which are not serious in character and without
which the other party would still have entered into the
contract. Dolo causante determines or is the essential cause of
the consent, while dolo incidente refers only to some particular
or accident of the obligations. The effects of dolo causante are
the nullity of the contract and the indemnification of
damages, and dolo incidente also obliges the person employing
it to pay damages.
In either case, whether private respondent has committed dolo
causante or dolo incidente by making misrepresentations in its
contracts with petitioner and other members of the tour
group, which deceptions became patent in the light of after-
events when, contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in
substandard hotels, and reneged on its promise of a European
tour manager and the visit to the leather factory, it is
indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European
tour manager would accompany them, with the concomitant
reassuring and comforting thought of having security and
assistance readily at hand, petitioner was induced to join the
Volare 3 tourists, instead of travelling alone She likewise
suffered serious anxiety and distress when the group was
unable to visit the leather factory and when she did not receive
first-class accommodations in their lodgings which were
misrepresented as first-class hotels. These, to our mind, justify
the award for moral damages, which are in the category of an
award designed to compensate the claimant for that injury
which she had suffered, and not as a penalty on the
wrongdoer, 66 we believe that an award of P100,000.00 is
sufficient and reasonable.
14. SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON
substituted by his children namely: JOSE TONGSON, JR.,
RAUL TONGSON, TITA TONGSON, GLORIA TONGSON ALMA
TONGSON
vs.
EMERGENCY PAWNSHOP BULA, INC. and DANILO R.
NAPALA
G.R. No. 167874 January 15, 2010 CARPIO, J.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. Additionally,
the fraud must be serious.
FACTS:
Sps. Tongson sold their lot to Napala for 3 million
pesos.
Upon signing the Deed of Absolute Sale, Napala paid
₱200,000 in cash to the Spouses Tongson and issued a
postdated Philippine National Bank (PNB) check in the amount
of ₱2,800,000, representing the remaining balance of the
purchase price of the subject property. When presented for
payment, the PNB check was dishonored for the reason "Drawn
Against Insufficient Funds." Despite the Spouses Tongson's
repeated demands to either pay the full value of the check or
to return the subject parcel of land, Napala failed to do either.
Left with no other recourse, the Spouses Tongson filed with
the Regional Trial Court, Branch 16, Davao City a Complaint for
Annulment of Contract and Damages with a Prayer for the
Issuance of a Temporary Restraining Order and a Writ of
Preliminary Injunction.
ISSUE: Whether or not Napala employed fraud which induces
the spouses to enter in the contract of sale.
HELD:
No. A contract is a meeting of the minds between two
persons, whereby one is bound to give something or to render
some service to the other. A valid contract requires the
concurrence of the following essential elements: (1) consent or
meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (2) determinate subject matter; and (3)
price certain in money or its equivalent.
In the present case, there is no question that the
subject matter of the sale is the 364-square meter Davao lot
owned by the Spouses Tongson and the selling price agreed
upon by the parties is ₱3,000,000. Thus, there is no dispute as
regards the presence of the two requisites for a valid sales
contract, namely, (1) a determinate subject matter and (2) a
price certain in money.
The problem lies with the existence of the remaining element,
which is consent of the contracting parties, specifically, the
consent of the Spouses Tongson to sell the property to Napala.
Claiming that their consent was vitiated, the Spouses Tongson
point out that Napala’s fraudulent representations of sufficient
funds to pay for the property induced them into signing the
contract of sale. Such fraud, according to the Spouses Tongson,
renders the contract of sale void.
Under Article 1338 of the Civil Code, there is fraud
when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. Additionally, the
fraud must be serious.
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We find no causal fraud in this case to justify the
annulment of the contract of sale between the parties. It is
clear from the records that the Spouses Tongson agreed to sell
their 364-square meter Davao property to Napala who offered
to pay ₱3,000,000 as purchase price therefor. Contrary to the
Spouses Tongson’s belief that the fraud employed by Napala
was "already operational at the time of the perfection of the
contract of sale," the misrepresentation by Napala that the
postdated PNB check would not bounce on its maturity hardly
equates to dolo causante. Napala’s assurance that the check he
issued was fully funded was not the principal inducement for
the Spouses Tongson to sign the Deed of Absolute Sale. Even
before Napala issued the check, the parties had already
consented and agreed to the sale transaction. The Spouses
Tongson were never tricked into selling their property to
Napala. On the contrary, they willingly accepted Napala’s offer
to purchase the property at ₱3,000,000. In short, there was a
meeting of the minds as to the object of the sale as well as the
consideration therefor.
15. METROPOLITAN FABRICS, INC. and ENRIQUE ANG,
vs. PROSPERITY CREDIT RESOURCES INC., DOMINGO ANG
and CALEB ANG
G.R. No. 154390 March 17, 2014 BERSAMIN, J.
FACTS:
Metropolitan Fabrics, Incorporated (MFI), obtained a
loan with Manphil Investment Corporation secured by a parcel
of land which is divided into 11 lots, with Manphil retaining
four lots as mortgage security.
The other seven lots, now covered by TCT Nos. 317699 and
317702 to 317707, were released to MFI. In July 1984, MFI
sought from PCRI a loan in the amount of P3,443,330.52, the
balance of the cost of its boiler machine, to prevent its
repossession by the seller. However, in September 1984, the
first amortization check bounced for insufficient fund due to
MFI’s continuing business losses. It was then that the appellees
allegedly learned that PCRI had filled up the 24 blank checks
with dates and amounts that reflected a 35%interest rate per
annum, instead of just 24%, and a two year repayment period,
instead of10 years.
The court gave credence to the uncorroborated lone testimony
of Enrique’s daughter Vicky that on August 3, 1984, even
before the signing of the mortgage and loan documents, PCRI
released the P3.5 million loan to MFI. It found that the blank
loan forms, consisting of the real estate mortgage contract,
promissory note, comprehensive surety agreement and
disclosure statement, which Domingo himself handed to
Enrique, “had no entries specifying the rate of interest and
schedules of amortization.”
Enrique and Vicky entrusted to them their seven (7) titles. She
testified that they left it to defendants to choose from among
the 7 titles those which would be sufficient to secure the P3.5
million. She also admitted, however, that they had an
appraisal report dated June, 1984 of the said properties made
by the Integrated Appraisal Corporation which put the value of
four (4) of the said properties at P6.8 million, now the subject
of the action for reconveyance, while the aggregate value of all
seven lots was P11 million.
Vicky further stated that it was agreed that once PCRI had
chosen the lots to be covered by the mortgage, the defendants
would return the remaining titles to the plaintiffs. Plaintiffs
also secured an additional loan of about P199,000.00 to pay for
real estate taxes and other expenses. Significantly, Vicky
testified that the plaintiffs delivered to PCRI twenty–four (24)
checks, bearing no dates and amounts, to cover the
amortization payments, all signed in blank by Enrique and
Natividad.
In September 1984, the first amortization check bounced for
insufficient fund due to MFI’s continuing business losses. It
was then that the appellees allegedly learned that PCRI had
filled up the 24 blank checks with dates and amounts that
reflected a 35% interest rate per annum, instead of just 24%,
and a two–year repayment period, instead of 10 years. Vicky
avers that her strong protest caused PCRI to desist from
depositing the other 23 checks (TSN, April 21, 1998, p. 15), and
that it was about this time that PCRI finally furnished MFI with
its copy of the promissory note and the disclosure statement.
Plaintiffs thereafter repeatedly asked the defendants to return
the rest of the titles in excess of the required collateral to
which defendants allegedly routinely responded that their
committee was still studying the matter. Vicky even added that
Caleb assured Vicky that PCRI would also lower the rate of
interest to conform to prevailing commercial rate. Meanwhile,
due to losses plaintiffs’ business operations stopped.
Vicky also testified that talks were held in earnest in 1985
between Domingo and Enrique as well as between Vicky and
Caleb concerning the possible offsetting of the loan by ceding
some of their properties to PCRI. On February 28, 1986, Vicky
wrote to defendants, referring to a meeting held on February
11, 1986 and reiterating her request for the offsetting. The
letter stated that since August, 1985, she had been asking for
the offsetting of their properties against the loan. Caleb had
sought a report on the fair market value of the seven lots.
Also, he sought the assignment to PCRI of the rentals payable
of plaintiffs’ tenant, Bethlehem Knitting Company up to 1987.
Vicky admitted that plaintiffs furnished Caleb on March 11,
1986 a copy of the 1984 Appraisal Report prepared by the
Integrated Appraisal Corporation for the offsetting agreement.
PCRI’s account statement dated February 12, 1986 showed that
MFI’s total loan obligation amounted to P4,167,472.71 (Exh.
“G”). The March 25, 1986 statement from PCRI, however,
showed that all seven (7) titles were placed as collateral for
their P3.5 million loan. MFI maintained that per their
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16 Civil Law Review 2 (Atty. Legarda)
appraisal report, four of the properties were already worth
P6.5 million while the three other lots were valued around P4.6
million.
Vicky also claimed that Domingo and Caleb tried to appease
the plaintiffs by assuring them that they would return the rest
of the titles anytime they would need them, and that they
could use them to secure another loan from them or from
another financing company. They would also reconsider the
35% interest rate, but when the discussion shifted to the
offsetting of the properties to pay the loan, the defendants’
standard answer was that they were still awaiting the feedback
of their committee.
On September 4, 1986, Enrique received a Notice of Sheriff’s
Sale dated August 29, 1986, announcing the auction of the
seven lots on September 24, 1986 due to unpaid indebtedness
of P10.5 million.
Vicky insisted that prior to the auction notice, they never
received any statement or demand letter from the defendants
to pay P10.5 million, nor did the defendants inform them of the
intended foreclosure. The last statement they received was
dated February 12, 1986, and showed amount due of only
P4,167,472.71. Vicky recalled that from June 1, 1986 to July
1986, they held several meetings to discuss the options
available to them to repay their loan, such as the offsetting of
their rent collectibles and properties to cover the
amortizations and the loan balance.
MFI protested the foreclosure, and the auction was reset to
October 6, 1986, then to October 16, 1986, and finally October
27, 1986 after they assured PCRI that they had found a serious
buyer for three of the lots. In the meeting held on October 15,
1986 at defendants’ office, the buyer, Winston Wang of Asia
Cotton and his lawyer, Atty. Ismael Andres were present. It
was agreed to release the mortgage over TCT Nos. 317705,
317706, and 317707 upon payment of P3.5 million. Winston
Wang would pay to MFI P500,000.00 as down–payment, which
MFI would in turn pay to PCRI as partial settlement of the P3.5
million loan. Winston Wang was given 15 days from October
16, 1986 to pay the P500,000.00. Vicky claims that these
agreements were made verbally, although she kept notes and
scribbles of them.
On January 19, 1987, Winston Wang confronted Vicky about
their sale agreement and PCRI’s refusal to accept their P3
million payment, because according to Caleb, the three lots
had been foreclosed. Vicky was shocked, because the agreed
60–day period to pay the P3 million was to lapse on January 13,
1987 yet. Caleb himself put the particulars of the P500,000.00
payment in the cash voucher as partial settlement of the loan.
At the auction sale on October 27, 1986, PCRI was the sole
bidder for P6.5 million. Vicky however also admitted that
discussions continued on the agreement to release three lots
for P3.5 million. The reduction of interest rate and charges and
the condonation of the attorney’s fees of P300,000.00 for the
foreclosure proceedings were also sought. Present in these
conferences were Enrique and Vicky, Domingo and Caleb,
Winston Wang and his lawyer, Atty. Ismael Andres.
Upon defendants’ continued failure to honor their agreement,
Atty. Ismael Andres threatened to sue PCRI in a letter dated
February 17, 1987 if they would not accept the P3 million
payment of his client. Atty. Andres also sent them similar
letters dated May 15, August 5 and 7, 1987, and after several
more discussions, the defendants finally agreed to accept the
P3 million from Winston Wang, but under these conditions: a)
MFI must pay the P300,000.00 attorney’s fees paid for the
foreclosure proceedings and the P190,000.00 for real estate
taxes; b) PCRI shall issue the certificate of redemption over the
three lots; c) plaintiffs shall execute a Memorandum of
Undertaking concerning their right of way over the other
properties, the lots being redeemed being situated along
Tandang Sora Street.
Vicky also testified that although Wang would pay directly to
Caleb, the plaintiffs pursued the transaction because of PCRI’s
promised to release the four (4) other remaining properties
after the payment of P3.5 million loan principal as well as the
interest in arrears computed at P3 million, or a total of P6.5
(TSN, January 10, 1996, p. 11).
MFI paid to PCRI P490,000.00 as agreed, and likewise complied
with the required documentation. Winston Wang also paid the
balance of P3 million for the three lots he was buying. The
discussion then turned to how the plaintiffs’ P3 million interest
arrearages would be settled, which they agreed to be payable
over a period of one year, from October 26, 1987 to October 26,
1988.
In October, 1988, however, plaintiffs were able to raise only P2
million. After a meeting at defendants’ office, the period to pay
was extended to October 26, 1989, but subject to 18% interest
per annum, which Caleb however allegedly refused to put in
writing. Plaintiffs were later able to raise P3 million plus
P540,000.00 representing the 18% interest per annum. On
October 26, 1989, Vicky and Enrique tendered the same to
Caleb at his office. Caleb however became furious, and now
insisted that the interest due since 1984 was already P7 million
computed at 35% per annum.
On January 16, 1990 and again on March 5, 1990, PCRI sent the
plaintiffs a letter demanding that they vacate the four
remaining lots. Caleb was also now asking for P10.5 million.
On March 19, 1990, Caleb executed an affidavit of non–
redemption of TCT Nos. 317699, 317702, 317703 and 317704. On
June 7, 1990, S.G. del Rosario, PCRI’s vice–president, wrote
Vicky reiterating their demand to vacate the premises and
remove pieces of machinery, equipment and persons therein,
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17 Civil Law Review 2 (Atty. Legarda)
which MFI eventually heeded.
ISSUE: Whether or not respondents committed fraud when the
officers of Metropolitan were made to sign the deed of real
estate mortgage in blank?
HELD: NO.
Petitioners insist that respondents committed fraud
when the officers of Metropolitan were made to sign the deed
of real estate mortgage in blank.
According to Article 1338 of the Civil Code, there is fraud when
one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract
that, without the inducement, he would not have agreed to.
Yet, fraud, to vitiate consent, must be the causal (dolo
causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.14 In Samson v.
Court of Appeals, causal fraud is defined as “a deception
employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.”
Fraud cannot be presumed but must be proved by clear and
convincing evidence. Whoever alleges fraud affecting a
transaction must substantiate his allegation, because a person
is always presumed to take ordinary care of his concerns, and
private transactions are similarly presumed to have been fair
and regular. To be remembered is that mere allegation is
definitely not evidence; hence, it must be proved by sufficient
evidence.
The contested deed of real estate mortgage was a public
document by virtue of its being acknowledged before notary
public Atty. Noemi Ferrer. As a notarized document, the deed
carried the evidentiary weight conferred upon it with respect
to its due execution, and had in its favor the presumption of
regularity. Hence, it was admissible in evidence without
further proof of its authenticity, and was entitled to full faith
and credit upon its face.To rebut its authenticity and
genuineness, the contrary evidence must be clear, convincing
and more than merely preponderant; otherwise, the deed
should be upheld
Petitioners undeniably failed to adduce clear and convincing
evidence against the genuineness and authenticity of the deed.
Instead, their actuations even demonstrated that their
transaction with respondents had been regular and at arms–
length, thereby belying the intervention of fraud.
To start with, the evidence adduced by Vicky Ang, the lone
witness for petitioners, tried to cast doubt on the contents and
due execution of the deed of real estate mortgage by pointing
to certain irregularities. But she could not be effective for the
purpose because she had not been among the signatories of the
deed. The signatories were her late father Enrique Ang, her
mother Natividad Africa, and her brother Edmundo Ang, none
of whom came forward to testify against the deed, or otherwise
to assail the genuineness and due execution of the deed by any
other means. They would have been in the better position than
Vicky Ang to substantiate the allegation of fraud if that was the
case. Their silence reflected the inanity of the allegation of
fraud by Vicky Ang.
It does seem that the three signatories did not join Vicky Ang
in impugning the authenticity and genuineness of the deed of
real estate mortgage. As Vicky Ang admitted during her cross–
examination, she had no evidence to show that the signatories
ever assailed the deed.
Secondly, petitioners freely and voluntarily surrendered to
respondents the seven transfer certificates of title (TCTs) of
their lots. Such surrender of the TCTs evinced their intention
to offer the lots as collateral for the performance of their
obligations contracted with respondents. They thereby
confirmed the genuineness and due execution of the deed of
real estate mortgage. Surely, they would not have surrendered
the TCTs had their intention been otherwise.
Thirdly, another circumstance belying the commission of fraud
by respondents was petitioners’ pleading with respondents for
the resetting of foreclosure sale of the properties after
receiving the notice of the impending sale. As a result, the sale
was reset thrice. Had the mortgage and its foreclosure been
unreasonable or fraudulent, petitioners should have instead
resolutely contested respondents’ move to foreclose.
Fourthly, even after their properties were eventually sold as
the consequence of the foreclosure, petitioners negotiated
with respondents on the partial redemption of three of the
seven lots. They also took the trouble of finding a buyer (Mr.
Winston Wang of Asia Cotton) of some of the lots. Had the
mortgage been fraudulent, they could have instead instituted a
complaint to nullify the real estate mortgage and the
foreclosure sale.
And, lastly, Vicky Ang’s own letters to respondents had an
apologetic tenor, and was seeking leniency from them. Such
tenor and tone of her communications were antithetical to her
allegation of having been the victim of their fraudulent acts.
These circumstances tended to indicate that fraud was not
attendant during the transactions between the parties. Verily,
as between the duly executed real estate mortgage and the
unsubstantiated allegations of fraud, the Court affords greater
weight to the former.
16. NUNELON R. MARQUEZ v. ELISAN CREDIT
CORPORATION
G.R. No. 194642 April 06, 2015 BRION, J.
Correlating the two provisions, the rule under Article 1253 that
payments shall first be applied to the interest and not to the principal
shall govern if two facts exist: (1) the debt produces interest (e.g., the
payment of interest is expressly stipulated) and (2) the principal
remains unpaid. The exception is a situation covered under Article
1176, i.e., when the creditor waives payment of the interest despite the
presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.
FACTS:
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18 Civil Law Review 2 (Atty. Legarda)
On December 16, 1991, Nunelon R. Marquez (petitioner)
obtained a (first loan) from Elisan Credit Corporation
(respondent) for fifty-three thousand pesos (Php 53,000.00)
payable in one-hundred eighty (180) days.
The petitioner signed a promissory note which provided that it
is payable in weekly installments and subject to twenty-six
percent (26%) annual interest. In case of non-payment, the
petitioner agreed to pay ten percent (10%) monthly penalty
based on the total amount unpaid and another twenty-five
percent (25%) of such amount for attorney's fees exclusive of
costs, and judicial and extrajudicial expenses.
To further secure payment of the loan, the petitioner executed
a chattel mortgage over a motor vehicle. The contract of
chattel mortgage provided among others, that the motor
vehicle shall stand as a security for the first loan and "all other
obligations of every kind already incurred or which may
hereafter be incurred." Both the petitioner and respondent
acknowledged the full payment of the first loan.
Subsequently, the petitioner obtained another loan (second
loan) from the respondent for fifty-five thousand pesos
(P55,000.00) evidenced by a promissory note and a cash
voucher both dated June 15, 1992.
The promissory note covering the second loan
contained exactly the same terms and conditions as the first
promissory note.
When the second loan matured on December 15, 1992, the
petitioner had only paid twenty-nine thousand nine hundred
sixty pesos (P29,960.00), leaving an unpaid balance of twenty
five thousand forty pesos (P25,040.00).
Due to liquidity problems, the petitioner asked the respondent
if he could pay in daily installments (daily payments) until the
second loan is paid. The respondent granted the petitioner's
request. Thus, as of September 1994 or twenty-one (21)
months after the second loan's maturity, the petitioner had
already paid a total of fifty-six thousand four-hundred forty
pesos (P56,440.00), an amount greater than the principal.
Despite the receipt of more than the amount of the principal,
the respondent filed a complaint for judicial foreclosure of the
chattel mortgage because the petitioner allegedly failed to
settle the balance of the second loan despite demand.
The respondent further alleged that pursuant to the terms of
the promissory note, the petitioner's failure to fully pay upon
maturity triggered the imposition of the ten percent (10%)
monthly penalty and twenty-five percent (25%) attorney's fees.
The respondent prayed that the petitioner be ordered to pay
the balance of the second loan plus accrued penalties and
interest.
ISSUE: Whether or not the respondent acted lawfully when it
credited the daily payments against the interest instead of the
principal.
HELD:
Yes. There is a need to analyze and harmonize Article
1176 and Article 1253 of the Civil Code to determine whether
the daily payments made after the second loan's maturity
should be credited against the interest or against the principal.
Article 1176 provides that:
"The receipt of the principal by the creditor, without
reservation with respect to the interest, shall give rise to
the presumption that said interest has been paid.
xxx."
On the other hand, Article 1253 states:
"If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests
have been covered."
The above provisions appear to be contradictory but they in
fact support, and are in conformity with, each other. Both
provisions are also presumptions and, as such, lose their legal
efficacy in the face of proof or evidence to the contrary.
Thus, the settlement of the first issue depends on which of
these presumptions prevails under the given facts of the case.
There are two undisputed facts crucial in resolving the first
issue: (1) the petitioner failed to pay the full amount of the
second loan upon maturity; and (2) the second loan was subject
to interest, and in case of default, to penalty and attorney's
fees.
But before proceeding any further, we first tackle the
petitioner's denial of the genuineness and due execution of the
second promissory note. He denies that he stipulated upon and
consented to the interest, penalty and attorney's fees because
he purportedly signed the promissory note in blank. This
allegation deserves scant consideration. It is self-serving and
unsupported by evidence.
As aptly observed by the RTC and the CA, the promissory notes
securing the first and second loan contained exactly the same
terms and conditions. They were mirror-image of each other
except for the date and amount of principal. Thus, we see
sufficient basis to believe that the petitioner knew or was
aware of such terms and conditions even assuming that the
entries on the interest and penalty charges were in blank when
he signed the promissory note.
Moreover, we find it significant that the petitioner does not
deny the genuineness and due execution of the first
promissory note. Only when he failed to pay the second loan
did he impugn the validity of the interest, penalty and
attorney's fees. The CA and the RTC also noted that the
petitioner is a schooled individual, an engineer by profession,
who, because of these credentials, will not just sign a document
in blank without appreciating the import of his action.
These considerations strongly militate against the petitioner's
claim that he did not consent to and stipulated on the interest
and penalty charges of the second loan. Thus, he did not only
fail to fully pay the second loan upon maturity; the loan was
also subject to interest, penalty and attorney's fees.
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Correlating the two provisions, the rule under Article 1253 that
payments shall first be applied to the interest and not to the
principal shall govern if two facts exist: (1) the debt produces
interest (e.g., the payment of interest is expressly stipulated)
and (2) the principal remains unpaid.
The exception is a situation covered under Article 1176, i.e.,
when the creditor waives payment of the interest despite the
presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.
Since the doubt in the present case pertains to the application
of the daily payments, Article 1253 shall apply. Only when
there is a waiver of interest shall Article 1176 become relevant.
Under this analysis, we rule that the respondent properly
credited the daily payments to the interest and not to the
principal because: (1) the debt produces interest, i.e., the
promissory note securing the second loan provided for
payment of interest; (2) a portion of the second loan remained
unpaid upon maturity; and (3) the respondent did not waive
the payment of interest.
17. SURVIVING HEIRS OF ALFREDO R. BAUTISTA VS. LINDO
G.R. No. 208232, March 10, 2014
Facts:
Alfredo R. Bautista (Bautista), petitioner’s predecessor,
inherited in 1983 a free-patent land located in Davao Oriental
and covered by OCT No. (1572) P-6144.A few years later, he
subdivided the property and sold it to several vendees, herein
respondents, via a notarized deed of absolute sale dated May
30, 1991. Two months later, OCT No.(1572) P-6144 was canceled
and Transfer Certificates of Title (TCTs) were issued in favor of
the vendees.
On August 1994, Bautista filed a complaint for repurchase
against respondents before the RTC, anchoring his cause of
action on Section 119 of Commonwealth Act No. (CA) 141,
otherwise known as the “Public Land Act,” which reads:
“SECTION 119. Every conveyance of land acquired under the
free patent or homestead provisions, when proper, shall be
subject to repurchase by the applicant, his widow, or legal
heirs, within a period of five years from the date of the
conveyance.”
During the pendency of the action, Bautista died and was
substituted by petitioner, Efipania. Respondents, Sps. Lindo
entered into a compromise agreement with petitioners,
whereby they agree to cede to Epifania 3,230 sq.m..portion of
the property as well as to waive, abandon, surrender, and
withdraw all claims and counterclaims against each other. RTC
approve the compromise agreement on January 2011.
Other respondents, filed a Motion to Dismissed on February
2013 alleging lack of jurisdiction of the RTC on the ground that
the complaint failed to state the value of the property sought
to be recovered and alleges that the total value of the
properties in issue is only P16,500 pesos. RTC ruled in favor of
the respondent dismissing the case.
Issue:
Whether or not the RTC erred in granting the motion for the
dismissal of the case on the ground of lack of jurisdiction over
the subject matter.
Ratio:
Yes. Jurisdiction of courts is granted by the Constitution and
pertinent laws. Jurisdiction of RTCs, as may be relevant to the
instant petition, is provided in Sec. 19 of BP 129.
Issue:
Whether the action filed by petitioners is one involving title to
or possession of real property or any interest therein or one
incapable of pecuniary estimation.
Ratio:
The Court rules that the complaint to redeem a land subject of
a free patent is a civil action incapable of pecuniary estimation.
It is a well-settled rule that jurisdiction of the court is
determined by the allegations in the complaint and the
character of the relief sought. In this regard, the Court, in
Russell v. Vestil, wrote that "in determining whether an action
is one the subject matter of which is not capable of pecuniary
estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy
sought. If it is primarily for the recovery of a sum of money,
the claim is considered capable of pecuniary estimation, and
whether jurisdiction is in the municipal courts or in the RTCs
would depend on the amount of the claim." But where the
basic issue is something other than the right to recover a sum
of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the
litigation may not be estimated in terms of money, and, hence,
are incapable of pecuniary estimation.
18. BOYSAW VS. INTERPHIL PROMOTIONS
Reciprocal obligations are those which arise from the same cause, and
in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously, so that the performance of
one is conditioned upon the simultaneous fulfillment of the other.
FACTS:
Solomon Boysaw and his then Manager, Willie Ketchum, signed
with Interphil Promotions, Inc. represented by Lope Sarreal,
Sr., a contract to engage Gabriel "Flash" Elorde in a boxing
contest for the junior lightweight championship of the world.
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It was stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or not later
than thirty [30] days thereafter should a postponement be
mutually agreed upon, and that Boysaw would not, prior to the
date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc.
However, before September 30, 1961, Boysaw entered into a
non-title bout on June 19, 1961 and without consent from
Interphil, While an Elorde-Boysaw fight was eventually staged,
the fight contemplated in the May 1, 1961 boxing contract
never materialized. As a result, Yulo and Boysaw sued Interphil
for damages allegedly due to the latter’s refusal to honor their
commitments under the boxing contract of May 1, 1961.
ISSUES:
1. Was there a violation of the fight contract of May 1, 1961?
2. In reciprocal obligations, who has the power to rescind?
RULING:
1. Yes. On the issue pertaining to the violation of the May 1,
1961 fight contract, the evidence established that the contract
was violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact
during the trial. Another violation of the contract in question
was the assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial rights
over Boysaw without the knowledge or consent of Interphil.
2. The power to rescind obligations is implied, in reciprocal
ones, in case one of the obligors should not comply with what
is incumbent upon him. There is no doubt that the contract in
question gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously, so that
the performance of one is conditioned upon the simultaneous
fulfillment of the other"The power to rescind is given to the
injured party. "Where the plaintiff is the party who did not
perform the undertaking which he was bound by the terms of
the agreement to perform 4 he is not entitled to insist upon the
performance of the contract by the defendant, or recover
damages by reason of his own breach "
On the validity of the fight postponement, the violations of the
terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such contract
altogether. That they sought to seek an adjustment of one
particular covenant of the contract, is under the
circumstances, within the appellee's rights.
19. UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES
As to such special stipulation, and in connection with Article 1191
of the Civil Code, there is nothing in the law that prohibits the
parties from entering into agreement that violation of the terms
of the contract would cause cancellation thereof, even without
court intervention.
Facts:
UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a period
starting from the date of the agreement to 31 December 1965,
extendible for a further period of five (5) years by mutual
agreement, to cut, collect and remove timber from the Land
Grant, in consideration of payment to UP of royalties, forest
fees. ALUMCO, as of 8 December 1964, had incurred an unpaid
account of P219,362.94, which, despite repeated demands, it
had failed to pay; that after it had received notice that UP
would rescind or terminate the logging agreement, ALUMCO
executed an instrument, entitled "Acknowledgment of Debt
and Proposed Manner of Payments," In the event that the
DEBTOR fails to comply with any of its promises or undertakings
in this document, the DEBTOR agrees without reservation that
the CREDITOR shall have the right and the power to consider the
Logging Agreement dated December 2, 1960 as rescinded without
the necessity of any judicial suit, and the CREDITOR shall be
entitled as a matter of right to Fifty Thousand Pesos (P50, 000.00)
by way of and for liquidated damages.
ALUMCO continued its logging operations, but again
incurred an unpaid account in the amount of P61, 133.74,
in addition to the indebtedness that it had previously
acknowledged. On 19 July 1965, petitioner UP informed
respondent ALUMCO that it had, as of that date,
considered the agreement as rescinded and of no further
legal effect. UP filed a complaint against ALUMCO for the
collection or payment of debts and a prayed for a
restraining order against ALUMCO from continuing its
logging operations in the Land Grant. UP now conducted a
bidding to have another concessionaire take over the
logging operation, and the concession was awarded to Sta.
Clara Lumber Company, Inc.; the logging contract was
signed on 16 February 1966. ALUMCO filed a petition to
enjoin petitioner University from conducting the bidding
and, on 25 February 1966, was awarded by respondent
judge. UP received the order after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said
company had started logging operations.
Issue: W/N petitioner U.P. can treat its contract with
ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect.
Held/Ratio: Yes. UP and ALUMCO had expressly stipulated
in the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
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creditor (UP) has "the right and the power to consider,
the Logging Agreement dated 2 December 1960 as
rescinded without the necessity of any judicial suit." As to
such special stipulation, and in connection with Article
1191 of the Civil Code, there is nothing in the law that
prohibits the parties from entering into agreement that
violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured
party to resort to court for rescission of the contract. Of
course, it must be understood that the act of 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. If the
other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing,
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 the consequent indemnity awarded to the
party prejudiced.
20. FIDELA DEL CASTILLO Vda. DE MISTICA vs.
Spouses BERNARDINO NAGUIAT and MARIA PAULINA
GERONA-NAGUIAT
The failure to pay in full the purchase price stipulated in a deed of
sale does not ipso facto grant the seller the right to rescind the
agreement. Unless otherwise stipulated by the parties, rescission is
allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation. The failure of
respondents to pay the balance of the purchase price within ten years
from the execution of the Deed did not amount to a substantial
breach. In the Kasulatan, it was stipulated that payment could be
made even after ten years from the execution of the Contract,
provided the vendee paid 12 percent interest. The stipulations of the
contract constitute the law between the parties; thus, courts have no
alternative but to enforce them as agreed upon and written
Facts:
Eulalio Mistica sold a parcel of land to [Respondent Bernardino
Naguiat]. Contract states that there is a first payment of
₱2,000.00 and the remaining balance which is ₱18,000.00 is to
be paid within 10 years from the date of the contract. Any
delay in the payment of the remaining balance will result
to payment of 12% interest per annum until fully paid.
Pursuant to said agreement, [Respondent Bernardino Naguiat]
gave a downpayment of ₱2,000.00. He made another partial
payment of ₱1,000.00. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.
Petitioner (Fidela Del Castillo) filed a complaint for rescission
alleging inter alia: that the failure and refusal of [respondents]
to pay the balance of the purchase price constitutes a violation
of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion
and they should be ordered to vacate and surrender possession
of the same to [petitioner]
Issues: Whether or not rescission is proper?
Held: No.
The transaction between Eulalio Mistica and respondents, as
evidenced by the Kasulatan, was clearly a Contract of Sale. A
deed of sale is considered absolute in nature when there is
neither a stipulation in the deed that title to the property
sold is reserved to the seller until the full payment of the
price; nor a stipulation giving the vendor the right to
unilaterally resolve the contract the moment the buyer
fails to pay within a fixed period.
In a contract of sale, the remedy of an unpaid seller is either
specific performance or rescission. Under Article 1191 of the
Civil Code, the right to rescind an obligation is predicated on
the violation of the reciprocity between parties, brought about
by a breach of faith by one of them. Rescission, however, is
allowed only where the breach is substantial and fundamental
to the fulfillment of the obligation.
In the present case, the failure of respondents to pay the
balance of the purchase price within ten years from the
execution of the Deed did not amount to a substantial breach.
In the Kasulatan, it was stipulated that payment could be
made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest.
The stipulations of the contract constitute the law between
the parties; thus, courts have no alternative but to enforce
them as agreed upon and written.13
Moreover, it is undisputed that during the ten-year period,
petitioner and her deceased husband never made any demand
for the balance of the purchase price. Petitioner even refused
the payment tendered by respondents during her husband’s
funeral, thus showing that she was not exactly blameless for
the lapse of the ten-year period. Had she accepted the tender,
payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the
parties intended otherwise, she has to show competent proof
to support her contention. Instead, she argues that the period
cannot be extended beyond ten years, because to do so would
convert the buyer’s obligation to a purely potestative
obligation that would annul the contract under Article 1182 of
the Civil Code.
This contention is likewise untenable. The Code prohibits
purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations
are usually not meant to be fulfilled. 14 Indeed, to allow the
fulfillment of conditions to depend exclusively on the debtor’s
will would be to sanction illusory obligations.15 The Kasulatan
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does not allow such thing. First, nowhere is it stated in the
Deed that payment of the purchase price is dependent upon
whether respondents want to pay it or not. Second, the fact
that they already made partial payment thereof only shows
that the parties intended to be bound by the Kasulatan.
21. FIL-ESTATE GOLF AND DEVELOPMENT, INC. and
FILESTATE LAND, INC. vs.
VERTEX SALES AND TRADING, INC.
Raquel-Santos v. Court of Appeals where the Court held that in "a sale
of shares of stock, physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the stocks
purchased."
Facts:
FEGDI sold, on installment, to RS Asuncion Construction
Corporation (RSACC) one Class "C" Common Share of Forest
Hills for ₱1,100,000.00. Prior to the full payment of the
purchase price, RSACC sold, the Class "C" Common Share to
respondent Vertex Sales and Trading, Inc. (Vertex). RSACC
advised FEGDI of the sale to Vertex and FEGDI, in turn,
instructed Forest Hills to recognize Vertex as a shareholder.
For this reason, Vertex enjoyed membership privileges in
Forest Hills.
Despite Vertex’s full payment, the share remained in the name
of FEGDI. Seventeen (17) months after the sale Vertex wrote
FEDGI a letter demanding the issuance of a stock certificate in
its name. FELI replied, initially requested Vertex to first pay
the necessary fees for the transfer. Although Vertex complied
with the request, no certificate was issued. This prompted
Vertex to make a final demand.
Petitioner’s contention:
As the demand went unheeded, Vertex filed a Complaint for
Rescission with Damages and Attachment against FEGDI, FELI
and Forest Hills. It averred that the petitioners defaulted in
their obligation as sellers when they failed and refused to issue
the stock certificate covering the subject share despite
repeated demands. On the basis of its rights under Article 1191
of the Civil Code, Vertex prayed for the rescission of the sale
and demanded the reimbursement of the amount it paid (or
₱1,100,000.00), plus interest. During the pendency of the
rescission action (or on January 23, 2002), a certificate of stock
was issued in Vertex’s name, but Vertex refused to accept it.
Issue: Whether the delay in the issuance of a stock certificate
can be considered a substantial breach as to warrant rescission
of the contract of sale.
Ruling: Yes.
Physical delivery is necessary to transfer ownership of stocks
The factual backdrop of this case is similar to that of Raquel-
Santos v. Court of Appeals,9 where the Court held that in "a
sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the transfer
of ownership of the stocks purchased." (Sec. 63 of the
Corporation Code)
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. In this case, Vertex fully paid the purchase price
by February 11, 1999 but the stock certificate was only
delivered on January 23, 2002 after Vertex filed an action for
rescission against FEGDI.
Under these facts, considered in relation to the governing law,
FEGDI clearly failed to deliver the stock certificates,
representing the shares of stock purchased by Vertex, within a
reasonable time from the point the shares should have been
delivered. This was a substantial breach of their contract that
entitles Vertex the right to rescind the sale under Article 1191
of the Civil Code. It is not entirely correct to say that a sale had
already been consummated as Vertex already enjoyed the
rights a shareholder can exercise. The enjoyment of these
rights cannot suffice where the law, by its express terms,
requires a specific form to transfer ownership.
"Mutual restitution is required in cases involving rescission
under Article 1191" of the Civil Code; such restitution is
necessary to bring back the parties to their original situation
prior to the inception of the contract. 10 Accordingly, the
amount paid to FEGDI by reason of the sale should be returned
to Vertex.
22. SWIRE REALTY DEVELOPMENT CORPORATION v. JAYNE
YU
G.R. No. 207133, March 09, 2015
The breach contemplated in Art. 1191 is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with
what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.
FACTS:
July 25, 1995, Jane Yu entered into a contract to sell
with Swire Realty Development Corporation covering one
residential condominium unit located at the Palace of Makati,
Makati for the amount of P7,519,371.80. And a parking slot
worth P600,000.
September 24, 1997, Yu paid the complete amount of the unit
and P20,000 for the parking. Petitioner failed to complete and
deliver the subject unit on time.
Yu filed a complaint for Rescission of Contract with Damages
before the HLURB Expanded National Capital Region Field
Office.
ISSUE: WON rescission of a contract is proper in herein case
Art. 1191 of the NCC ?
RULING: Yes.
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The SC ruled in favor of Yu. Citing Article 1191 of the Civil
Code. Basic is the rule that the right of rescission of a party to
an obligation under Art. 1191 is predicated on a breach of faith
by the party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When the obligor
cannot comply with what is incumbent upon it, the oblige may
seek rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court shall
decree the rescission. In the instant case, the CA found that the
completion date of the unit was November 1998. From an
ocular inspection of the HLURB ENCRFO, the unit was still
incomplete. From the foregoing, it is evident that the
amenities under the approved plan have not yet been provided
as of May 3, 2002, and that the subject unit has not been
delivered to respondent as of August 28, 2002, which is beyond
the period of development of December 1999. The petitioner
has incurred delay in the performance of its obligation
amounting to breach of contract.
The delay in the completion of the project as well as
the delay in the delivery of the unit are breaches of statutory
and contractual obligations which entitle Yu to rescind the
contract, demand a refund, and payment of damages.
23. GEORGE C. FONG v. JOSE V. DUEÑAS
G.R. No. 185592, June 15, 2015
DOCTRINE:
As a contractual remedy,rescission is available when one of the
parties substantially fails to do what he has obligated himself to
perform.It aims to address the breach of faith and the violation of
reciprocity between two parties in a contract. UnderArticle1191of the
CivilCode,the right of rescission is inherent in reciprocal obligations.
Under Article 1192 of the Civil Code, If both parties failed to comply
with their respective reciprocal obligations,the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the same
shall be deemed extinguished, and each shall bear his own damages.
FACTS:
Dueñas and Fong entered into a verbal joint
venturecontract:where they agreed to engage in the food
business and to incorporate a holding company under the
name AllianceHoldings,Inc.
(Allianceortheproposedcorporation)
The parties agreed that:
(a) Fong would contribute Thirty Two Million and FiveHundred
Thousand Pesos (P32.5 Million) in cash.
(b) Dueñas would contribute all his Danton and Bakcom shares
which he valued at P32.5 Million.
NOTE:
Fong required Dueñas to submit the financial documents
supporting the valuation of these shares.
Fong sent a letter to Dueñas: informing him of his decision to
limit his total contribution from P32.5 Million to P5 Million.
Fong observed that despite his P5Million contribution, Dueñas
still failed to give him the financial documents on the valuation
of the Danton and Bakcom shares :Thus, except for Dueñas’
representations, Fong had nothing to rely on to ensure that
these shares were really valued at P32.5Million. Moreover,
Dueñas failed to incorporate and register Alliance with the
Securities and Exchange Commission.
Fong was convinced that Dueñas would no longer honor his
obligations in their joint venture agreement. Thus, Fong wrote
Dueñas informing him of his decision to cancel the joint
venture agreement. He also asked for there fund of the
P5Million that he advanced.
Dueñas admitted that he could not immediately return the
money since he used it to defray the business expenses of
Danton and Bakcom.
To meet Fong’s demand: Dueñas proposed several schemes for
payment of the P5 Million which were not accepted by Fong.
Fong wrote a final letter of demand informing Dueñas that he
would file a judicial action against him should he still fail to
pay after receipt of this written demand. Dueñas did not pay.
Fong filed a complaint, for collection of a sum of money and
damages.
ISSUE: Whether the action is for collection of a sum of money
or rescission of contract.
RULING: Rescission of the contract
The body rather than the title of the complaint determines the
nature of the action.
A well-settled rule in procedural law is that the allegations in
the body of the pleading or the complaint, and not its title,
determine the nature of an action.
An examination of Fong’s complaint shows that although it
was labeled as an action for a sum of money and damages, it
was actually a complaint for rescission.
Fong’s allegations primarily pertained to his cancellation of
their verbal agreement because Dueñas failed to perform his
obligations to provide verifiable documents on the valuation of
the Danton’s and Bakcom’s shares, and to incorporate the
proposed corporation. These allegations clearly show that
what Fong sought was the joint venture agreement’s
rescission.
As a contractual remedy, rescission is available when one of
the parties substantially fails to do what he has obligated
himself to perform.32 It aims to address the breach of faith and
the violation of reciprocity between two parties in a
contract.33 Under Article 1191 of the Civil Code, the right of
rescission is inherent in reciprocal obligations, viz:
The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is
incumbent upon him. [Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of his cash
contribution supports his claim that Fong’s complaint is an
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action for collection of a sum of money. However, Dueñas
failed to appreciate that the ultimate effect of rescission is to
restore the parties to their original status before they entered
in a contract.
Accordingly, when a decree for rescission is handed down, it is
the duty of the court to require both parties to surrender that
which they have respectively received and to place each other
as far as practicable in his original situation.35 [Emphasis
supplied.]
In this light, we rule that Fong’s prayer for the return of his
contribution did not automatically convert the action to a
complaint for a sum of money. The mutual restitution of the
parties’ original contributions is only a necessary consequence
of their agreement’s rescission.
Rescission under Art. 1191 is applicable in the present case
Reciprocal obligations are those which arise from the same
cause, in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent on the
obligation of the other.36chanrobleslaw
Fong and Dueñas’ execution of a joint venture agreement
created between them reciprocal obligations that must be
performed in order to fully consummate the contract and
achieve the purpose for which it was entered into.
Both parties verbally agreed to incorporate a company that
would hold the shares of Danton and Bakcom and which, in
turn, would be the platform for their food business. Fong
obligated himself to contribute half of the capital or P32.5
Million in cash. On the other hand, Dueñas bound himself to
shoulder the other half by contributing his Danton and
Bakcom shares, which were allegedly also valued at P32.5
Million. Aside from this, Dueñas undertook to process
Alliance’s incorporation and registration with the SEC.
When the proposed company remained unincorporated by
October 30, 1997, Fong cancelled the joint venture agreement
and demanded the return of his P5 Million contribution.
For his part, Dueñas explained that he could not immediately
return the P5 Million since he had invested it in his two
companies. He found nothing irregular in this as eventually,
the Danton and Bakcom shares would form part of Alliance’s
capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his money in
Danton and Bakcom. Contrary to Dueñas’ submission, Fong’s
understanding was that his money would be applied to his
shareholdings in Alliance. As shown in Fong’s June 13, 1997
letter, this fact remained to be true even after he limited his
contribution to P5 Million.
Moreover, under the Corporation Code, before a stock
corporation may be incorporated and registered, it is required
that at least twenty five percent (25%) of its authorized capital
stock as stated in the articles of incorporation, be first
subscribed at the time of incorporation, and at least twenty
five percent (25%) of the total subscription, be paid upon
subscription.
To prove compliance with this requirement, the SEC requires
the incorporators to submit a treasurer’s affidavit and a
certificate of bank deposit, showing the existence of an amount
compliant with the prescribed capital
subscription.39chanrobleslaw
In this light, we conclude that Fong’s cash contributions play
an indispensable part in Alliance’s incorporation. The process
necessarily requires the money not only to fund Alliance’s
registration with the SEC but also its initial capital
subscription.
Thus, Dueñas erred when he invested Fong’s contributions in
his two companies. This money should have been used in
processing Alliance’s registration. Its incorporation would not
materialize if there would be no funds for its initial capital.
Moreover, Dueñas represented that Danton and Bakcom’s
shares were valued at P32.5 Million. If this was true, then there
was no need for Fong’s additional P5 Million investment, which
may possibly increase the value of the Danton and Bakcom
shares.
Under these circumstances, the Court agrees with the trial
court that Dueñas violated his agreement with Fong. Aside
from unilaterally applying Fong’s contributions to his two
companies, Dueñas also failed to deliver the valuation
documents of the Danton and Bakcom shares to prove that the
combined values of their capital contributions actually
amounted to P32.5 Million.
These acts led to Dueñas’ delay in incorporating the planned
holding company, thus resulting in his breach of the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of the
joint venture agreement under Article 1191.
In the present case, private respondents validly exercised their
right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the balance
of the purchase price. Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to rescind
the same in accordance with law.42 [Emphasis supplied.]
However, the Court notes that Fong also breached his
obligation in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed Dueñas
that he would be limiting his cash contribution from P32.5
Million to P5 Million because of the following reasons which
we quote verbatim:chanRoblesvirtualLawlibrary
First, we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn down a
number of business opportunities;
Secondly, since last year, the operation of Century 21 has been
taking more time from us than anticipated. That is why we
decided to relinquish our original plan to manage and operate
‘Boboli’ knowing this limitation. For us, it does not make sense
anymore to go for a significant shareholding when we cannot
be hands on and participate actively as originally planned.43 x
x x.
Although these reasons appear to be valid, they do not erase
the fact that Fong still reneged on his original promise to
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25 Civil Law Review 2 (Atty. Legarda)
contribute P32.5 Million. The joint venture agreement was not
reduced to writing and the evidence does not show if the
parties agreed on valid causes that would justify the limitation
of the parties’ capital contributions. Their only admission was
that they obligated themselves to contribute P32.5 Million
each.
Hence, Fong’s diminution of his capital share to P5 Million also
amounted to a substantial breach of the joint venture
agreement, which breach occurred before Fong decided to
rescind his agreement with Dueñas. Thus, Fong also
contributed to the non-incorporation of Alliance that needed
P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial
reduction of his capital contribution also greatly impeded the
implementation of their agreement to engage in the food
business and to incorporate a holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the Civil Code,
which provides:
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of
the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages.
[Emphasis supplied.]
Notably, the Court is not aware of the schedule of performance
of the parties’ obligations since the joint venture agreement
was never reduced to writing. The facts, however, show that
both parties began performing their obligations after
executing the joint venture agreement. Fong started remitting
his share while Dueñas started processing the Boboli
international license for the proposed corporation’s food
business.
The absence of a written contract renders the Court unsure as
to whose obligation must be performed first. It is possible that
the parties agreed that Fong would infuse capital first and
Dueñas’ submission of the documents on the Danton and
Bakcom shares would just follow. It could also be the other way
around. Further, the parties could have even agreed to
simultaneously perform their respective obligations.
Despite these gray areas, the fact that both Fong and Dueñas
substantially contributed to the non-incorporation of Alliance
and to the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the
parties first violated the agreement, we apply the second part
of Article 1192 which states: “if it cannot be determined which
of the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages.”
In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed extinguished
through rescission under Article 1192 in relation with Article
1191 of the Civil Code. Dueñas must therefore return the P5
Million that Fong initially contributed since rescission requires
mutual restitution.44After rescission, the parties must go back
to their original status before they entered into the agreement.
Dueñas cannot keep Fong’s contribution as this would
constitute unjust enrichment.
No damages shall be awarded to any party in accordance with
the rule under Article 1192 of the Civil Code that in case of
mutual breach and the first infractor of the contract cannot
exactly be determined, each party shall bear his own damages.
24. HONORLITA ASCANO-CUPINO AND FLAVIANA ASCANO-
COLOCADO v. PACIFIC REHOUSE CORPORATION
G.R. No. 205113, 26 August 2015 (J. Carpio)
As previously held by the Court, “the injured party is the party who
has faithfully fulfilled his obligation or is ready and willing to perform
his obligation.” From the foregoing, it is clear that Pacific is the
injured party, entitled to elect between rescinding of the contract and
exacting fulfillment of the obligation. It has opted for the remedy of
specific performance, as embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of petitioners, since
they themselves failed to perform their obligations under the Deed of
Conditional Sale.
FACTS:
The Ascanos entered into a Deed of Conditional Sale with
Pacific Rehouse Corporation (Pacific). There are three
conditions to be fulfilles (1) the completion of all documents
necessary for the transfer of the certificate of title of the land;
(2) the vendors (the Ascanos) shall guarantee removal of the
tenants, squatters and other occupants on the land, with the
disturbance compensation to said tenants to be paid by
vendors; and (3) submission by vendors to Pacific of the
Affidavit of Non-Tenancy and the land operation transfer
documents.
Subsequently, petitioners failed to submit the necessary
documents despite several demands from Pacific to do so.
Instead, they informed Pacific that they wanted to rescind the
contract and refused to accept Pacific’s tender of additional
payments. Pacific, through Melecio P. Fortuno, Jr. (Fortuno),
opened a savings account with the Capitol Bank of General
Trias, Cavite, in the names of petitioners, depositing in said
account the amount of P1,005,180. Pacific then informed
petitioners of the deposit and that “they were authorized to
withdraw the same at [their] convenience.”
Pacific’s repeated demands against the petitioners went
unheeded prompting Pacific to file a Complaint for
Cancellation of Contract, Sum of Money and Damages before
the RTC. However, before pre-trial, Pacific discovered that
petitioners had withdrawn the P1,005,180 it had deposited with
Capitol Bank of General Trias. In view of petitioners’ action,
Pacific filed an Amended Complaint changing its cause of
action from cancellation to specific performance.
ISSUE: Whether or not Pacific Rehouse is entitled to ask for
specific performance.
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26 Civil Law Review 2 (Atty. Legarda)
RULING: YES. Pacific is entitled to ask for specific
performance.
The Deed of Conditional Sale clearly spells out the obligations
of each party. Based on the allegations of the parties and the
findings of the lower courts, Pacific has already partially
fulfilled its obligation while petitioners have not.
The obligation of petitioners under the Deed of Conditional
Sale is to “guarantee removal of tenants” and not merely to
pay disturbance compensation. It is an undertaking specifically
given to petitioners under the Deed of Conditional Sale,
considering that Pacific is not yet the owner of the property
and will have no personality to evict the property’s present
occupants. Petitioners failed to fulfill this obligation, as well as
the obligation to deliver the necessary documents to complete
the sale.
As previously held by the Court, “the injured party is the party
who has faithfully fulfilled his obligation or is ready and
willing to perform his obligation.” From the foregoing, it is
clear that Pacific is the injured party, entitled to elect between
rescinding of the contract and exacting fulfillment of the
obligation. It has opted for the remedy of specific performance,
as embodied in its Amended Complaint. Moreover, rescission
must not be allowed in favor of petitioners, since they
themselves failed to perform their obligations under the Deed
of Conditional Sale.
25. NARCISO GUTIERREZ v. BONIFACIO GUTIERREZ, MARIA
V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ
G.R. No. 34840, 23 September 1931 (J. Malcolm)
In the United States, it is uniformly held that the head of a house, the
owner of an automobile, who maintains it for the general use of his
family is liable for its negligent operation by one of his children,
whom he designates or permits to run it, where the car is occupied
and being used at the time of the injury for the pleasure of other
members of the owner’s family than the child driving it. The theory of
the law is that the running of the machine by a child to carry other
members of the family is within the scope of the owner’s business, so
that he is liable for the negligence of the child because of the
relationship of master and servant.
FACTS: A passenger truck and an automobile of private
ownership collided while attempting to pass each other on the
Talon bridge on the Manila South Road in the municipality of
Las Piñas, Province of Rizal. The truck was driven by the
chauffeur Abelardo Velasco, and was owned by Saturnino
Cortez. The automobile was being operated by Bonifacio
Gutierrez, a lad 18 years of age, and was owned by Bonifacio’s
father and mother, Mr. and Mrs. Manuel Gutierrez. At the time
of the collision, the father was not in the car, but the mother,
together will several other members of the Gutierrez family,
seven in all, were accommodated therein. One of the
passengers of the autobus was Narciso Gutierrez. The collision
between the bus and the automobile resulted in Narciso
Gutierrez suffering a fracture right leg which required medical
attendance for a considerable period of time. Thus, Narciso
Gutierrez filed an action for damages for the physical injuries
he suffered as a result of the accident.
ISSUE: Whether or not both the driver of the truck and
automobile are liable for damages and indemnification due to
their negligence.
RULING: The Court found both drivers negligent, basing the
liability of the owner of the truck to the plaintiff on the
contract of carriage; while the liability of the owner of the
private car was based on Article 2180 of the Civil Code. As
against the owner of the truck, there was culpa contractual,
while as against the owner of the automobile, there was culpa
aquiliana.
The youth Bonifacio was an incompetent chauffeur, that he
was driving at an excessive rate of speed, and that, on
approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty
given by the father at the time the son was granted a license to
operate motor vehicles made the father responsible for the
acts of his son. Based on these facts, pursuant to the provisions
of article 1903 of the Civil Code, the father alone and not the
minor or the mother, would be liable for the damages caused
by the minor.
The Court deals with the civil law liability of parties for
obligations which arise from fault or negligence. At the same
time, the Court believes that, as has been done in other cases,
we can take cognizance of the common law rule on the same
subject. In the United States, it is uniformly held that the head
of a house, the owner of an automobile, who maintains it for
the general use of his family is liable for its negligent operation
by one of his children, whom he designates or permits to run
it, where the car is occupied and being used at the time of the
injury for the pleasure of other members of the owner’s family
than the child driving it. The theory of the law is that the
running of the machine by a child to carry other members of
the family is within the scope of the owner’s business, so that
he is liable for the negligence of the child because of the
relationship of master and servant. The liability of Saturnino
Cortez, the owner of the truck, and of his chauffeur Abelardo
Velasco rests on a different basis, namely, that of contract
which, the Court thinks, has been sufficiently demonstrated by
the allegations of the complaint, not controverted, and the
evidence. The reason for this conclusion reaches to the
findings of the trial court concerning the position of the truck
on the bridge, the speed in operating the machine, and the lack
of care employed by the chauffeur. While these facts are not as
clearly evidenced as are those which convict the other
defendant, the Court nevertheless hesitates to disregard the
points emphasized by the trial judge. In its broader aspects, the
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27 Civil Law Review 2 (Atty. Legarda)
case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and
give the right of way to the other, with the inevitable result of
a collision and an accident.
26. ANTONIO VAZQUEZ v. FRANCISCO DE BORJA/
FRANCISCO DE BORJA v. ANTONIO VAZQUEZ
G.R. Nos. L-48930 & L-48931, 23 February 1944 (J. Ozaeta)
a corporation is an artificial being invested by law with a personality
of its own, separate and distinct from that of its stockholders and from
that of its officers who manage and run its affairs.
FACTS:
Francisco De Borja entered into a contract of sale with the
Natividad-Vasquez Sabani Development Co., Inc. (NVSDI). The
subject of the sale was 4,000 cavans of rice valued at Php2.10
per cavan. On behalf of the company, the contract was
executed by Antonio Vasquez as the company’s acting
president. NVSDI only delivered 2,488 cavans and failed and
refused despite demand to deliver the rest. Hence, De Borja
filed an action for damages against Vasquez and Fernando
Busuego (treasurer of the corporation). The trial court held
Vasquez liable but absolved Busuego.
ISSUE: Whether or not Vasquez entered into the contract in
his personal capacity, thus, making him liable for damages.
RULING: NO. It is well known that a corporation is an artificial
being invested by law with a personality of its own, separate
and distinct from that of its stockholders and from that of its
officers who manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it necessarily
has to act thru its agents, does not make the latter personally
liable on a contract duly entered into, or for an act lawfully
performed, by them for and in its behalf. The legal fiction by
which the personality of a corporation is created is a practical
reality and necessity. Without it no corporate entities may
exist and no corporate business may be transacted. Such legal
fiction may be disregarded only when an attempt is made to
use it as a cloak to hide an unlawful or fraudulent purpose. No
such thing has been alleged or proven in this case. It has not
been alleged nor even intimated that Vazquez personally
benefited by the contract of sale in question and that he is
merely invoking the legal fiction to avoid personal liability.
Neither is it contended that he entered into said contract for
the corporation in bad faith and with intent to defraud the
plaintiff. The Court finds no legal and factual basis upon which
to hold him liable on the contract either principally or
subsidiarily.
Both the trial court and the CA have manifestly failed to
distinguish a contractual from an extracontractual obligation,
or an obligation arising from contract from an obligation
arising from culpa aquiliana. The fault and negligence referred
to in articles 1101-1104 of the Civil Code are those incidental to
the fulfillment or nonfullfillment of a contractual obligation;
while the fault or negligence referred to in article 1902 is
the culpa aquiliana of the civil law, homologous but not
identical to tort of the common law, which gives rise to an
obligation independently of any contract. The fact that the
corporation, acting thru Vazquez as its manager, was guilty of
negligence in the fulfillment of the contract, did not make
Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation’s contract, its
nonfulfillment, whether due to negligence or fault or to any
other cause, made the corporation and not its agent liable.
27. DE LA ROSA v. BPI
28. SOCIAL SECURITY SYSTEM, petitioner, v. MOONWALK
DEVELOPMENT & HOUSING CORPORATION, ROSITA U.
ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC.,
MILAGROS SANCHEZ SANTIAGO, in her capacity as Register
of Deeds for the Province of Cavite, ARTURO SOLITO, in his
capacity as Register of Deeds for Metro Manila District IV,
Makati, Metro Manila and the INTERMEDIATE APPELLATE
COURT, respondents.
G.R. No. 73345. April 7, 1993.
A penalty is demandable in case of non-performance or late
performance of the main obligation. In other words, in order that the
penalty may arise there must be a breach of the obligation either by
total or partial non-fulfillment or there is non-fulfillment in point of
time which is called mora or delay. The debtor therefore violates the
obligation in point of time if there is mora or delay. There is no delay
unless there is a demand. Under Art. 1169 of the Civil Code, delay
begins from the time the obligee judicially or extrajudicially demands
from the obligor the performance of the obligation.
Facts: SSS approved the loan application of defendant
Moonwalk. Moonwalk made a total payment of P23,657,901.84
to SSS for the loan principal of P12,254,700.00 released to it.
The last payment made by Moonwalk in the amount of
P15,004,905.74 were based on the Statement of Account,
prepared by plaintiff SSS for defendant. After settlement of the
account, plaintiff issued to defendant Moonwalk the Release of
Mortgage for Moonwalk's mortgaged properties. However,
plaintiff wrote a letter to defendant alleging that it committed
an honest mistake in releasing defendant.
SSS filed a complaint in the CFI of Rizal against Moonwalk
Development & Housing Corporation alleging that the former
had committed an error in failing to compute the 12% interest
due on delayed payments on the loan of Moonwalk resulting in
a chain of errors in the application of payments made by
Moonwalk and, in an unpaid balance on the principal loan
agreement in the amount of P7,053.77 and, also in not
reflecting in its statement or account an unpaid balance on the
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28 Civil Law Review 2 (Atty. Legarda)
said penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that
SSS had the opportunity to ascertain the truth but failed to do
so.
Issue: WON Moonwalk is still liable for the unpaid penalties as
claimed by the SSS.
Held: No, Moonwalk is not liable to pay the penalty under the
penalty clause since the obligation from which it arises has
already been extinguished before the penalty clause has been
invoked. Default begins from the moment the creditor
demands the performance of the obligation.
A penal clause has been defined as "an accessory obligation
which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on
the debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not
fulfilled or is irregularly or inadequately fulfilled." On the
other hand, an accessory obligation has been defined as that
attached to a principal obligation in order to complete the
same or take its place in the case of breach. An accessory
obligation is dependent for its existence on the existence of a
principal obligation. A principal obligation may exist without
an accessory obligation but an accessory obligation cannot
exist without a principal obligation.
A penalty is demandable in case of non-performance or late
performance of the main obligation. In other words, in order
that the penalty may arise there must be a breach of the
obligation either by total or partial non-fulfillment or
there is non-fulfillment in point of time which is called
mora or delay. The debtor therefore violates the obligation
in point of time if there is mora or delay. There is no delay
unless there is a demand. Under Art. 1169 of the Civil
Code, delay begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance
of the obligation.
There are only three instances when demand is not necessary
to render the obligor in default: (1) When the obligation or the
law expressly so declares; (2) When from the nature and the
circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of
the contract; or (3) When the demand would be useless, as
when the obligor has rendered it beyond his power to perform.
This case does not fall within any of the established exceptions.
Hence, despite the provision in the promissory note that "(a)ll
amortization payments shall be made every first five (5) days
of the calendar month until the principal and interest on the
loan or any portion thereof actually released has been fully
paid," petitioner is not excused from making a demand.
It has been established that at the time of payment of the full
obligation, private respondent Moonwalk has long been
delinquent in meeting its monthly arrears and in paying the
full amount of the loan itself as the obligation matured
sometime in January, 1977. But mere delinquency in payment
does not necessarily mean delay in the legal concept. To be in
default ". . . is different from mere delay in the grammatical
sense, because it involves the beginning of a special condition
or status which has its own peculiar effects or results."
In order that the debtor may be in default it is necessary that
the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially and extrajudicially. Default generally
begins from the moment the creditor demands the
performance of the obligation.
Nowhere in this case did it appear that SSS demanded from
Moonwalk the payment of its monthly amortizations. Neither
did it show that petitioner demanded the payment of the
stipulated penalty upon the failure of Moonwalk to meet its
monthly amortization. What the complaint itself showed was
that SSS tried to enforce the obligation sometime in
September, 1977 by foreclosing the real estate mortgages
executed by Moonwalk in favor of SSS. But this foreclosure did
not push through upon Moonwalk's requests and promises to
pay in full. The next demand for payment happened on
October 1, 1979 when SSS issued a Statement of Account to
Moonwalk. And in accordance with said statement, Moonwalk
paid its loan in full. What is clear, therefore, is that Moonwalk
was never in default because SSS never compelled
performance.
It was on October 1, 1979 that the SSS issued its statement of
account showing the total obligation of Moonwalk as
P15,004,905.74, and forthwith demanded its payment. Because
of the demand for payment, Moonwalk made several payments
on September 29, October 9, and 19, 1979 respectively, all in all
totaling P15,004,905.74 which was a complete payment of its
obligation. Thus, the obligation of Moonwalk was considered
extinguished, and pursuant to said extinguishment, the real
estate mortgages given by Moonwalk were released on October
9, 1979 and October 10, 1979. For all purposes therefore, the
principal obligation of Moonwalk was deemed extinguished as
well as the accessory obligation of real estate mortgage; the
reason for the release.
Besides the Real Estate Mortgages, the penal clause which is
also an accessory obligation must also be deemed extinguished
considering that the principal obligation was considered
extinguished, and the penal clause being an accessory
obligation. That being the case, the demand for payment of the
penal clause made by plaintiff-appellant in its demand letter
dated November 28, 1979 and its follow up letter dated
December 17, 1979 are ineffective as there was nothing to
demand. It would be otherwise, if the demand for the payment
of the penalty was made prior to the extinguishment of the
obligation because then the obligation of Moonwalk would
consist of: 1) the principal obligation 2) the interest of 12% on
the principal obligation and 3) the penalty of 12% for late
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29 Civil Law Review 2 (Atty. Legarda)
payment for after demand, Moonwalk would be in mora and
therefore liable for the penalty.
At the time of the demand made in the letters as far as the
penalty is concerned, the defendant-appellee was not in
default since there was no mora prior to the demand. That
being the case, therefore, the demand made after the
extinguishment of the principal obligation which carried with
it the extinguishment of the penal clause being merely an
accessory obligation, was an exercise in futility. At the time of
the payment made of the full obligation on October 10, 1979
together with the 12% interest by Moonwalk, its obligation was
extinguished. It being extinguished, there was no more need
for the penal clause.
29. VASQUEZ v. AYALA
30. RODRIGO RIVERA v. SPOUSES SALVADOR CHUA AND
VIOLETA S. CHUA,
G.R. No. 184458 January 14, 2015
The Promissory Note is unequivocal about the date when the
obligation falls due and becomes demandable—31 December 1995. As
of 1 January 1996, Rivera had already incurred in delay when he failed
to pay the amount of ₱120,000.00 due to the Spouses Chua on 31
December 1995 under the Promissory Note.
Facts: Rivera obtained a loan from the Spouses Chua. In the
promissory note, Rivera agreed to pay the 120,000.00 on
December 31, 1995. Further he agreed that the sum equivalent
to FIVE PERCENT (5%) interest monthly from the date of
default until the entire obligation is fully paid for.
As of May 31, 1999, the amount due the Spouses Chua was
pegged at ₱366,000.00 covering the principal of ₱120,000.00
plus five percent (5%) interest per month from January 1, 1996
to May 31, 1999.
The Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail. Because of Rivera’s
unjustified refusal to pay, the Spouses Chua filed a case on June
11, 1999 before the MeTC Manila.
In his Answer with Compulsory Counterclaim, Rivera
countered that there was no demand for payment of the
amount of ₱120,000.00 prior to the encashment of PCIB Check.
Issues: 2.) WON a demand is required to make Rivera liable;
and 3.) WON the interest is unconscionable.
Held: No, Yes.
The Promissory Note is unequivocal about the date when the
obligation falls due and becomes demandable—31 December
1995. As of 1 January 1996, Rivera had already incurred in delay
when he failed to pay the amount of ₱120,000.00 due to the
Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides that those
obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation. However, the demand
by the creditor shall not be necessary in order that delay may
exist: (1) When the obligation or the law expressly so declare;
or (2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or (3)
When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins.
There are four instances when demand is not necessary to
constitute the debtor in default: (1) when there is an express
stipulation to that effect; (2) where the law so provides; (3)
when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the
period lapses, default will commence.
The date of default under the Promissory Note is 1 January
1996, the day following 31 December 1995, the due date of the
obligation. On that date, Rivera became liable for the stipulated
interest which the Promissory Note says is equivalent to 5% a
month. Until 31 December 1995, demand was not necessary
before Rivera could be held liable for the principal amount of
₱120,000.00. Thereafter, on 1 January 1996, upon default,
Rivera became liable to pay the Spouses Chua damages, in the
form of stipulated interest.
The liability for damages of those who default, including those
who are guilty of delay, in the performance of their obligations
is laid down on Article 1170 of the Civil Code. Corollary thereto,
Article 2209 solidifies the consequence of payment of interest
as an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum.
Article 2209 is specifically applicable in this instance where: (1)
the obligation is for a sum of money; (2) the debtor, Rivera,
incurred in delay when he failed to pay on or before 31
December 1995; and (3) the Promissory Note provides for an
indemnity for damages upon default of Rivera which is the
payment of a 5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in
this case as a penal clause. The penal clause is generally
undertaken to insure performance and works as either, or
both, punishment and reparation. It is an exception to the
general rules on recovery of losses and damages. As an
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exception to the general rule, a penal clause must be
specifically set forth in the obligation. It must be noted that
the stipulation in the Promissory Note is designated as
payment of interest, not as a penal clause, and is simply an
indemnity for damages incurred by the Spouses Chua because
Rivera defaulted in the payment of the amount of ₱120,000.00.
In this instance, the parties stipulated that in case of default,
Rivera will pay interest at the rate of 5% a month or 60% per
annum. On this score, the appellate court ruled that the
stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly
iniquitous and unreasonable. Stipulated interest rates are
illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. Since the interest rate
agreed upon is void, the parties are considered to have no
stipulation regarding the interest rate, thus, the rate of
interest should be 12% per annum computed from the date of
judicial or extrajudicial demand.
31. Maybank Philippines, Inc. (Formerly PNB-Republic
Bank), petitioner vs. Spouses Oscar and Nenita Tarrosa,
respondents. (Gr. No. 213014, October 14, 2015)
In the absence of showing that demand is unnecessary for the loan
obligation to become due and demandable, Maybank’s right to
foreclose the real estate mortgage accrued only after the lapse of the
period indicated in its final demand letter for Sps. Tarrosa to pay, i.e.,
after the lapse of five (5) days from receipt of the final demand letter
dated March 4, 1998,
Facts:
On December 15, 1980, respondent Spouses Tarrosa
obtained two loans from PNB-Republic Bank, now Maybank
Philippines, in the amount of P91,000.00 and second P60,000.00
payable on March 11, 1984. Respondents failed to pay upon
maturity.
A Final Demand Letter was sent by petitioner bank to
respondents requiring the latter to settle their loan obligation.
Consequently, Maybank instituted an extrajudicial foreclosure
proceeding and the subject property was eventually sold in a
public auction to Philmay Property Inc.
The spouses then filed a complaint for declaration of nullity
and invalidity of the foreclosure sale averring among others
that the second loan is an unsecured loan and that, Maybank’s
right to foreclose had already prescribed.
In the present case, both the CA and the RTC reckoned the
accrual of Maybank’s cause of action to foreclose the real
estate mortgage over the subject property from the maturity
of the second loan on May 11, 1984. The CA further held that
demand was unnecessary for the accrual of the cause of action
in light of paragraph 5 of the real estate mortgage, which
pertinently provides:
5. In the event that the Mortgagor herein should fail
or refuse to pay any of the sums of money secured by
this mortgage, or any part thereof, in accordance with
the terms and conditions stipulated herein, then and
in any such case, the Mortgagee shall have the right,
at its election to foreclose this mortgage. [xxx].
Issue:
Whether or not demand was necessary for the accrual
of the bank’s right to foreclose under the mortgage
agreement?
Ruling: demand is still necessary
In order that the debtor may be in default, it is necessary that:
(a) the obligation be demandable and already liquidated; (b)
the debtor delays performance; and (c) creditor requires the
performance judicially or extrajudicially, unless demand is not
necessary – i.e. when there is an express stipulation to that
effect; where the law so provides; when the period is the
controlling motive or the principal inducement for the
creation of the obligation; and where demand would be
useless. Moreover, it is not sufficient that the law or obligation
fixes a date for performance; it must further state expressly
that after the period lapses, default will commence
However, this provision under the Real Estate
Mortgage merely articulated Maybank’s right to elect
foreclosure upon Sps. Tarrosa’s failure or refusal to comply
with the obligation secured, which is one of the rights duly
accorded to mortgagees in a similar situation. In no way it
affect the general parameters of default, particularly the need
of prior demand under Article 1169 of the Civil Code,
considering that it did not expressly declare: (a) that demand
shall not be necessary in order that the mortgagor may be in
default; or (b) that default shall commence upon mere failure
to pay on maturity date of the loan.
Hence, the CA erred in construing the above provision as one
through which the parties had dispensed with demand as a
condition sine qua non for the accrual of Maybank’s right to
foreclose the real estate mortgage over the subject property,
and thereby, mistakenly reckoned such right from the
maturity date of the loan on March 11, 1984. In the absence of
showing that demand is unnecessary for the loan obligation to
become due and demandable, Maybank’s right to foreclose the
real estate mortgage accrued only after the lapse of the period
indicated in its final demand letter for Sps. Tarrosa to pay, i.e.,
after the lapse of five (5) days from receipt of the final demand
letter dated March 4, 1998,
32. Julio C. Abella, plaintiff-appellant, vs. Guillermo B.
Francisico, defendant-appellee, (G.R. No. 32336, December
20, 1930) - ABELLA v. GONZAGA
it is held that the time fixed for the payment of the selling price was
essential in the transaction, and, therefore, the vendor, under article
1124 of the Civil Code, is entitled to resolve the contract for failure to
pay the price within the time specified.
Facts:
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Defendant Guillermo B. Francisco purchased from the
Government on installments. He was in arrears for some of
these installments. The defendant wanted to sell these lots to
the plaintiff in order to pay off certain obligations which fell
due in December 1928. Thus, he sold the lot to Abella with the
condition that the balance would be paid on or before Dec. 15,
1928.
He instructed Roman Mabata that in the event that the
plaintiff failed to pay the remainder of the selling price, Roman
should inform Abella that the opetion would be cancelled and
to return to him thee amount already delivered. And so, Abella
failed to pay the rest of the price on January 5, but on the 9 th of
January. Mbanta refused to accept and he regarded the
contract rescinded.
The plaintiff brought this action to compel the defendant to
execute the deed of sale of the lots in question, upon receipt of
the balance of the price, and asks that he be judicially declared
the owner of said lots and that the defendant be ordered to
deliver them to him.
Issue: Whether or not Francisco may rescind the contract in
view of the delay in payment of Abella?
Ruling: Yes.
Having agreed that the selling price (even supposing it was a
contract of sale) would be paid not later than December, 1928,
and in view of the fact that the vendor executed said contract
in order to pay off with the proceeds thereof certain
obligations which fell due in the same month of December, it is
held that the time fixed for the payment of the selling price
was essential in the transaction, and, therefore, the vendor,
under article 1124 of the Civil Code, is entitled to resolve the
contract for failure to pay the price within the time specified.
In rendering that judgment, the court relied on the fact that
the plaintiff had failed to pay the price of the lots within the
stipulated time; and that since the contract between plaintiff
and defendant was an option for the purchase of the lots,' time
was an essential element in it.
The defendant wanted to sell those lots to the plaintiff in order
to pay off certain obligations which fell due in the month of
December, 1928. The time fixed for the payment of the price
was therefore essential for the defendant, and this view is
borne out by his letter to his representative Mabanta
instructing him to consider the contract rescinded if the price
was not completed in time. In accordance with article 1124 of
the Civil Code, the defendant is entitled to resolve the contract
for failure to pay the price within the time specified.
33. DR. DANIEL VAZQUEZ and MA. LUIZA M.
VAZQUEZ, petitioners v. AYALA CORPORATION, respondent.
In order that the debtor may be in default it is necessary that the
following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or
extrajudicially. …Even assuming that the MOA imposes an obligation
on Ayala Corporation to develop the subject lots within three (3) years
from date thereof, Ayala Corporation could still not be held to have
been in delay since no demand was made by petitioners for the
performance of its obligation.
petitioners letters can only be construed as mere reminders which
cannot be considered demands for performance because it must
appear that the tolerance or benevolence of the creditor must have
ended.
Facts: On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa
M. Vasquez sold to Ayala Corporation shares of stock in
Conduit Development, Inc. (hereafter, Conduit).
Under the MOA, Ayala was to develop the entire property, less
what was defined as the Retained Area consisting of 18,736
square meters. This Retained Area was to be retained by the
Vazquez spouses. The area to be developed by Ayala was called
the Remaining Area. In this Remaining Area were 4 lots
adjacent to the Retained Area and Ayala agreed to offer these
lots for sale to the Vazquez spouses at the prevailing price at
the time of purchase. They agreed in the Memorandum of
Agreement that:
The BUYER hereby commits that it will develop
the Remaining Property into a first class
residential subdivision of the same class as its New
Alabang Subdivision, and that it intends to
complete the first phase under its amended
development plan within three (3) years from the
date of this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option
to purchase four developed lots next to the Retained Area
at the prevailing market price at the time of the purchase.
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the Retained Area within 3 years from the date of
the MOA, the Vasquez spouses sent several reminder letters of
the approaching so-called deadline. However, no demand after
April 23, 1984, was ever made by the Vasquez spouses for Ayala
to sell the 4 lots.
By early 1990 Ayala finished the development of the vicinity of
the 4 lots to be offered for sale. The four lots were then offered
to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to
pay at 1984 prices, thereby leading to the suit below.
Issue: WON Ayala corporation was in default or delay in the
fulfillment of their obligation.
Held: No.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
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thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins.
In order that the debtor may be in default it is necessary that
the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially or extrajudicially.
Under Article 1193 of the Civil Code, obligations for whose
fulfillment a day certain has been fixed shall be demandable
only when that day comes. However, no such day certain was
fixed in the MOA. Petitioners, therefore, cannot demand
performance after the three (3) year period fixed by the MOA
for the development of the first phase of the property since
this is not the same period contemplated for the development
of the subject lots. Since the MOA does not specify a period for
the development of the subject lots, petitioners should have
petitioned the court to fix the period in accordance with
Article 1197 of the Civil Code. As no such action was filed by
petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to have
delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala
Corporation to develop the subject lots within three (3) years
from date thereof, Ayala Corporation could still not be held to
have been in delay since no demand was made by petitioners
for the performance of its obligation. As found by the appellate
court, petitioners letters which dealt with the three (3)-year
timetable were all dated prior to April 23, 1984, the date when
the period was supposed to expire. In other words, the letters
were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and
not categorical demands to perform. More importantly,
petitioners waived the three (3)-year period as evidenced by
their agent, Engr. Eduardo Turlas letter to the effect that
petitioners agreed that the three (3)-year period should be
counted from the termination of the case filed by Lancer.
At best, petitioners letters can only be construed as mere
reminders which cannot be considered demands for
performance because it must appear that the tolerance or
benevolence of the creditor must have ended.
34. SPOUSES DEO AGNER and MARICON
AGNER, Petitioners, vs. BPI FAMILY SAVINGS BANK,
INC., Respondent.
A provision on waiver of notice or demand has been recognized as
legal and valid. The Civil Code in Article 1169 provides that one incurs
in delay or is in default from the time the obligor demands the
fulfillment of the obligation from the obligee. However, the law
expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the parties
expressly waive demand.
Petitioners legally waived the necessity of notice or demand in the
Promissory Note with Chattel Mortgage
Facts: On February 15, 2001, petitioners spouses Deo Agner and
Maricon Agner executed a Promissory Note with Chattel
Mortgage in favor of Citimotors, Inc. The contract provides,
among others, that: for receiving the amount of Php834,
768.00, petitioners shall pay Php 17,391.00 every 15th day of
each succeeding month until fully paid; the loan is secured by a
2001 Mitsubishi Adventure Super Sport; and an interest of 6%
per month shall be imposed for failure to pay each installment
on or before the stated due date.
On the same day, Citimotors, Inc. assigned all its rights, title
and interests in the Promissory Note with Chattel Mortgage to
ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31,
2002, likewise assigned the same to respondent BPI Family
Savings Bank, Inc.
For failure to pay four successive installments from May 15,
2002 to August 15, 2002, respondent, through counsel, sent to
petitioners a demand letter dated August 29, 2002, declaring
the entire obligation as due and demandable and requiring to
pay Php576,664.04, or surrender the mortgaged vehicle
immediately upon receiving the letter. As the demand was left
unheeded, respondent filed on October 4, 2002 an action for
Replevin and Damages before the Manila Regional Trial Court
(RTC).
Issue: WON petitioners cannot be considered to have defaulted
in payment for lack of competent proof that they received the
demand letter
Held:
NO. Records bear that both verbal and written demands were
in fact made by respondent prior to the institution of the case
against petitioners. Even assuming, for argument’s sake, that
no demand letter was sent by respondent, there is really no
need for it because petitioners legally waived the necessity of
notice or demand in the Promissory Note with Chattel
Mortgage, which they voluntarily and knowingly signed in
favor of respondent’s predecessor-in-interest. A provision on
waiver of notice or demand has been recognized as legal and
valid. The Civil Code in Article 1169 provides that one incurs in
delay or is in default from the time the obligor demands the
fulfillment of the obligation from the obligee. However, the law
expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the
parties expressly waive demand. Hence, since the co-signors
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expressly waived demand in the promissory notes, demand
was unnecessary for them to be in default.
Further, the Court even ruled in Navarro v. Escobido that prior
demand is not a condition precedent to an action for a writ of
replevin, since there is nothing in Section 2, Rule 60 of the
Rules of Court that requires the applicant to make a demand on
the possessor of the property before an action for a writ of
replevin could be filed.
35. CLAUDINA VDA. DE VILLARUEL, ET AL. VS. MANILA
MOTOR CO., INC.
The lessor’s refusal to accept the current rentals without qualification
placed them in default (mora creditoris or accipiendi) with the result
that thereafter, they had to bear all supervening risks of accidental
injury or destruction of the leased premises
FACTS: On May 31, 1940, the plaintiffs Villaruel and defendant
Manila Motor Co. Inc. entered into a contract whereby the
defendant agreed to lease plaintiffs building premises. On
October 31, 1940, the leased premises were placed in the
possession of the defendant until the invasion of 1941. The
Japanese military occupied and used the property leased as
part of their quarters from June, 1942 to March, 1945, in which
no payment of rentals were made. Upon the liberation of the
said city, the American forces occupied the same buildings that
were vacated by the Japanese. When the United States gave up
the occupancy of the premises, defendant decided to exercise
their option to renew the contract, in which they agreed.
However, before resuming the collection of rentals, Dr. Alfredo
Villaruel upon advice demanded payment of rentals
corresponding to the time the Japanese military occupied the
leased premises, but the defendant refused to pay. As a result
plaintiff gave notice seeking the rescission of the contract and
the payment of rentals from June, 1942 to March, 1945; this
was rejected by the defendant. Despite the fact the defendant
under new branch manager paid to plaintiff the sum of P350
for the rent, the plaintiff still demanded for rents in arrears
and for the rescission of the contract of lease. The plaintiff
commenced an action before the CFC of Neg. Occidental
against defendant company. During the pendency of the case,
the leased building was burned down. Because of the
occurrence, plaintiffs demanded reimbursement from the
defendants, but having been refused, they filed a supplemental
complaint to include a 3rd cause of action, the recovery of the
value of the burned building. The trial court rendered
judgment in favor of the plaintiff. Hence the defendants
appeal.
ISSUE: WON Manila Motor Co. Inc. liable for the loss of the
leased premises?
RULING: No. Clearly, the lessor's insistence upon collecting the
occupation rentals for 1942-1945 was unwarranted in law.
Hence, their refusal to accept the current rentals without
qualification placed them in default (mora creditoris or
accipiendi) with the result that thereafter, they had to bear all
supervening risks of accidental injury or destruction of the
leased premises. While not expressly declared by the Code of
1889, this result is clearly inferable from the nature and effects
of mora. In other words, the only effect of the failure to
consign the rentals in court was that the obligation to pay
them subsisted and the lessee remained liable for the amount
of the unpaid contract rent, corresponding to the period from
July to November, 1946; it being undisputed that, from
December 1946 up to March 2, 1948, when the commercial
buildings were burned, the defendants appellants have paid
the contract rentals at the rate of P350 per month. But the
failure to consign did not eradicate the default (mora) of the
lessors nor the risk of loss that lay upon them.
In view of the foregoing, we hold:
(a) That the dispossession of the lessee from the premises by
the Japanese army of occupation was not an act of mere
trespass ( perturbacion de mero hecho) but one de derecho
chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors
or lessee, nevertheless resulted in the exemption of the lessee
from its obligation to pay rent during the period that it was
deprived of the possession and enjoyment of the premises
leased;
(c) That the insistence of the lessors to collect such rentals was
unwarranted;
(d) That the lessors were not justified in refusing to accept the
tender of current rentals unless the lessee should recognize
their right to the rents corresponding to the period that the
lessee was not in possession;
(e) That by their improper refusal to accept the current rents
tendered by the lessee, the lessors incurred in default (mora)
and they must shoulder the subsequent accidental loss of the
premises leased;
(f) That the mora of the lessors was not cured by the failure of
the lessee to make the consignation of the rejected payments,
but the lessee remained obligated to pay the amounts tendered
and not consigned by it in court.
36. EMILIA TENGCO vs. COURT OF APPEALS and BENJAMIN
CIFRA JR.
G.R. No. L-49852 October 19, 1989
The petitioner cannot claim ignorance of the transfer of ownership of
the property because, by her own account, Aurora Recto and the
private respondent, at various times, had informed her of their
respective claims to ownership of the property occupied by the
petitioner. The petitioner should have tendered payment of the
rentals to the private respondent and if that was not possible, she
should have consigned such rentals in court.
Facts: Benjamin Cifra, owner of the leased property, filed an
action for unlawful detainer against the petitioner alleging the
petitioner’s failure to comply with the terms and conditions of
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the lease contract by failing and refusing to pay the stipulated
rentals despite repeated demands. The CFI of Rizal and the CA
ruled against the petitioner. Hence, this case. Petitioner
contended that she is a lessee on the premises in question and
that she had been in default in the payment of the rentals
thereon since February, 1974 allegedly because of the refusal of
the collector to accept her tender of payment. However, she
claims that the lease agreement was not with private
respondent, but with his mother.
Issue: WON the lessor is guilty of mora accipiendi?
Ruling: No. The circumstances surrounding the alleged refusal
of the lessor (private respondent) to accept the proffered
rentals, according to petitioner, are as follows:
Sometime in 1942, petitioner entered into a verbal lease
agreement with Lutgarda Cifra (mother of Benjamin Cifra) over
the premises in question which belonged to the latter.
The petitioner was informed that Aurora Recto and Benjamin
Cifra had claims over the leased property.
Under the circumstances, the refusal to accept the proffered
rentals is not without justification. The ownership of the
property had been transferred to the private respondent and
the person to whom payment was offered had no authority to
accept payment. It should be noted that the contract of lease
between the petitioner and Lutgarda Cifra, the former owner
of the land, was not in writing and, hence, unrecorded. The
Court has held that a contract of lease executed by the vendor,
unless recorded, ceases to have effect when the property is
sold, in the absence of a contrary agreement. The petitioner
cannot claim ignorance of the transfer of ownerhip of the
property because, by her own account, Aurora Recto and the
private respondent, at various times, had informed her of their
respective claims to ownership of the property occupied by the
petitioner. The petitioner should have tendered payment of
the rentals to the private respondent and if that was not
possible, she should have consigned such rentals in court.
COMPENSATIO MORAE: the delay of the parties in reciprocal
obligations
37. CENTRAL BANK OF THE PHILIPPINES and ACTING
DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT
OF COMMERCIAL AND SAVINGS BANK, in his capacity as
statutory receiver of Island Savings Bank vs. THE
HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO
G.R. No. L-45710 October 3, 1985
In reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other and when one party has performed
or is ready and willing to perform his part of the contract, the other
party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code)
Facts: Island Savings Bank approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security for the
loan, executed on the same day a real estate mortgage over his
100-hectare land. However, a mere P17,000.00 partial release of
the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory
note for P17,000.00 at 12% annual interest, payable within 3
years from the date of execution of the contract at semi-annual
installments of P3,459.00. An advance interest for the
P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00.
But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank
that there was no fund yet available for the release of the
P63,000.00 balance. The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00
balance.
In 1965, the Monetary Board of the Central Bank declared the
insolvency of the Bank and prohibited Island Savings Bank
from doing business in the Philippines and instructed the
Acting Superintendent of Banks to take charge of the assets of
Island Savings Bank. Therafter, Island Savings Bank, in view of
non-payment of the P17,000.00 covered by the promissory
note, filed an application for the extra-judicial foreclosure of
the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino. Consequently, Sulpicio M. Tolentino
filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages
with preliminary injunction, alleging that since Island Savings
Bank failed to deliver the P63,000.00 balance of the P80,000.00
loan, he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per
annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage.
The trial court, after trial on the merits rendered its decision,
finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7
000.00 plus legal interest and legal charges due thereon, and
lifting the restraining order so that the sheriff may proceed
with the foreclosure. Whereas, the Court of Appeals, on appeal
by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's
petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage
nor collect the P17,000.00 loan
Issue: WON both parties were in default of their respective
obligations?
Ruling: YES. The Board Resolution No. 1049 issued on August
13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the Bank
from making new loans and investments, and nowhere did it
prohibit island Savings Bank from releasing the balance of loan
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agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge
the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide
vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere
fact of insolvency of a debtor is never an excuse for the
non-fulfillment of an obligation but 'instead it is taken as a
breach of the contract by him.
Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in
either case. But since Island Savings Bank is now prohibited
from doing further business by Monetary Board Resolution No.
967, WE cannot grant specific performance in favor of Sulpicio
M, Tolentino.
Rescission is the only alternative remedy left. WE rule,
however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only insofar
as such amount is concerned, as there is no doubt that the
bank failed to give the P63,000.00. As far as the partial release
of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed
to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M.
Tolentino's reciprocal obligation to pay the P17,000.00 loan
when it falls due. His failure to pay the overdue amortizations
under the promissory note made him a party in default, hence
not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong
to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled
to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform
his reciprocal obligation to pay.
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank
failed to comply with its obligation to furnish the entire loan
and Sulpicio M. Tolentino failed to comply with his obligation
to pay his P17,000.00 debt within 3 years as stipulated, they are
both liable for damages.
Article 1192 of the Civil Code provides that in case both parties
have committed a breach of their reciprocal obligations, the
liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for
damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his PI
7,000.00 debt shall not be included in offsetting the liabilities of
both parties. Since Sulpicio M. Tolentino derived some benefit
for his use of the P17,000.00, it is just that he should account
for the interest thereon.
38. JUAN F. NAKPIL & SONS and JUAN F. NAKPIL v. THE
COURT OF APPEALS, UNITED CONSTRUCTION COMPANY,
INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION,
G.R. No. L-47851 April 15, 1988, Paras, J.
When the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing
that the immediate cause of the damage was the act of God. To be
exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which that loss or
damage may have been occasioned.
Facts:
Philippine Bar Association (PBA) contracted the services Juan
F. Nakpil & Sons and Juan F. Nakpil for the plans, specifications
and design of an office building it will construct on its 840
square meters lot, located at the comer of Aduana and
Arzobispo Streets, Intramuros, Manila. United Construction
Company, Inc. (UCCI) was hired by PBA for the construction of
the building. After the building was completed, an earthquake
hit Manila and the building sustained major damage.
PBA commenced an action for damages against UCCI claiming
that the collapse of the building was caused by defects in the
construction. UCCI filed a third-party complaint against the
NAKPILS, alleging that the collapse of the building was due to
the defects in the architects’ design.
The lower court ruled that while the damage sustained by the
PBA building was caused directly earthquake, they were also
caused by the defects in the design prepared by the Nakpils,
UCCI’s deviations from said design and its failure to observe
the requisite workmanship in the construction of the building.
Issue:
Whether or not an act of God-an unusually strong earthquake-
which caused the failure of the building, exempts from
liability, parties who are otherwise liable because of their
negligence.
Ruling:
YES. The Nakpils and UCCI are jointly and
severally liable. There is no dispute that the earthquake of
August 2, 1968 is a fortuitous event or an act of God. To exempt
the obligor from liability under Article 1174 of the Civil Code,
for a breach of an obligation due to an "act of God," the
following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b)
the event must be either unforeseeable or unavoidable; (c) the
event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the debtor
must be free from any participation in, or aggravation of the
injury to the creditor.
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The negligence of the defendant and the third-party
defendants was established beyond dispute both in the lower
court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications and to
have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of
supervision; while the third-party defendants were found to
have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the
defects in the construction and in the plans and specifications
were the proximate causes that rendered the PBA building
unable to withstand the earthquake. Therefore, the Nakpils
and UCCI are jointly and severally liable to pay damages to
PBA.
39. FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE
NETWORK INC., vs. SPOUSES CONRADO AND MARIA
VICTORIA RONQUILLO
G.R. No. 185798, January 13, 2014, PEREZ, J.
A real estate enterprise engaged in the pre-selling of condominium
units is concededly a master in projections on commodities and
currency movements and business risks. The fluctuating movement of
the Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.
Facts:
Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium
unit.
Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of ₱2,198,949.96 to
petitioners, respondents demanded a full refund of their
payment with interest. When their demands went unheeded,
respondents were constrained to file a Complaint for Refund
and Damages before the HLURB. Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total
amortization payments, ₱200,000.00 as and by way of moral
damages, attorney’s fees and other litigation expenses.
However, the petitioners attribute the delay to the 1997 Asian
financial crisis that befell the real estate industry. Invoking
Article 1174 of the New Civil Code, petitioners maintain that
they cannot be held liable for a fortuitous event.
HLURB, through Arbiter rendered judgment ordering
petitioners to jointly and severally pay respondents with
interest. The Arbiter considered petitioners’ failure to develop
the condominium project as a substantial breach of their
obligation which entitles respondents to seek for rescission
with payment of damages. The Arbiter also stated that mere
economic hardship is not an excuse for contractual and legal
delay.
Issue:
Whether or not the Asian financial crisis constitute a fortuitous
event which would justify delay by petitioners in the
performance of their contractual obligation.
Ruling:
NO.Notably, the issues had already been settled by the Court in
the case of Fil-Estate Properties, Inc. v. Spouses Go
promulgated on 17 August 2007, where the Court stated that
the Asian financial crisis is not an instance of caso fortuito. The
company likewise reneged on its obligation to respondents
therein by failing to develop the condominium project despite
substantial payment of the contract price. Fil-Estate advanced
the same argument that the 1997 Asian financial crisis is a
fortuitous event which justifies the delay of the construction
project. The Court cited the previous rulings that the Asian
financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that
petitioner apparently met with considerable difficulty e.g.
increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995.
However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on
commodities and currency movements and business risks. The
fluctuating movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and fluctuations
in currency exchange rates happen everyday, thus, not an
instance of caso fortuito.
40. KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE
and RAY STEVEN KHE,petitioners, vs.COURT OF APPEALS,
HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and
PHILAM INSURANCE CO., INC.,respondents. G.R. No 144169,
March 28, 2001, KAPUNAN,J.:
Facts: Petitioner is the owner of Butuan Shipping Line. In one
the vessels owned by the petitioner, Philippine Agricultural
Trading Corporation boarded 3,400 bags of copra to be shipped
from Masbate to Dipolog City and which said shipment of
copra was insured by PhilAm. While on board, the ship sank
amounting to total loss of the shipments. Because of the loss,
the insurer paid the damages to the consignee. Having
subrogated the rights of the consignee, PhilAm instituted a
civil case to recover the money paid to the consignee based on
breach of contract of carriage. While the case was pending,
petitioner executed deeds of donations of parcels of land to his
children. The trial court rendered judgment against the
petitioner Ke Hong Cheng in the civil case on December 29,
1993. After the decision became final a writ of execution was
issued but it was not served, Therefore an alias writ was was
applied for which was granted. The sheriff did not found any
property under Butuan Shipping Lines and/or Ke Hong Cheng.
In 1997, PhilAm filed complaint for annulling the deeds of
donation made by herein petitioner to his children and alleged
the donation was to defraud his creditors including PhilAm.
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Petitioner filed an answer stating that the action had already
prescribed.
Issue: Whether or not the action to rescind the donation had
already prescribed.
Held: According to the trial court, the period began from
December 29, 1993 when the civil case was resolved. Thus, The
CA maintained that, that the four year period began only on
January 1997, the time when it first learned that the judgment
award could not be satisfied because the Ke Hong Cheng had
no more properties in his name. Article 1389 of the Civil Code
simply provide that "The action to claim rescission must be
commenced within four years." When the law is silent as to
when the prescriptive shall commence, general rule must
apply that it will commence when the moment the action
accrues. An action for rescission must be the last resort of the
creditors and can only be availed after the creditor had
exhausted all the properties. The herein respondent came to
know only in January 1997 about the unlawful conveyances of
the petitioner when together with the sheriff and counsel were
to attach the property of the petitioner and it was then only
when they found out it is no longer in the name of the
petitioner. Since the respondent filed accion pauliana on
February 1997, a month after the discovery that petitioner had
no property in his name to satisfy the judgment, action for
rescission of subject deeds had not yet prescribed.
Held: No. The rescission required the existence of creditors at
the time of alleged fraudulent alienation, and this must be
proved as one of the bases of the judicial pronouncement
setting aside the contract. Without prior existing debt, there
can neither be injury nor fraud. While it is necessary that the
credit of the plaintiff in the accion pauliana must exist prior to
the fraudulent alienation, the date of the judgment enforcing it
is immaterial. Since LIMs indebtedness to SIGUAN was incurred
in August 1990, or a year after the execution of the Deed of
Donation, the first requirement of accion pauliana was not
met. Even assuming arguendo that petitioner became a
creditor of LIM prior to the celebration of the contract of
donation, still her action for rescission would not fare well
because the third requisite was not met. It is essential that the
party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim. SIGUAN
neither alleged nor proved that she did so. On his score, her
action for rescission of the questioned deed is not maintainable
even if the fraud charged actually did exist.

41. MARIA ANTONIA SIGUAN,petitioner, vs. ROSA LIM,

LINDE LIM, INGRID LIM and NEIL LIM,respondents. G.R. No.
134685 (November 19, 1999)
Contracts entered into in fraud of creditors may be rescinded only
when the creditors cannot in any manner collect the claims due to
them.

Facts:
On 25 and 26 August 1990, Rosa Lim (respondent, LIM) issued
two Metrobank checks to satisfy her debts to Maria Antonia
Siguan (petitioner, SIGUAN). Upon presentment by SIGUAN
with the drawee bank, the checks were dishonoured for the
reason account closed. Criminal case for violation of BP 22 was
filed by SIGUAN against LIM. On December 29 1992, RTC
convicted LIM as charged. The case is pending before this
Court for review. On August 10, 1989, LIM executed a Deed of
Donation in favour of her children, and the same was
registered with the Office of the Register of Deeds on July 2,
1991. June 23, 193, SIGUAN filed an accion pauliana against LIM
and her children, to rescind the questioned Deed of Donation
and to declare as null and void the new transfer certificates of
title.

Issue: Whether or not the questioned Deed of Donation was

made in fraud of petitioner and, therefore, rescissible.

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