ADDITIONAL DIGESTS FOR OBLICON

CASE
Sia v. CA

FACTS
The plaintiff rented on March 22, 1985 the Safety Deposit Box
No. 54 of the defendant bank at its Binondo Branch wherein he
placed his collection of stamps. The said safety deposit box
leased by the plaintiff was at the bottom or at the lowest level
of the safety deposit boxes of the defendant bank. During the
floods that took place, floodwater entered into the defendant
bank's premises, seeped into the safety deposit box leased by
the plaintiff and caused, according to the plaintiff, damage to his
stamps collection. Security Bank contended that its contract
with the Sia over safety deposit box was one of lease and not of
deposit and, therefore, governed by the lease agreement which
should be the applicable law; the destruction of the plaintiffs
stamps collection was due to a calamity beyond obligation on its
part to notify the plaintiff about the floodwaters that inundated
its premises at Binondo branch which allegedly seeped into the
safety deposit box leased to the plaintiff. The trial court
rendered in favor of plaintiff Sia and ordered SBTC to pay
damages. CA reversed RTC decision.

ISSUE
W/N
respondent
Security Bank
failed to
exercise the
required
diligence in
maintaining
the safety
deposit box

RP vs. Luzon

A barge (boat) owned by Luzon Stevedoring Corporation was

being towed along the Pasig river by tugboats owned by the
same corporation. The barge rammed against the Nagtahan
Bailey Bridge, smashing its posts and causing it to list. The river
was swollen and the current was swift due to heavy downpour
of rain in Manila and the surrounding provinces the previous
days. The Republic of the Philippines sued Luzon Stevedoring for
damages caused by its employees amounting to 200,000 pesos.
The defendant argued that the damages to the bridge were
caused by force majeure, but the trial court ruled in favor of the
Republic and ordered Luzon Stevedoring to pay for the actual
cost of the repair amounting to 192,000 pesos. Defendant then
appealed directly to the Supreme Court.

W/N the
collision of
Luzon
Stevedoring's
barge with
the supports
of the
Nagtahan
Bridge was
caused by a
fortuitous
event or force
majeure

NPC vs.
Philipp
Brothers

- NAPOCOR issued invitations to bid for the supply and delivery

of coal for its thermal power plant in Batangas and one of the
pre-qualified bidders was Philipp Brothers Oceanic Inc.
- Philipp Brothers bid was later accepted and the parties agreed
that the shipment of coal should arrive 30 calendar days after
the receipt of letter of credit by Philipp Brothers.
- When NAPOCOR sent a letter of credit to Philipp Brothers,
shipment arrived only about 3 months later and Philipp Brothers

Whether the
CA erred in
affirming
force majeure
for the
delivery of
the first
shipment and

RULING
Yes. As correctly held by the trial court, Security Bank was guilty of negligence. The banks
negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters inundated the room where the safe
deposit box was located. In view thereof, it should have lost no time in notifying the petitioner
in order that the box could have been opened to retrieve the stamps, thus saving the same
from further deterioration and loss. In this respect, it failed to exercise the reasonable care and
prudence expected of a good father of a family, thereby becoming a party to the aggravation of
the injury or loss.
Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent. Article
1170 of the Civil Code, which reads Those who in the performance of their obligation are
guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages is applicable. Although flooding may be considered a fortuitous
event, failure of the bank to give notice to the petitioner when his stamp collection was
reached by flood water as a result of the flooding into the vault depository of the bank makes it
liable for damages, the negligence on the part of SBTC caused to aggravate injury or damage to
the renter.
The provisions contended by Security Bank in the lease agreement which are meant to exempt
SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box
which may arise from its own agents fraud, negligence or
delay must be stricken down for being contrary to law and public policy.
No, the collision was not caused by a fortuitous event or force majeure. The Nagtahan bridge
was an immovable and stationary object provided with openings for the passage of water craft,
thus, it is undeniable that the unusual event that the barge rammed the bridge raises a
presumption of negligence on the part of its employees manning the barge or the tugs that
towed it. For in the ordinary course of events, such a thing would not have happened if proper
care was used. Luzon Stevedoring's defense that it had done all it was called to do by choosing
its most powerful boats, most competent men, and by double checking all the equipment, and
concluding thus, the damage must have been caused by a fortuitous event, cannot be
sustained. This is because by definition, fortuitous events or force majeure are events that
could not be foreseen, or though foreseen, were inevitable (Art. 1174 of CC). It is not enough
that the event should not have been foreseen, it must also be one impossible to foresee or to
avoid. Luzon Stevedoring voluntarily entered the swollen stream knowing the dangers that it
posed. It therefore assured the risk and cannot shed responsibility merely because the
precautions it adopted turned out insufficient. Hence, lower court was correct in holding it
negligent for not suspending operations and in holding it liable for damages caused.
- The Court first acknowledged that strikes are included in the definition of force majeure since
it is an event which takes place by accident and could not have been foreseen and by law and
by stipulation of the parties as per their agreement, Philipp Brothers is exempted from the
liability of the effects of the delay in delivery of the coal.
- The issue, however, is more about the damages awarded to Philipp Brothers for not being
pre-qualified to bid. As for this matter, the Court stressed that even considering force majeure
as the reason for the delay in the first shipment, which exempted Philipp Brothers from liability
does not mean NAPOCOR is bound under any contract to approve Philipp Brothers pre-

Medel vs. CA

justified this by using the industrial disputes and strike occurring

in Australia which hampered its ability to supply the needed
coal.
- NAPOCOR later advertised for suppliers to bid on supplying its
power plant and this time around Philipp Brothers was not prequalified. Philipp Brothers later found that the reason for this is
its delay in the delivery of the first shipment.
- Philipp Brothers then filed an action for damages against
NAPOCOR alleging malice and bad faith and asked for actual,
moral and exemplary damages.
- NAPOCOR averred that the strikes could not be used as an
excuse for the delay because the said strikes had ceased prior to
their sending the letter of credit to Philipp Brothers.
- The RTC rendered a decision in favor of Philipp Brothers and
awarded actual, moral, exemplary and litigation costs and this
was later affirmed by the CA.
- Hence the present petition for review by NAPOCOR.

awarding
damages
actual, moral
and
exemplary
damages.

Spouses Medel (plaintiff) obtained a loan 4 times from Veronica

Gonzales (defendant) of Gonzales Credit Enterprises. Eventually,
their loan reached a total of 500,000. They then executed a
promissory note in favor of Gonzales to pay the sum of 500,
000.00 with a 5.5% interest per month plus 2% service charge
per annum, with an additional amount of 1% per month as
penalty charges.

WON the
stipulated
5.5% interest
rate per
month on the
loan in the
sum of P500,
000.00 is
usurious

They were then again unable to pay which prompted Gonzales

to filed a complaint at the RTC for the collection of the loan. The
RTC ruled that although the Usury Law had been repealed, the
interest charged on the loans was unconscionable and
revolting to the conscience and ordered the payment of the
amount of the first 3 loans with a 12% interest per annum and
1% per month as penalty.

Santiago vs.
Millar

On appeal to the CA, Gonzales argued that the promissory note,

which consolidated all the unpaid loans of the defendants, is the
law that governs the parties. The CA agreed with Gonzales and
ordered the payment in accordance with the original
agreement. Defendants filed the present case via petition for
review on certiorari
Defendant Millar was at the time the general manager of the
Philippine Charity Sweepstake Office. Santiago purchased from
the treasurer of PCSO ten booklets of tickets for a sweepstakes
draw and race. One of the tickets was the winning ticket with a
prize of P941.18. There was a condition that prizes of tickets
sold locally will be paid to holder of ticket upon surrender of
same. Before the sweepstakes draw though, Carmen Garcia, an

qualification for subsequent biddings as it expressly reserved its right to reject bids.
- The Court held that when the right to reject is reserved, any bid may be rejected on a mere
technicality and further held that NAPOCOR acted in good faith as its basis for disapproving
Philipp Brothers application for pre-qualification to bid was without any intent to injure. It was
based on its strong conviction that Philipp Brothers had a seriously impaired track record.
- The Court also held that the awarding of actual damages was erroneous because even if
Philipp Brothers was allowed to participate in the bidding there was no guarantee it would win
the bidding, hence, the computed unearned profits of Philipp Brothers was speculative.
- The Court also held that the awarding of moral damages was erroneous as it has already been
established that NAPOCOR did not act in bad faith, and the general rule is that corporations are
not awarded moral damages for it cannot experience mental anguish or physical suffering.
- The Court also held that the awarding of exemplary damages was erroneous as the Civil Code
requires that before exemplary damages can be awarded, the plaintiff must show that he is
entitled to moral, temperate or compensatory damages.
- The Court also held that the awarding of reimbursement for litigation expenses was
erroneous as it is required that a winning party must first show that the defendants stand is so
untenable as to amount to gross and evident bad faith which is not the case here. -- - Decision
of CA is modified, award of actual, moral, exemplary damages as well as reimbursement for
litigation and attorneys fees are deleted.
No, it is not usurious. A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan
is excessive, iniquitous, unconscionable and exorbitant, but it cannot be considered usurious
because Central Bank Circular No. 905 has expressly removed the interest ceilings prescribed
by the Usury Law and that the Usury Law is now legally inexistent.
Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury Law but
simply suspended the latters effectivity. Interest can now be charged as lender and borrower
may agree upon. However, the interest of 5.5% a month or 66% perineum is unconscionable,
contrary to moral and thus this stipulation is VOID.
The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable. We agree with the trial court that, under the
circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.

W/N PCSO
should pay
Santiago prize
money
(P470.59)
even without
the required

No. PCSO does not need to pay Santiago the money. The contract is aleatory in nature (Art.
1790 Civil Code) and the contracting parties may establish any agreements, terms, and
conditions they may deem advisable, provided that they are not contrary to law, morals, or
public order. Obligations arising from contracts have the force of law between the contracting
parties (Art 1091). As the ticket bears the notation prizes of tickets sold locally will be paid to
holder of ticket upon surrender of same, PCSO is under no obligation to pay Santiago if he is
not able to present the required ticket.

Patente vs.
Omega

Gaite vs.
Fonacier

employee of the National Drug Store, bought two units (or onehalf) of the ticket from the plaintiff. She later presented them to
the plaintiff on his birthday. Thereafter, the plaintiff lost the two
units of the winning ticket. Defendant received notice from
plaintiff's attorney regarding the loss. On the same day, the
plaintiff filed the present complaint to CFI-Manila praying for
issuance of writ of preliminary injuction to restrain defendant
from paying the prize of the two lost units to any person until
further order of court. Plaintiff also sought judicial declaration
that he is the owner of the said units and is solely entitled to the
prize of P470.59 The defendant produced no evidence and
relied on the answer that the surrender of the ticket was a
condition to the payment of the prize to the holder of the ticket.
CFI-Manila rendered judgment ordering PCSO manager Millar to
pay Santiago the P470.59.
In Omega's promissory note to Patente, Omega was set to pay
his indebtedness to Patente which amounted to 1,600 pesos AS
SOON AS POSSIBLE or AS SOON AS HE HAS THE MONEY. The trial
court ruled that the obligation is pure and unconditional since
the fulfillment of the condition was left solely to the will of the
debtor-defendant, and thus, a nullity pursuant to Art. 1115 of
the CC. (Art. 1182 of the New CC). Hence, this appeal.

Fonacier was the owner/holder of 11 iron lode mineral claims,

known as the Dawahan Group in Camarines Norte. He
appointed Gaite as attorney-in-fact to enter into contract for the
exploration and development of the said mining claims. Later
on, Gaite executed a general assignment conveying the claims
into the Larap Iron Mines, owned by him and had embarked
upon the development and exploitation of the mining claims,
estimated approximately 24 metric tons of iron ore. For some
reason, Fonacier decided to revoke the authority given to Gaite
subject to certain conditions. A Revocation of Power of
Attorney and Contract was executed, one of which is that, the
payment of the balance of P65,000.00 was to be paid from the
first letter of credit for the first local sale of the iron ores. To
secure payment, Fonacier delivered a surety bond with himself
as principal, the Larap Mines and Smelting Co. and its
stockholders as sureties. But this was refused by Gaite. A second
bond was then produced with Far Eastern Surety as an

ticket units.

W/N a
condition in
an obligation
which is
nullified due
to the fact
that its
compliance is
left to the
sole will of
the debtor,
make the
obligation a
pure and
unconditional
obligation
W/N the
obligation of
Fonacier to
pay Gaite the
balance of
P65,000.00 is
one with a
period or
term and not
one with a
suspensive
condition

No, it does not make it a pure and unconditional obligation. The original intention was to grant
the debtor a deadline for the payment, to make it a pure and unconditional obligation is to
impose a completely different approach than agreed upon. To leave the condition of the
payment at the sole discretion of the creditor is as unfair as to leave it at the sole discretion of
the debtor. A third party must determine the period, taking into account the circumstances
under which the loan was granted. Thus, when the time for payment of an obligation is left to
the sole will of the debtor, and the condition is annulled, the obligation does not become a
pure and unconditional obligation. The recourse of the creditor is to go to court and ask for
setting a time limit for the payment. Appealed decision is reversed.

Yes, the obligation of Fonacier was one with a term, and not a suspensive condition.
The shipment or sale of the iron ore is not a condition or suspensive to the payment of the
balance of P65,000.00, but was ONLY a suspensive period or term. It was intended MERELY to
fix the future date of the payment. There is no merit that Gaites acceptance of the surety
company's bond with full knowledge that on its face it would automatically expire within one
year, was a waiver of its renewal after the expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain barely. It is NOT a conditional
obligation because in a conditional obligation, the obligatory force is subordinated to the
happening of a future and uncertain event; so that if the event does not take place, the parties
would stand as if the conditional obligation never existed. IT IS CERTAIN that the payment will
be made. What is uncertain is the exact date at which it will be made. Nothing is found in the
contract that Gaite assumed to run a risk of losing his right over the ore without getting paid for
it. This is proved by the fact that Gaite insisted on a bond to guarantee the payment of
P65,000.00.

Javier vs.
Court of
Appeals

additional surety, provided the liability of Far Eastern would only

prosper when there had been an actual sale of the iron ores of
not less than the agreed amount of P65,000.00, and that, the
liability of said surety company would AUTOMATICALLY expire
on December 8, 1955. The second bond had expired and no sale
amounting to the stipulation as prior agreed nor had the
balance been paid to Gaite. This prompted petitioner to file a
complaint in the CFI of Manila for the payment of the balance
and other damages. The trial court ruled in favor of Gaite, hence
this appeal.
Respondent Tiro was a holder of a timber license issued by the
Bureau of Forestry covering hectares of land in Misamis
Oriental.
Tiro executed a Deed of Assignment transferring his shares of
stocks in Timberwealth Corporation to the Javier spouses.
The parties entered into another agreement with the promise
that whatever additional rights Tiro might acquire over a forest
concession which was pending approval by the government will
be transferred to Timberwealth Corporation and eventually to
the Javier couple as the new stockholders.

ISSUE: W/N
the
agreement is
null and void
due to nonfulfillment of
its
conditions?

YES. When a contract is subject to a suspensive condition, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or is fulfilled.
If the suspensive condition, such as in this case, does not take place, the parties would stand as
if the conditional obligation never existed.
The efficacy of the said agreement hinges on the condition that the application of Tiro for an
additional area of concession be approved by the BOF but since he did not obtain such
approval, the deed produces no effect.
The said agreement in this case is a bilateral contract which gave rise to reciprocal oligations,
that is the obligation of Tiro to transfer his rights over the concession once approved by the
BOF to the petitioners and on the other hand, the petitioners to pay 30,000. The demandability
of the obligation of one depends upon the fulfillment of the other. Tiros non fulfillment of his
end of the deal negates his right to demand from the Javiers.

In the agreement, it was further stipulated that as soon as the

lands are acquired, the couple would have to pay Tiro 30,000
php which will form part of their capital stock.
Tiros concession was however denied as the subject land area
was to small. The government further advised for Tiro to join
other corporations applying for licenses to reach the minimum
land area requirement.
But since the Javier couple is now the new timber license
holders by virtue of the deed of assignment, the Javiers took on
the task of consolidating their concessions with other license
holders.
Meanwhile, due to the failure of the couple to pay their balance
under the two agreements executed, Tiro filed an action against
them.

Luneta
Motor vs.
Abad

The lower court dismissed Tiros complaint but was later on

reversed by the Court of Appeals, favoring Tiro. The petitioners
now hold that CA erred in their decision, as the contract
between them and Tiro is deemed null and void.
Luneta Motor filed a suit against Abad, and asked for a writ to
attach Abads properties. The writ was granted, but Abad asked
for its cancellation, and for this purpose offered a bond, secured

Are Abads
sureties still
bound?

No more, because Luneta Motor can never win, the case having been dismissed. The condition
has become a legal impossibility.

Labayan vs.
Talisay

by two sureties. The bond contained a statement that in case

Luneta Motor should WIN, the sureties would answer for Abads
liability. Because of this bond, the writ was dissolved. Later,
Luneta Motor lost the case, it having been dismissed since Abad
died.
Plaintiff Labayen, owner of Hacienda Dos Hermanos of Talisay,
Negros Occidental, entered into a contract to grind sugar (same
as that entered by the milling company and other planters) with
Talisay-Silay Milling Inc. Co.
In the contract, the milling company is obliged to build a
permanent railroad and cause the main line to reach the point
of the plantation to be hereafter described not farther than one
mile from the boundaries of said plantation, whenever the
contour of the land, the curves, and elevations permit the same.
In case inability to secure, under reasonable conditions such
rights-of-way (for the railroad) it shall notify the Committee of
Producers and without incurring any liability for the nonfulfillment of the terms of this contract. On the other hand,
Labayen is bound to deliver the cane.

Spouses
Fernando vs.
Continental
Airlines

However, the milling company did not continue its railroad

through to the Hacienda Dos Hermanos because although it was
possible to construct a railroad, to do so would be very
dangerous. Labayen filed for breach of contract but the the
milling company was absolved by the lower court.
Spouses Fernando and Lourdes Viloria purchased two round trip
tickets (San Diego, CA to Newark, NJ) for US$800.00 from
Holiday Travel after travel agent Margaret Mager informed
them that were no available seats at Amtrak, an intercity
passenger train service. Later however the spouses found out
that there are seats available and they can travel on Amtrak
anytime and any day they pleased so Fernando purchased two
train tickets for Washington, D.C. Fernando confronted Mager
with the Amtrak tickets and demanded for a refund for the
Continental Air tickets which Fernando claimed that Mager
misled him into buying by misrepresenting that the Amtrak was
already fully booked. Mager was firm in her position that the
subject tickets are non-refundable. Fernando sent a letter to
Contintal Airlines Inc. (CAI) which in turn denied the request for
a refund but advised him to take the subject tickets to any of
their ticketing location for re-issuance of new tickets within 2
years from the date of original issued and that the tickets may
be used as a form of payment for another Continental ticket.
Fernando wanted to use the tickets for a single roundtrip ticket
to LA under his name but was informed that Lourdes ticket was
non-transferable and that a roundtrip LA ticket costs
US$1,867.40 so he would have to pay the remaining balance. In

W/N the
milling
company is
liable for
breach of
contract

No.
1. Although the general rule is that - If a party charges himself with an obligation possible to be
performed, he must abide by it unless performance is rendered impossible by the act of God,
the law, or the other party. In this case, it was a general contract of the form used by the
central and various proprietors of sugar-cane fields. It was intended to be limited in particular
application to haciendas where not impeded by physical impossibility. The contract was
qualified by an implied condition which, if given practical effect, results in absolving the central
from its promise. Not to sanction an exception to the general rule would run counter to public
policy and the law by forcing the performance of a contract undesirable and harmful.
2. Also, the milling company was unable to obtain the rights of way necessary for the
construction of the railroad (contract says that in case of inability to acquire rights of way,
company shall not incur liability).
(Please refer to Pineda's digest p.96 - this might be what Sir wants to hear. I didn't see anything
in the original that says that obligor prevented the happening of the condition. It was not
Labayen who did not give right of way but Esteban dela Rama.)

W/N Contract
of sale can be
rescinded

No. The right to rescind a contract for non-performance of its stipulations is not absolute. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental violations as would defeat the very object of the
parties in making the agreement.

Side issue:
Can CAI insist
on the nontransferability
of the
tickets? - NO
because the
prohibition
on
transferability
is not written
on the face of
the subject
tickets and
CAI failed to
inform
Spouses

CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for a new ticket
(which is unjustified. See side issue) cannot be considered substantial. CAI was willing to
comply with its undertaking of re-issuing new tickets to the spouses albeit tainted with the
erroneous insistence that Lourdes ticket is non-transferable. On the other hand, the spouses
have no right to insist that the roundtrip ticket must be $856.00 and refuse to pay the
difference between the price of the subject tickets and the price fixed by CAI.
Both parties were equally in default; hence, none of them can seek judicial redress for the
cancellation or resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. Therefore, CAIs liability for damages for its refusal to accept
Lourdes ticket for the purchase of Fernandos round trip ticket is offset by Spouses Vilorias
liability for their refusal to pay the amount, which is not covered by the subject tickets.
Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets
for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and
Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject
tickets.

another letter, Fernando demanded for the refund of the

subject tickets as he no longer wished to have them replaced.

Viloria

PETITIONER: CAI acted in bad faith when it required them to pay

a higher amount for a round trip ticket to LA considering CAIs
undertaking to re-issue new tickets and that other airlines cost
lower (at US$856 only)

FF Cruz vs.
HR
Construction

RESPONDENT: Spouses Vilorias allegation of bad faith is

negated by its willingness to issue new tickets to them and to
credit the value of the subject tickets against the value of the
new ticket Fernando requested and that the Spouses sole basis
to claim that the price at which CAI was willing to issue the new
tickets is unconscionable is a piece of hearsay evidence an
advertisement appearing on a newspaper
2004 F.F. Cruz & Co., Inc. (FFCCI) entered into a contract with
the Department of Public Works and Highways (DPWH) for the
construction of the Magsayay Viaduct known as the Lower
Agusan Development Project.
FFCCI entered into a Subcontract Agreement with HR
Construction Corporation (HRCC) to supply the materials, labor,
equipment, tools and supervision for the construction of a
portion of the said project.
Pursuant to the Subcontract Agreement, HRCC would submit to
FFCCI a monthly progress billing with would be eventually be
paid for by FFCCI within 30 days of receipt.
The parties agreed that the requests of HRCC for payment
should include progress accomplishment of its completed works
as approved by FFCCI.
FFCCI did not pay HRCC for the second and third billing report
despite their constant demand and reminders. This eventually
led to the stoppage of the construction after the Christmas
break at the end of the year (2004).
Case was brought to the Construction Industry Arbitration
Commission (CIAC) and eventually to the Court of Appeals, both
decided in favor of HRCC, stating the their work stoppage was
justified.

W/N HRCC
has the right
to extrajudicially
rescind from
the
Subcontract
Agreement.

No. The right to rescind reciprocal obligations is implied, meaning that such right need not to
be expressly provided in the contract.
However, the HRCC had no right to rescind from the Subcontract Agreement in the form of
work stoppage.
Despite the existence of dispute between the parties, HRCC agreed to continue the
performance of its obligations pursuant to the Subcontract Agreement (11.2 Effects of Disputes
and Continuing Obligations). The said provision effectively waives it right to extrajudicial
rescission of its contract with FFCCI).
Considering that the work stoppage was not justified, court ruled that the burden of the cost of
arbitration should be shared equally.