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G.R. Nos.


March 9, 2011

PAULINO S. ASILO, JR., Petitioner,

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G.R. No. 159059
BOMBASI, Respondents.
Private Respondent Visitacions late mother Marciana
Vda. De Coronado (Vda. De Coronado) and the
Municipality of Nagcarlan, Laguna entered into a lease
contract whereby the Municipality allowed the use and
enjoyment of property comprising of a lot and a store
in favor of the respondents mother for twenty years,
extendible for another 20 years. The lease contract
provided that the late Vda. De Coronado could build a
firewall on her rented property which must be at least
as high as the store; and in case of modification of the
public market, she or her heir/s would be given
preferential rights. Visitacion took over the store when
her mother died Visitacion secured the yearly Mayors
A fire razed the public market of Nagcarlan. Upon
Visitacions request for inspection, District Engineer
Gorospe of the then Ministry of Public Works and
Highways, found that the store of Visitacion remained
intact and stood strong. This finding of Engineer
Gorospe was contested by the Municipality of
Nagcarlan. The store of Visitacion continued to operate
after the fire.
The Sangguniang Bayan of Nagcarlan, Laguna issued
Resolution No. 183 authorizing Mayor Comendador to
demolish the store being occupied by Visitacion using
legal means. Mayor Comendador relying on the
strength of Sangguniang Bayan Resolution Nos. 183
and 156 authorized the demolition of the store with
Asilo and Angeles supervising the work.
Visitacion, filed with a case for damages before the
RTC. Spouses Bombasi, thereafter, filed a criminal
complaint21 against Mayor Comendador, Asilo and
Angeles for violation of Sec. 3(e) of Republic Act No.
3019 otherwise known as the "Anti-Graft and Corrupt
Practices Act" before the Office of the Ombudsman.
Sandiganbayan rendered a decision, finding the

accused Demetrio T. Comendador and Paulino S. Asilo,

Jr. guilty beyond reasonable doubt of violation of Sec.
3(e) of Republic Act. No. 3019.
The counsel for the late Mayor also filed its Motion for
Reconsideration alleging that the death of the late
Mayor had totally extinguished both his criminal and
civil liability. The Sandiganbayan granted the extinction
of the criminal liability is concerned and denied the
extinction of the civil liability holding that the civil
action is an independent civil action.
Hence, these Petitions for Review on Certiorari.

WON the accused is guilty of violating RA 3019


WON the actual damages prayed for is



The Supreme Court sustain the

Sandiganbayan in its finding of criminal
and civil liabilities against petitioner Asilo
and petitioner Mayor Comendador.

The elements of the offense are as follows: (1) that the

accused are public officers or private persons charged
in conspiracy with them; (2) that said public officers
commit the prohibited acts during the performance of
their official duties or in relation to their public
positions; (3) that they caused undue injury to any
party, whether the Government or a private party;
(4) OR that such injury is caused by giving unwarranted
benefits, advantage or preference to the other party;
and (5) that the public officers have acted with
manifest partiality, evident bad faithor gross
inexcusable negligence.
Clearly, the demolition of plaintiffs store was carried
out without a court order, and notwithstanding a
restraining order which the plaintiff was able to obtain.
The demolition was done in the exercise of official
duties which apparently was attended by evident bad
faith, manifest partiality or gross inexcusable
negligence as there is nothing in the two (2)
resolutions which gave the herein accused the
authority to demolish plaintiffs store.
The accused public officials were devoid of any power
to demolish the store. A closer look at the contested
resolutions reveals that Mayor Comendador was only
authorized to file an unlawful detainer case in case of
resistance to obey the order or to demolish the building
using legal means. Clearly, the act of demolition
without legal order in this case was not among those
provided by the resolutions, as indeed, it is a legally
impossible provision.


The amount of actual damages prayed for

is unconscionable.

To seek recovery of actual damages, it is necessary to

prove the actual amount of loss with a reasonable
degree of certainty, premised upon competent proof
and on the best evidence obtainable. n this case, the
Court finds that the only evidence presented to prove
the actual damages incurred was the itemized list of
damaged and lost itemsprepared by Engineer Cabrega,
an engineer commissioned by the Spouses Bombasi to
estimate the costs.
The amount claimed by the respondent-claimants
witness as to the actual amount of damages "should be
admitted with extreme caution considering that,
because it was a bare assertion, it should be supported
by independent evidence." Whatever claim the
respondent witness would allege must be appreciated
in consideration of his particular self-interest. There
must still be a need for the examination of the
documentary evidence presented by the claimants to
support its claim with regard to the actual amount of
damages. The price quotation made by Engineer
Cabrega presented as an exhibit partakes of the nature
of hearsay evidence considering that the person who
issued them was not presented as a witness.
a. Mendoza v. Sps. Gomez G.R. No. 160110 June 18,
FACTS: On 7 March 1997, an Isuzu Elf truck (Isuzu
truck) with plate number UAW 582, owned by
respondent Leonora J. Gomez (Leonora) and driven by
Antenojenes Perez (Perez), was hit by a Mayamy
Transportation bus (Mayamy bus) with temporary plate
number 1376-1280, registered under the name of
petitioner Elvira Lim (Lim) and driven by petitioner
Mariano C. Mendoza (Mendoza).
Owing to the incident, an Information for reckless
imprudence resulting in damage to property and
multiple physical injuries was filed against Mendoza.
Mendoza, however, eluded arrest, thus, respondents
filed a separate complaint for damages against
Mendoza and Lim, seeking actual damages,
compensation for lost income, moral damages,
exemplary damages, attorneys fees and costs of the
As a result of the incident, Perez,as well as the helpers
on board the Isuzu truck, namely Melchor V. Anla
(Anla), Romeo J. Banca (Banca), and Jimmy Repisada
(Repisada), sustained injuries necessitating medical
treatment amounting to P11,267.35,which amount was
shouldered by respondents. Moreover, the Isuzu truck
sustained extensive damages on its cowl, chassis,
lights and steering wheel, amounting to

Additionally, respondents averred that the mishap

deprived them of a daily income of P1,000.00. Engaged
in the business of buying plastic scraps and delivering
them to recycling plants, respondents claimed that the
Isuzu truck was vital in the furtherance of their

WON moral damages should be awarded in spite of the
fact that the respondents cause of action is
clearlybased on quasi-delict and the respondents did
not sustain physical injuries to be entitled under Art.
2219 (2), Civil Code.

The petition is partially meritorious.
Respondents anchor their claim for damages on
Mendozas negligence, banking on Article 2176 of the
Civil Code, to wit:
Whoever 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 called a quasi-delict and is governed by
the provisions of this Chapter.
In impleading Lim, on the other hand, respondents
invoke the latters vicarious liability as espoused in
Article 2180 of the same Code:
The obligation imposed by Article 2176 is demandable
not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business of industry.
WHEREFORE, premises considered, the Court Resolves
to PARTIALLY GRANT the appeal by certiorari.

Guanio v. Makati Shangri-la G.R. No. 190601

February 7, 2011

FACTS: Spouses, Luigi M. Guanio and Anna HernandezGuanio, booked respondent Makati Shangri-La Hotel for
their wedding reception. However, during the wedding
itself and even during the initial food tasting they
encountered unsatisfactory service from the
employees of the hotel. In that regard, the Guanio
spouses sent a letter-complaint to Makati Shangri-La
wherein the latter responded with an apology. Despite
that, the Guanio spouses still filed a Complaint for

breach of contract to the Regional Trial Court of Makati

City. The Guanio spouses contend that the apology is
an admission of the bad service the hotel has rendered
to them. On the other hand, Makati Shangri-La denies
it stating that their apology is only a standard followed
by their employees to express empathy in reference to
the inconvenience experienced by their dissatisfied
ISSUE: Whether or not the apology letter made by
Makati Shangri-La is considered as an admission of
breach of contract
RULING: Yes, on the Court, the foregoing explanation of
the hotels Banquet Director overcomes any
presumption of admission of breach which Svenssons
letter might have conveyed.
The exculpatory clause notwithstanding, the Court
notes that respondent could have managed the
situation better, it being held in high esteem in the
hotel and service industry. Given respondents vast
experience, it is safe to presume that this is not its first
encounter with booked events exceeding the
guaranteed cover. It is not audacious to expect that
certain measures have been placed in case this
predicament crops up. That regardless of these
measures, respondent still received complaints as in
the present case, does not amuse.
Respondent admitted that three hotel functions
coincided with petitioners reception. To the Court, the
delay in service might have been avoided or minimized
if respondent exercised prescience in scheduling
events. No less than quality service should be
delivered especially in events which possibility of
repetition is close to nil. Petitioners are not expected to
get married twice in their lifetimes.
What applies in the present case is Article 1170 of the
Civil Code which reads: Art. 1170. Those who in the
performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
RCPI v. Verchez, et al. enlightens: In culpa contractual x
x x the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to
be set free from liability for any kind of
misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause
for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests
of the promissee that may include his expectation
interest , which is his interest in having the benefit of
his bargain by being put in as good a position as he
would have been in had the contract been performed,
or his reliance interest ,which is his interest in being

reimbursed for loss caused by reliance on the contract

by being put in as good a position as he would have
been in had the contract not been made; or
hisrestitution interest, which is his interest in having
restored to him any benefit that he has conferred on
the other party. Indeed, agreements can accomplish
little, either for their makers or for society, unless they
are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make
RECOMPENSE to the one who has been injured by the
failure of another to observe his contractual obligation
unless he can show extenuating circumstances, like
proof of his exercise of due diligence or of the
attendance of fortuitous event to excuse him from his
ensuing liability.

b. SSS v. Moonwalk G.R. No. 733345 April 7, 1993

FACTS: SSS approved the application of Moonwalk for a

loan of P30,000,000 for the purpose of developing and
constructing a housing project. Out of P30,000,000
approved loan, the sum of P9,595,000 was released to
Moonwalk. A third Amendment Deed of Mortgage was
executed for the payment of the amount of
P9,595,000. Moonwalk made a total payment of
P23,657,901.84 to SSS for the loan principal of
P12,254,700. After settlement of the account, SSS
issued to Moonwalk the release of Moonwalks
mortgaged properties. In letter to Moonwalk, SSS
alleged that it committed an honest mistake in
releasing the latter as it has still 12% penalty for failure
to pay on time the amortization which is in the penal
clause of the contract. Moonwalk defended that it had
completely paid its
obligation to SSS and therefore there is no recovery of
any penalty.

ISSUE: Whether or not the penalty is demandable even

after the extinguishment of the principal obligation

HELD: No. There has been a waiver of the penal clause

as it was not demanded before the full obligation was
fully paid and extinguished. Default begins from the
moment the creditor demands the performance of the
obligation. In this case, although there were late
amortizations there was no demand made by SSS for
the payment of the penalty hence Moonwalk is not in
delay in the payment of the penalty. No delay occurred
and there was no occasion when the penalty became
demandable and enforceable. Since there was no

default in the performance of the main obligationpayment of the loan- SSS was never entitled to recover
any penalty. If the demand for the payment of the
penalty was made prior to the extinguishment of the
obligation, Moonwalk would be in delay and therefore
liable for the penalty.

c. Santos Ventura v. Santos G.R. No. 153004 November

4, 2004

Ernesto V. Santos and Santos Ventura Hocorma
Foundation, Inc. (SVHFI) were plaintiff and defendant,
respectively, in several civil cases. On October 26,
1990, the parties executed a Compromise Agreement
wherein Foundation shall pay Santos P14.5 Million in
the following manner:
a. P1.5 Million immediately upon the execution of this
agreement; and
b. The balance of P13 Million shall be paid, whether in
lump sum or in installments, at thediscretion of the
Foundation, within a period of not more than two (2)
years from the execution of thisagreement.
In compliance, Santos moved for the dismissal of the
cases, while SVHFI paid the initial P1.5 million. After
several demands, SVHFI failed to pay the balance of
P13 million, prompting Santos to apply for the issuance
of a writ of execution of the compromise judgment of
the RTC dated September 30, 1991.
Twice, SVHFIs properties were auctioned and sold to
Riverland, Inc.
On June 2, 1995, Santos and Riverland Inc. filed a
Complaint for Declaratory Relief and Damages alleging
delay on the part of SVHFI in paying the balance. They
further alleged that under the Compromise Agreement,
the obligation became due on October26, 1992, but
payment of the remaining balance was effected only
on November 22, 1994. Thus, respondents prayed that
petitioner be ordered to pay legal interest on the
obligation, penalty, attorney's fees and costs of
litigation. SVHFI alleged that the legal interest on
account of fault or delay was not due and payable,
considering that the obligation had been superseded
by the compromise agreement. Moreover, SVHFI
argued that absent a stipulation, Santos must ask for
judicial intervention for purposes of fixing the period.




YES. SVHFI is liable for legal interest as penalty on

account of delay. The Compromise Agreement was
entered into on October 26, 1990.

It was judicially approved on September30, 1991.

Applying existing jurisprudence, the compromise
agreement as a consensual contract became binding
between the parties upon its execution and not upon
its court approval. Hence, the two-year period should
have begun on October 26, 1990. In this case, there
was non-fulfillment of the obligation with respect to

The requisites of mora were all met:

that the obligation be demandable and already
liquidated the two-year period already lapsed and
the amount of payment was already determined;
that the debtor delays performance SVHFI
paid the balance beyond the two-year period; and
that the creditor requires the performance
judicially or extra-judicially a demand letter was sent
in accordance with the extra-judicial demand as
contemplated by law. When the debtor knows the
amount and period when he is to pay, interest as
damages is generally allowed as a matter of right. The
legal interest for loan as forbearance of money is 12%
per annum to be computed from the time the demand
was made under the provisions of Article 1169 of the
Civil Code.

WHEREFORE, the petition is DENIED for lack of merit.

The Decision dated January 30, 2002 of the Court of
Appeals and its April 12, 2002 Resolution in CA-G.R. CV
No. 55122 are AFFIRMED. Costs againstpetitioner.SO

d. Pantaleon v. American Express G.R. No. 174269

August 25, 2010

On October of 1991 Polo Pantaleon with his family
joined an escorted tour of Western Europe organized by
Trafalgar Tours of Europe in October of 1991. Upon
arriving in Amsterdam, second to the last day of the
tour, the group failed to engage in sight-seeing, but
agreed to do so the following day.
The following day, the last day of the tour, the group
arrived at the Coster Diamond House
in Amsterdam around 10 minutes before 9:00
a.m. While in the showroom, Mrs. Pantaleon selected a
2.5 karat diamond pendant and chain, all of which
totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his
American Express credit card together with his
passport to the Coster sales clerk. The sales clerk took
the cards imprint, and asked Pantaleon to sign the
charge slip. The charge purchase was then referred
electronically to respondents Amsterdam office at 9:20
Ten minutes later, the store clerk informed Pantaleon
that his AmexCard had not yet been approved. After
his son went and informed their departure, the store
manager though asked plaintiff to wait a few more
minutes. After 15 minutes, the store manager informed
Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his
depositary banks, then instructed his daughter to
return to the bus and apologize to the tour group for
the delay.
45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was
supposed to have left the store, Coster decided to
release the items even without respondents approval
of the purchase. The spouses Pantaleon returned to the
bus. It is alleged that their offers of apology were met
by their tourmates with stony silence.
After the star-crossed tour had ended, the Pantaleon
family proceeded to the United States before returning
to Manila on 12 November 1992. While in the United
States, Pantaleon continued to use his AmEx card,
several times without hassle or delay, but with two
other incidents similar to the Amsterdam brouhaha.
On 30 October 1991, Pantaleon purchased golf
equipment amounting to US $1,475.00 using his AmEx
card, but he cancelled his credit card purchase and
borrowed money instead from a friend, after more than
30 minutes had transpired without the purchase having
been approved. On 3 November 1991, Pantaleon used
the card to purchase childrens shoes worth $87.00 at a
store in Boston, and it took 20 minutes before this
transaction was approved by respondent.

After arriving in Manila, Pantaleon sent a letter through

counsel to the respondent, demanding an apology for
the inconvenience, humiliation and embarrassment he
and his family thereby suffered for respondents refusal
to provide credit authorization for the aforementioned
purchases. In response, respondent states that the
delay was attributable to the circumstance that the
charged purchase of US $13,826.00 was out of the
usual charge purchase pattern established. Aggrieved
with the response, Petitioner filed for damages before
the Regional Trial court of Makati City.

Whether or not American Express committed a breach
of contract.

Yes. The findings of the trial court, to our mind, amply
established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster
did constitute culpable delay on its part in complying
with its obligation to act promptly on its customers
purchase request, whether such action be favorable or
The culpable failure of respondent herein is not the
failure to timely approve petitioners purchase, but the
more elemental failure to timely act on the same,
whether favorably or unfavorably. Even assuming that
respondents credit authorizers did not have sufficient
basis on hand to make a judgment, we see no reason
why respondent could not have promptly informed
petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In
that way, petitioner would have had informed basis on
whether or not to pursue the transaction at Coster,
given the attending circumstances. Instead, petitioner
was left uncomfortably dangling in the chilly autumn
winds in a foreign land and soon forced to confront the
wrath of foreign folk.
It should be emphasized that the reason why petitioner
is entitled to damages is not simply because
respondent incurred delay, but because the delay, for
which culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the Civil Code
for which moral damages are remunerative. Moral
damages do not avail to soothe the plaints of the
simply impatient, so this decision should not be cause
for relief for those who time the length of their credit
card transactions with a stopwatch. The somewhat
unusual attending circumstances to the purchase at
Coster that there was a deadline for the completion of
that purchase by petitioner before any delay would
redound to the injury of his several traveling

companions gave rise to the moral shock, mental

anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded
by the RTC. Those circumstances are fairly unusual,
and should not give rise to a general entitlement for
damages under a more mundane set of facts.

e. Barzaga v. Court of Appeals G.R. No. 115129

February 12, 1997

FACTS: The petitioners wife was suffering from a

debilitating ailment and with forewarning of her
impending death, she expressed her wish to be laid to
rest before Christmas day to spare her family of the
long vigils as it was almost Christmas. After his wife
passed away, petitioner bought materials from herein
private respondents for the construction of her niche.
Private respondents however failed to deliver on
agreed time and date despite repeated follow-ups. The
niche was completed in the afternoon of the 27th of
December, and Barzaga's wife was finally laid to rest.
However, it was two-and-a-half (2-1/2) days behind

ISSUE: Was there delay in the performance of the

private respondent's obligation?
HELD: Yes. Since the respondent was negligent and
incurred delay in the performance of his contractual
obligations, the petitioner is entitled to be indemnified
for the damage he suffered as a consequence of the
delay or contractual breach. There was a specific time
agreed upon for the delivery of the materials to the
This is clearly a case of non-performance of a
reciprocal obligation, as in the contract of purchase
and sale, the petitioner had already done his part,
which is the payment of the price. It was incumbent
upon respondent to immediately fulfill his obligation to
deliver the goods otherwise delay would attach. An
award of moral damages is incumbent in this case as
the petitioner has suffered so much.

On January 3, 2001, Solar Harvest wrote a demand

letter for reimbursement of the amount paid. DGCC
replied that the boxes had been completed as early as
April 3, 1998 and that Solar Harvest failed to pick them
up from the warehouse 30 days from completion, as
agreed upon and that they even placed an additional
order of 24,000 boxes, out of which, 14,000 had been
manufactured without any advanced payment from

Witnesses from both ptons.arties testified that a

representative of Solar Harvest actually inspected the
manufactured car

DGCC demanded Solar Harvest to remove the boxes

from the factory and to pay the balance of
US$15,400.00 for the additional boxes
and P132,000.00 as storage fee.

Solar Harvest maintained that respondent failed to

manufacture and deliver the boxes despite of repeated
follow-ups and that it was DGCC that was obliged to
deliver the cartons. That because of DGCCs failure,
they have to cancel the same and demand a payment
or refund. They also denied the second order.

ISSUE: WON DGCC incurred delay which resulted Solar

Harvest to have the right for reimbursement or

HELD: No. 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:


FACTS: In the first quarter of 1998, Solar Harvest Inc.

entered into an agreement with Davao Corrugated
Carton Corporation (DGCC) for the purchase of boxes.
Solar Harvest deposited on March 31, 1990 an amount
of 40,150 USD in the account of DGCC as full payment
for the ordered boxes but did not receive any boxes.

(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 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.

The lack of demand by Solar Harvest for DGCC to fulfil

obligation to manufacture and deliver the boxes was
evident. Solar Harvest only made repeated follow-ups
which, would not qualify as a demand for the
fulfillment of the obligation. Petitioners witness also
testified that they made a follow-up of the boxes, but
not a demand.

Without a previous demand for the fulfillment of the

obligation, Solar Harvest would not have a cause of
action for rescission against DGCC as the latter would
not yet be considered in breach of its contractual
obligation. Even assuming that a demand had been
previously made before filing the present case,
petitioners claim for reimbursement would still fail, as
the circumstances would show that respondent was not
guilty of breach of contract.

Therefore, Solar Harvest was given a 30 days from

notice to remove the boxes from DGCC warehouse.

a. Tanguilig v. CA G.R. No. 117190 January 2, 1997

DOCTRINE: Fortuitous events
FACTS: Sometime in April 1987 petitioner Jacinto M.
Tanguilig doing business under the name and style
J.M.T. Engineering and General Merchandising proposed
to respondent Vicente Herce Jr. to construct a windmill
system for him. After some negotiations they agreed
on the construction of the windmill for a consideration
of P60,000.00 with a one-year guaranty from the date
of completion and acceptance by respondent Herce Jr.
of the project. Pursuant to the agreement respondent
paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance
of P15,000.00.
On 14 March 1988, due to the refusal and failure of
respondent to pay the balance, petitioner filed a
complaint to collect the amount. In his Answer before
the trial court respondent 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.
The finding of the RTC with respect to the repair of the
windmill, the trial court found that "there is no clear
and convincing proof that the windmill system fell
down due to the defect of the construction." It rejected
petitioner's claim of force majeure and was ordered to
reconstruct the windmill in accordance with the
stipulated one-year guaranty.
ISSUE/S: WON petitioner is under obligation to
reconstruct the windmill after it collapsed.
HELD: YES. 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

WHEREFORE, the appealed decision is MODIFIED.
Respondent VICENTE HERCE JR. is directed to pay
petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the date
of the filing of the complaint. In return, petitioner is
ordered to "reconstruct subject defective windmill
system, in accordance with the one-year guaranty and
to complete the same within 3 months from the finality
of this decision.
b. Nakpil v. CA G.R. No. L-47851 October 3, 1986
FACTS: The plaintiff, Philippine Bar Association, a civicnon-profit association, incorporated under the
Corporation Law, decided to construct an office
building on its 840 square meters lot located at the
comer of Aduana and Arzobispo Streets, Intramuros,
Manila. The construction was undertaken by the United
Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general
manager of said corporation. The proposal was
approved by plaintiff's board of directors and signed by
its president Roman Ozaeta, a third-party defendant in
this case. The plans and specifications for the building
were prepared by the other third-party defendants Juan
F. Nakpil & Sons. The building was completed in June,
In the early morning of August 2, 1968 an unusually
strong earthquake hit Manila and its environs and the
building in question sustained major damage. The front
columns of the building buckled, causing the building
to tilt forward dangerously. The tenants vacated the
building in view of its precarious condition. As a
temporary remedial measure, the building was shored
up by United Construction, Inc. at the cost of
ISSUE: Whether the event was an act of God or a
fortuitous event
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 unforseeable 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.

Thus, if upon the happening of a fortuitous event or an

act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any
manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine
strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in
part the result of the participation of man, whether it
be from active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it were,
and removed from the rules applicable to the acts of
God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that 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.

d. Mondragon Leisure v. CA G.R. No. 154188 June 15,

FACTS: Mondragon entered into a lease agreement with
Clark Development Corporation for the development of
what is known as Mimosa Leisure Estate. To help
finance the project, Mondragon entered obtained a
syndicated loan to Far East Bank and Trust Co., Asian
Bank Corp., and UCPB for the amount of USD20 million
assigning as security its leasehold rights to the project.
Mondragon had regularly paid the monthly interests
until October 1998, thereafter, it failed to make
payments. The lending banks filed a complaint for the
foreclosure of Mondragon's leasehold rights.
Mondragon argued that the default of payment could
not be enforceable due to fortuitious event which is the
Asian economic crisis and closure of Mimosa Regency
Casino, Mondragon's main source of income.

ISSUE: WON the Asian economic crisis and the closure

of Mimosa Regency Casino are fortuitous events.

HELD: No. The Asian financial crisis is not one of those

contemplated in Article 1174 of the Civil Code. To
exempt the obligor from the liability for breach of
obligation by reason of a fortuitous event, the following
requisites must concur: 1) The cause of the breach of

obligation must be independent from the will of the

debtor, 2) The event must either be unforeseeable or
unavoidable, 3) The event must be as such as to
render it impossible for the debtor to fulfill the
obligation, and 4) The debtor must be free from
participation or aggravation of the injury to the

The lease agreement was entered when the Asian

economic crisis has started. Mondragon, as an
established corporation, should have been well aware
of the economic environment that time, yet it still took
the risk to expand its operations. Likewise, the closure
of Mimosa Regency Casino is not an unforeseeable or
unavoidable event in the context of contract of lease
between Mondragon and CDC. Risks are actually
inherent in every business. Worthy to note, risk is an
exception to the general rule in fortuitous events.
Under the law, these exceptions are 1) When the law
expressly so specifies, 2) When it is otherwise declared
by the parties, and 3) When the nature of the
obligation requires the assumption of risks.

g. Philcomsat v. Globe Telecom G.R. No. 147324 May

25, 2004
The US Government contracted American companies,
who in turn contracted GLOBE, GLOBE then contracted
PHILCOMSAT to provide the communication facilities
required by the American Bases and entered into an
agreement on May 7, 1991 despite the fact that the
RP-US MBA was to expire in 1991 unless a new treaty
was made between the Governments. The contract
was for 5 years. The Philippine Senate resolved not to
extend such treaty and ordered the US Government to
evacuate all personnel and facilities by December 31,

GLOBE notified PHILCOMSAT their intent to discontinue

the use of the facilities effective November 8, 1992.
PHILCOMSAT then sent a reply to GLOBE and expects
them to pay for the remaining term even after
discontinued use.
GLOBE argues that they cannot be made liable
because of fortuitous events. PHILCOMSAT argues that
there was no fortuitous event because the expiration of
the RP-US MBA was foreseeable and that they agreed
upon the contract despite such knowledge of

Whether GLOBE should be liable for the
remainder of the 5 year term.

by hiring the services of BM-ACMA. The 2 complaints

were consolidated fro trial the CFI- Negros Occidental.
Lower court rendered judgment rescinding the milling
contract and damages of Php2,625 and Php5,000
attorneys fees. BMMC appealed. CA affirmed the CFI

No, GLOBE should not be held liable for such events.
What is contemplated by fortuitous event in Article
1174 of the Civil Code is not those events which could
not have been foreseen. This also include events which
are foreseeable but inevitable and cannot be under the
control of the parties to a contract. The Senates
resolution not to extend such treaty is considered to be
force majeure and cannot be in the control of GLOBE
and PHILCOMSAT. Since the US was only able to
evacuate their personnel and facilities only on
December 31, 1992, it was correctly held by the trial
court and affirmed by the CA that GLOBE is still obliged
to pay until then.

i. Bacolod-Murcia Milling v. CA G.R. Nos. 81100-01

February 7, 1990
Facts: BMMC constructed a railroad track system to
transport sugar cane from the plantation to the milling
station for period of 45 years beginning the years
1920-1921. However by the year 1964-1965, the
railroad tracks over at Hacienda Helvetia was closed
due to the expiration of the milling contract. The
residents of the Angela Estates/ Hacienda Helvetia
decided not to renew the contract. However, BMMC
continues to have milling and transportation contracts
by railroad with Agro-Industrial Development of SilaySaravia (AIDSISA) for 17 years until 1973-74. Due the
non-renewal of the right of way contract with Angela
Estates, BMMC was unable to transport sugar canes of
Alonso Gatuslao or of AIDSISA beginning 1968.
Gatuslao on various dates requested transportation
facilities from BMMC to no avail. Gatuslao filed for a
Breach of Contract against BMMC and asks for
rescission of contract and damages. BMMC argues that
the inability to use its railways system is due to force
majeure. In order to comply they hired private trucks
as movers of to haul the sugar canes.
Gatuslao/AIDSISA, seriously believing that BMMC is
particularly unable to transport and mill their sugar
canes, opted to use trucks provided by Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc.
(BM-ACMA). Further, its inability to do so in effect
rescinds the milling contract.

BMMC also filed a complaint against AIDSISA and BMACMA seeking specific performance of milling contract.
It alleges that Gatuslao/AIDSISA violated the contract

Issue: Whether or not the inability of BMMC to comply

with milling contract due to the closure of the railroad
track right of way over Helvetia is force majeure

Held: No. The closure of the railroad track way at

Hacienda Helvetia is due to the expiration of their
contract with the Hacienda. The requisites of force
majeure: (a) breach is independent of the will of
obligor. (b) Event is unforeseeable or unavoidable, (c)
and the event renders the fulfillment of obligation
impossible. Applying the criteria, the closure of the
railroad track is not force majeure. BMMC should have
anticipated it and provided for the eventuality. BMMC
took the risk that the Hacienda Helvetia will not renew
their contract. Thus, the closure of the track in the
Hacienda, paralyzed the whole transportation system.
It was die to the contract termination, which BMMC has
knowledge that caused the Breach of Contract with the
other plantations. Since the closure of the rail road
track is a not a case of fortuitous event, the issue is
whether or not BMMC is capable of providing adequate
and efficient transportation facilities of the canes of
AIDSIA and other planters. Evidence shows that BMMC
is the one who committed breach of contract. A letter
from BMMC was even quoted by the SC. The letter was
suggesting planters to explore other solutions to the
problem of milling and transportation. Thus, AIDSIA
hiring BM-ACMA is a matter of self-preservation and is
not in anyway a breach of contract.


(355 SCRA 701)
Petitioner Khe Hong Cheng is the owner of
Butuan Shipping Lines. On or about 4 October 1985,
the Philippine Agricultural Trading Corporation shipped
on board the vessel M/V PRINCE ERIC (owned by
petitioner) 3, 400 bags of copra for delivery to Dipolog
City. The said shipment was covered by a marine
insurance policy issued by American Home Insurance
Company (respondent Philams assured). M/V PRINCE
ERIC, however, sank resulting in the total loss of the
shipment. Because of this, the insurer, American
Home, paid the amount of P354, 000. 00 (the value of
the copra) to the consignee.

American Home then instituted a civil case

based on breach of contract of carriage for the
recovery of the money paid. While the case was still
pending, or on 20 December 1989, petitioner Khe Hong
Cheng executed deeds of donations of parcels of land
in favor of his children.
On 29 December 1993, four years after the
donations were made and the TCTs were registered in
the donees names, the trial court rendered judgment
against petitioner. However, despite earnest efforts,
the sheriff found no property under the name of
Butuan Shipping Lines or petitioner Khe Hong Cheng to
levy or garnish in satisfaction of the trial courts
decision. When the sheriff, accompanied by counsel of
respondent Philam, went to Butuan City on 17 January
1997 to enforce the alias writ of execution, they
discovered that petitioner no longer had any property
and that he had conveyed the subject properties to his
children. Philam thus filed a complaint for the
rescission of the deeds of donation alleging that those
were executed in fraud of creditors.
Petitioners moved for the dismissal of the
complaint on the ground that the action had
prescribed. This was denied by the trial court. The CA
also declared that the action to rescind the donations
had not yet prescribed. It reckoned the accrual of
respondent Philams cause of action on January 1997,
when it first learned that petitioner Khe Hong Cheng
had no more properties in his name.
The issue for resolution posed by petitioners is
this: When did the four (4) year prescriptive period as
provided for in Article 1389 of the CC for respondent
Philam to file its action for rescission commence to
Article 1389 of the CC simply provides that,
The action to claim rescission must be commenced
within four years. Since the provision of law is silent
as to when the prescriptive period would begin, the
general rule as stated in Article 1150, from the
moment the cause of action accrues, therefore applies.

Now, Article 1383 of the CC provides as

Article 1383.An action for rescission is
subsidiary, it cannot be instituted except when the
party suffering the damage has no other legal means
to obtain reparation for the same.
It is thus apparent that an action to rescind or
an accion pauliana must be of last resort, availed of

only after all other legal remedies have been

exhausted and have been proven futile. For an accion
pauliana to accrue, the following requisites must

(1) That the plaintiff asking for rescission has a

credit prior to the alienation, although
demandable later;
(2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a
third person;
(3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by
rescission of the conveyance to the third
(4) That the act being impugned is fraudulent;
(5) That the third person who received the
property conveyed, if by onerous title, has
been an accomplice in the fraud.
As enunciated by the CA, for as long as the
creditor still has a remedy at law for the enforcement
of his claim against the debtor, he will not have any
cause of action for rescission of contracts. Indeed, an
accion pauliana presupposes a judgment and the
issuance by the trial court of a writ of execution and
the failure of the sheriff to enforce and satisfy such. It
presupposes that the creditor has exhausted the
property of the debtor. The date of decision of the trial
court against the debtor is immaterial. What is
important is that the credit antedates that of the
fraudulent alienation of property. After all, the decision
of the trial court will retroact to the time when the
debtor became indebted to the creditor.
Petitioners contend that the registration of the
deeds of donation on 27 December 1989 constituted
constructive notice to respondent Philam, hence, the
cause of action to rescind should have accrued by
then. This argument runs counter to Article 1383 of the
CC as well as settled jurisprudence. It would likewise
contravene the 3rd requisite to file an action for
rescission of an allegedly fraudulent conveyance (that
the creditor has no other legal remedy to satisfy his
Even if respondent Philam was aware as of
December 1989 that petitioner Khe Hong Cheng had
executed the deeds of donation in favor of his children,
the complaint against Butuan Shipping Lines was still
pending. Respondent Philam had no inkling, at the
time, that the trial courts judgment would be in its
favor and further, that such judgment could not be
satisfied. Had respondent Philam filed its complaint on

27 December 1989, such complaint would have been

dismissed for being premature.
As mentioned earlier, respondent Philam only
learned about the unlawful conveyances in January
1997. It was only then that the cause of action accrued
because then it could be said that it had exhausted all
legal means to satisfy the trial courts judgment. Since

respondent Philam filed its complaint for accion

pauliana on 25 February 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other
property left, its action for rescission clearly had not
yet prescribed.
Hence, the petition must be DENIED for lack of merit.
Eastern Shipping vs CA Credit Digest

Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78

Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a marine
policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one drum, said to be in bad
order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation received the
shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the consignees warehouse.
The latter excepted to one drum which contained spillages while the rest of the contents was adulterated/fake. As
consequence of the loss, the insurance company paid the consignee, so that it became subrogated to all the rights of
action of consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company
filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with
present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the
appellate court denied the same and affirmed in toto the decision of the trial court.
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time the
complaint is filed from the date the decision appealed from is rendered.
The Court held that the legal interest is 6% computed from the decision of the court a quo. When an
obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damaes
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall
be 12% per annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
From the date the judgment is made. Where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or EJ but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shll begin to run only from the date of judgment
of the court is made.
(3) The Court held that it should be computed from the decision rendered by the court a quo.
CONTRERAS, Petitioners



G.R. No. 179334


July 01,

By Grace


Respondent spouses Heracleo and Ramona Tecson are

co-owners of a parcel of land with an area of 7,268
square meters located in San Pablo, Malolos, Bulacan
and covered by Transfer Certificate of Title (TCT) No. T43006 of the Register of Deeds of Bulacan. Said parcel
of land was among the properties taken by the
government sometime in 1940 without the owners
consent and without the necessary expropriation
proceedings and used for the construction of the
MacArthur Highway.

In a letter dated December 15, 1994, respondents

demanded the payment of the fair market value of the
subject parcel of land. Petitioner Celestino R. Contreras,
then District Engineer of the First Bulacan Engineering
District of DPWH, offered to pay the subject land at the
rate of P0.70 per square meter per Resolution of the
Provincial Appraisal Committee (PAC) of Bulacan.
Unsatisfied with the offer, respondents demanded for
the return of their property or the payment of
compensation at the current fair market value.

As their demand remained unheeded, respondents filed

a Complaint for recovery of possession with damages
against petitioners, praying that they be restored to
the possession of the subject parcel of land and that
they be paid attorneys fees.

Instead of filing their Answer, petitioners moved for the

dismissal of the complaint on the following grounds: (1)
that the suit is against the State which may not be
sued without its consent; (2) that the case has already
prescribed; (3) that respondents have no cause of
action for failure to exhaust administrative remedies;
and (4) if respondents are entitled to compensation,
they should be paid only the value of the property in
1940 or 1941.

On June 28, 1995, the RTC issued an Order granting the

motion to dismiss based on the doctrine of state
immunity from suit.

The CA reversed and set aside the dismissal of the

complaint and consequently remanded the case to the
trial court for the purpose of determining the just
compensation because the doctrine of state immunity
from suit is not applicable and the recovery of
compensation is the only relief available. To deny such
relief would undeniably cause injustice to the

The trial proceeded in the RTC with the Branch Clerk of

Court appointed as the Commissioner and designated
as the Chairman of the Committee that would
determine just compensation.

Later the case was referred to the PAC for the

submission of a recommendation report on the value of
the subject property. The PAC recommended the
amount of P1,500.00 per square meter as the just
compensation for the subject property per PAC
Resolution No. 99- 007 dated December 19, 2001.

On March 22, 2002, the RTC rendered a Decision

directing DPWH to pay the amount of One Thousand
Five Hundred Pesos (P1,500.00) per square meter for
the subject lot in accordance with PAC Resolution.

The CA affirmed the above decision with the

modification that the just compensation stated above
should earn interest of six percent (6%) per annum
computed from the filing of the action on March 17,
1995 until full payment.

Hence, this petition.


1. Whether or not the Court of Appeals gravely erred in

granting just compensation to respondents considering
the highly dubious and questionable circumstances of
their alleged ownership of the subject property.
2. Whether or not the court of appeals gravely erred in
awarding just compensation to respondents because
their complaint for recovery of possession and
damages is already barred by prescription and laches.
3. Whether or not the court of appeals gravely erred in
affirming the trial courts decision ordering the

payment of just compensation based on the current

market value of the alleged property of respondents.

(6%) per annum from the date of taking in 1940

instead of March 17, 1995, until full payment.


So ordered.

It is undisputed that the subject property was taken by

petitioners without the benefit of expropriation
proceedings for the construction of the MacArthur
Highway. After the lapse of more than fifty years, the
property owners sought recovery of the possession of
their property.

Both equity and the law direct that a property owner

should be compensated if his property is taken for
public use. There is a long-standing rule that where
private property is taken by the Government for public
use without first acquiring title thereto either through
expropriation or negotiated sale, the owners action to
recover the land or the value thereof does not

For failure of respondents to question the lack of

expropriation proceedings for a long period of time,
they are deemed to have waived and are estopped
from assailing the power of the government to
expropriate or the public use for which the power was
exercised. What is left to respondents is the right of

Just compensation is the fair value of the property as

between one who receives, and one who desires to sell
fixed as of the date when it was taken and not the date
of the filing of the proceedings. The owner of private
property should be compensated only for what he
actually loses; it is not intended that his compensation
shall extend beyond his loss or injury. And what he
loses is only the actual value of his property at the time
it is taken. The fair market value of the subject
property in 1940 was P0.70/square meter. Hence, it
should therefore be used in determining the amount
due respondents instead of the higher value which is

WHEREFORE, premises considered, the petition is

partially granted. The decision of the Court of Appeals
is modified. The valuation of the subject property
owned by respondents shall be P0.70 instead of
Pl,500.00 per square meter, with interest at six percent

Agapito Ducusin and Agapito Ducusin, Jr., petitioner Vs

Court of Appeals, Virgilio Baliola and Lilia
Baliola, respondent
On Feb. 1975, petitioner Ducusin leased a one door
apartment to the respondents Baliola spouses. The
Baliola spouses occupied the apartment for almost 2
years. On Jan. 1977, Ducusin sent a Notice to
Terminate Lease Contract for the reason that his two
children were getting married and they be the ones to
use the property. Respondent Ducusin again sent
another letter to the petitioner asking them on their
actions regarding the termination of the lease contract.
Soon on April 1977, the respondents filed an action for
ejectment alleging that the sole purpose of
constructing the apartment was for the eventual use of
their children when they will get married and that the
Baliola violated their contract by subleasing the
premises and using the premises for manufacturing
commercial goods.
The respondent on the other hand, denied the
allegations stating that the ejectment suit is a wellplanned scheme to evict them out of the apartment
and to raise the rent.

Whether or not the contract of lease can

be unilaterally terminated by the lessor/


Whether or not the happening of the

resolutory condition is established by a
preponderance of evidence?


According to the Supreme Court and basing
on what is stipulated in their contract of lease there are
causes that will in effect extinguish the contract:
1. Termination by mutual consent.
2. Lessor elects to terminate the contract on the
ground that his children need the premises for
their own use.

3. Any cause provided and in accordance with law.

Art. 1382: Validity or compliance cannot be left to the
will of one them.
Art. 1182: If it depends upon chance or hazard or upon
the will of a third person, the obligation shall be valid.
Since the happening of the condition depends on the
lessors/ respondents children which are considered
third person. Whenever they will require the leased

premises, the contract shall be deemed terminated,

and this affirmed by Supreme Court.
The Supreme Court concluded that the intention to use
the leased premises as the residence of Ducusin, Jr. has
been satisfactorily and sufficiently proved by clear,
strong and substantial evidence found in the records of
the case.
Gaite v. Fonacier

Gaite was appointed by Fonacier as attorney-in-fact to contract any party for the exploration and development of
mining claims. Gaite executed a deed of assignment in favor of a single proprietorship owned by him. For some
reasons, Fonacier revoked the agency, which was acceded to by Gaite, subject to certain conditions, one of which
being the transfer of ores extracted from the mineral claims for P75,000, of which P10,000 has already been paid upon
signing of the agreement and the balance 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 agreement with Larap Mines and some of its stockholders, and another
one with Far Eastern Insurance. When the second surety agreement expired with no sale being made on the ores,
Gaite demanded the P65,000 balance. Defendants contended that the payment was subject to the condition that the
ores will be sold.
(1) Whether the sale is conditional or one with a period
(2) Whether there were insufficient tons of ores
(1) The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the
balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the
fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a
future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed.
A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative
obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party
anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or expectations,emptio spei), it is not in the usual course of business to
do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence
that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's
stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that
they admitted the definite existence of their obligation to pay the balance of P65,000.00.
The appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait
for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the
bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for
the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed
the deed of sale of the ore to Fonacier.
(2) The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their
contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of
P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units

or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of
the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them.
Rustan Pulp vs. Intermediate Appellate Court
Consumer (D) vs. Supplier
GR 70789


Summary: A paper mill started operations and accepted offers to supply raw materials from several suppliers. One
supplier executed a contract with the paper mill with a condition that the paper mill has the right to stop accepting
deliveries whenever the supply was sufficient. The paper mill exercised that right, but continued accepting periodic
deliveries from other suppliers.
Rule of Law: When the fulfillment of the condition depends on the sole will of the debtor, the conditional obligation
shall be void.
Article 1182, Civil Code.
Facts: When Rustan Pulp & Paper Mills (D) started operations Romeo Lluch (P) offered to supply raw materials. Rustan
Pulp (D) proposed a non-exclusive contract to buy wood pulp from Lluch (P). However, a condition in the contract gave
Rustan Pulp (D) the right to stop accepting deliveries when the supply became sufficient until such time the raw
materials are needed.
During the test run of the pulp mill, major defects on the machinery were discovered prompting the Japanese supplier
of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries, but
were not informed as to the reasons for the stoppage.
Lluch (P) sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the contract of
sale was intended, but Rustan Pulp (D) failed to reply. This alleged ambiguity notwithstanding, Lluch (P) and the other
suppliers resumed deliveries after a series of talks between Lluch (P) and Romeo Vergara, the manager of Rustan Pulp
Later, Lluch (P) filed a complaint for breach of contract. The case was dismissed, but at the same time, the court
enjoined Rustan Pulp (D) to honor the contract. On appeal, the court ruled that Rustan Pulp's (D) suspension of
deliveries was not in the lawful exercise of its rights under the contract of sale.
Issues: Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under the contract of sale?
Ruling: No. There is basis for the apprehension on the illusory resumption of deliveries at Rustan Pulp (D) because the
prerogative suggests a condition solely dependent upon its exclusive will. The literal import of contested condition is
that Rustan Pulp (D) can stop delivery of pulp wood from Lluch (P) if the supply at the plant is sufficient as ascertained
by Rustan Pulp (D), subject to re-delivery when the need arises as determined likewise by Rustan Pulp (D).
A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the
rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not
to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4, Page 160).
A condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left
to the will of the obligor as this Court ruled in Taylor vs. Uy Tieng Piao (43 Phil. 873). But the Taylor case, which allowed
a condition for unilateral cancellation dependent on the arrival of factory machinery, cannot be applied because the
facts relate to the birth of the undertaking and not to the fulfillment of an existing obligation.
Palay Inc. v. Clave
G.R. No. L-56076 September 21, 1983

On March 28, 1965, petitioner Palay, Inc.,
through its President, Albert Onstott sold a parcel of
land owned by the corporation to the private
respondent, Nazario Dumpit, by virtue of a Contract to
Sell. The sale price was P23,300.00 with 9% interest

per annum, payable with a down payment of P4,660.00

and monthly instalments of P246.42 until fully
paid. Paragraph 6 of the contract provided for
automatic extrajudicial rescission upon default in
payment of any monthly instalment after the lapse of
90 days from the expiration of the grace period of one
month, without need of notice and with forfeiture of all
instalments paid.
2. Respondent Dumpit paid the down payment and
several instalments amounting to P13,722.50 with the
last payment was made on December 5, 1967 for
instalments up to September 1967. Almost six (6)
years later, private respondent wrote petitioner
offering to update all his overdue accounts and sought
consent to the assignment of his rights to a certain
Lourdes Dizon. Petitioners informed respondent that his
Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had
already been resold.
Respondent filed a letter complaint with the
National Housing Authority (NHA) questioning the
validity of the rescission. The NHA held that the
rescission is void in the absence of either judicial or
notarial demand. Palay, Inc. and Onstott in his
capacity as President of the corporation, jointly and
severally, was ordered to refund Dumpit the amount
paid plus 12% interest from the filing of the complaint.
Petitioners' MR was denied by the NHA. Respondent
Presidential Executive Assistant, on May 2, 1980,
affirmed the Resolution of the NHA. Reconsideration
sought by petitioners was denied for lack of merit.
Thus, the present petition.
Issue: W/N demand is necessary to rescind a contract
Ruling: As held in previous jurisprudence, the judicial
action for the rescission of a contract is not necessary
where the contract provides that it may be revoked
and cancelled for violation of any of its terms and
conditions. However, even in the cited cases, there was
at least a written notice sent to the defaulter informing
him of the rescission. A written notice is indispensable
to inform the defaulter of the rescission. Hence, the
resolution by petitioners of the contract was ineffective
and inoperative against private respondent for lack of
notice of resolution (as held in the U.P. vs. Angeles
case). The act of a party in treating a contract as
cancelled should be made known to the other.
Later, RA 6551 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Instalment
Payments, emphasized the indispensability of notice
of cancellation to the buyer when it specifically
Sec. 3(b) ... the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission

of the contract by a notarial act and upon full payment

of the cash surrender value to the buyer. (Emphasis
Moreover, there was no waiver on the part of the
private respondent of his right to be notified under
paragraph 6 of the contract since it was a contract of
adhesion, a standard form of petitioner corporation,
and private respondent had no freedom to stipulate.
Finally, it is a matter of public policy to protect buyers
of real estate on instalment payments against onerous
and oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real
estate on instalment payments.
As a consequence of the resolution by petitioners,
rights to the lot should be restored to private
respondent or the same should be replaced by another
acceptable lot but since the property had already been
sold to a third person and there is no evidence on
record that other lots are still available, private
respondent is entitled to the refund of instalments paid
plus interest at the legal rate of 12% computed from
the date of the institution of the action. It would be
most inequitable if petitioners were to be allowed to
retain private respondent's payments and at the same
time appropriate the proceeds of the second sale to
Onstott not personally liable
Onstott was made liable because he was then the
President of the corporation and the controlling
stockholder but there was no sufficient proof that he
used the corporation to defraud private respondent. He
cannot, therefore, be made personally liable just
because he "appears to be the controlling stockholder".
Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
Finally, there are no badges of fraud on the petitioners'
part. They had literally relied, albeit mistakenly, on
paragraph 6 (supra) of the contract when it rescinded
the contract to sell extrajudicially and had sold it to a
third person.
Petitioner Palay, Inc. is liable to refund to respondent
Dumpit the amount of P13,722.50, with interest at
twelve (12%) p.a. from November 8, 1974, the date of
the filing of the Complaint.
Pryce Corporation v PAGCOR
GR No. 157480
May 6, 2005


FACTS: PAGCOR set up a casino in Pryce Plaza Hotel for

a period of 3 years. However, there has been
interruptions in the operations which ultimately caused
the operations to cease prematurely upon order of the
Office of the President.

(1) Whether or not Pryce is entitled to future rentals as
provided in the contract even if PAGCOR contends, as
the CA ruled, that Article 1659 of the Civil Code
governs; hence, PPC is allegedly no longer entitled to
future rentals, because it chose to rescind the
(2) Whether or not PAGCOR should be exempt from
complying with its contractual obligations due to
fortuitous events
(3) Whether or not the future rentals constitute a
penalty clause

CA: The CA ruled that the PAGCOR'S pretermination of

the Contract of Lease was unjustified. The appellate
court explained that public demonstrations and rallies
could not be considered as fortuitous events that would
exempt the gaming corporation from complying with
the latter's contractual obligations. Therefore, the
Contract continued to be effective until PPC elected to
terminate it on November 25, 1993.

Regarding the contentions of PPC, the CA held that

under Article 1659 of the Civil Code, PPC had the right
to ask for (1) rescission of the Contract and
indemnification for damages; or (2) only
indemnification plus the continuation of the Contract.
These two remedies were alternative, not cumulative,
ruled the CA.

As PAGCOR had admitted its failure to pay the rentals

for September to November 1993, PPC correctly
exercised the option to terminate the lease agreement.

contract and indemnification for damages, or only the

latter, allowing the contract to remain in force. (1556)

Art. 1654. The lessor is obliged:

(1) To deliver the
thing which is the object of the contract in such a
condition as to render it fit for the use intended;
To make on the same during the lease all the necessary
repairs in order to keep it suitable for the use to which
it has been devoted, unless there is a stipulation to the
(3) To maintain the lessee in the peaceful
and adequate enjoyment of the lease for the entire
duration of the contract. (1554a)

Art. 1159. Obligations arising from contracts have the

force of law between the contracting parties and
should be complied with in good faith. (1091a)

Art. 1226. In obligations with a penal clause, the

penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if
there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the

The penalty may be enforced only when it is

demandable in accordance with the provisions of this
Code. (1152a)

Art. 1229. The judge shall equitably reduce the

penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or

Art. 2227. Liquidated damages, whether intended as

an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- APPLICABLE LAW/S: Art.

1659. If the lessor or the lessee should not comply with
the obligations set forth in Articles 1654 and 1657, the
aggrieved party may ask for the rescission of the

HELD: (1) Pryce is entitled to future rentals as the

provisions are not contrary to law, morals, public order,
or public policy.

The above provisions leave no doubt that the parties

have covenanted 1) to give PPC the right to terminate
and cancel the Contract in the event of a default or
breach by the lessee; and 2) to make PAGCOR fully
liable for rentals for the remaining term of the lease,
despite the exercise of such right to terminate. Plainly,
the parties have voluntarily bound themselves to
require strict compliance with the provisions of the
Contract by stipulating that a default or breach, among
others, shall give the lessee the termination option,
coupled with the lessor's liability for rentals for the
remaining term of the lease. Article XX (c) provides
that, aside from the payment of the rentals
corresponding to the remaining term of the lease, the
lessee shall also be liable "for any and all damages,
actual or consequential, resulting from such default
and termination of this contract." Having entered into
the Contract voluntarily and with full knowledge of its
provisions, PAGCOR must be held bound to its
obligations. It cannot evade further liability for
liquidated damages.

(3) Pryce's right to penalty is affirmed but proved


While petitioner's right to a stipulated penalty is

affirmed, we consider the claim for future rentals to the
tune of P7,037,835.40 to be highly iniquitous. The
amount should be equitably reduced. Under the
circumstances, the advanced rental deposits in the
sum of P687,289.50 should be sufficient penalty for
respondent's breach.

Accordingly, respondent is ordered to pay petitioner

the additional amount of P687,289.50 as penalty,
which may be set off or applied against the former's
advanced rental deposits.

(2) PAGCOR is not exempt from complying with the
provisions as rallies and demonstrations are not
considered fortuitous events.

In this case, PAGCOR's breach was occasioned by

events that, although not fortuitous in law, were in fact
real and pressing. From the CA's factual findings, which
are not contested by either party, we find that PAGCOR
conducted a series of negotiations and consultations
before entering into the Contract. It did so not only
with the PPC, but also with local government officials,
who assured it that the problems were surmountable.
Likewise, PAGCOR took pains to contest the ordinances
before the courts, which consequently declared them
unconstitutional. On top of these developments, the
gaming corporation was advised by the Office of the
President to stop the games in Cagayan de Oro City,
prompting the former to cease operations prior to
September 1993.

Also worth mentioning is the CA's finding that

PAGCOR's casino operations had to be suspended for
days on end since their start in December 1992; and
indefinitely from July 15, 1993, upon the advice of the
Office of President, until the formal cessation of
operations in September 1993. Needless to say, these
interruptions and stoppages meant that PAGCOR
suffered a tremendous loss of expected revenues, not
to mention the fact that it had fully operated under the
Contract only for a limited time.

In legal contemplation, the termination of a contract is

not equivalent to its rescission. When an agreement is
terminated, it is deemed valid at inception. Prior to
termination, the contract binds the parties, who are
thus obliged to observe its provisions. However, when
it is rescinded, it is deemed inexistent, and the parties
are returned to their status quo ante. Hence, there is
mutual restitution of benefits received. The
consequences of termination may be anticipated and
provided for by the contract. As long as the terms of
the contract are not contrary to law, morals, good
customs, public order or public policy, they shall be
respected by courts. The judiciary is not authorized to
make or modify contracts; neither may it rescue parties
from disadvantageous stipulations. Courts, however,
are empowered to reduce iniquitous or unconscionable
liquidated damages, indemnities and penalties agreed
upon by the parties.



Art. 1191. 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.

The injured party may choose between the fulfillment

and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.

The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights

of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)

Art. 1659. If the lessor or the lessee should not

comply with the obligations set forth in Articles 1654
and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to
remain in force. (1556)

To rescind is to declare a contract void in its inception

and to put an end to it as though it never were. It is not
merely to terminate it and release parties from further
obligations to each other but to abrogate it from the
beginning and restore the parties to relative positions
which they would have occupied had no contract ever
been made.

Rescission has likewise been defined as the

"unmaking of a contract, or its undoing from the
beginning, and not merely its termination." Rescission
may be effected by both parties by mutual agreement;
or unilaterally by one of them declaring a rescission of
contract without the consent of the other, if a legally
sufficient ground exists or if a decree of rescission is
applied for before the courts


The termination or cancellation of a contract would
necessarily entail enforcement of its terms prior to the
declaration of its cancellation in the same way that
before a lessee is ejected under a lease contract, he
has to fulfill his obligations thereunder that had
accrued prior to his ejectment. However, termination of
a contract need not undergo judicial intervention.
"end in time or existence; a close, cessation or
conclusion." With respect to a lease or contract, it
means an ending, usually before the end of the
anticipated term of such lease or contract, that may be
effected by mutual agreement or by one party
exercising one of its remedies as a consequence of the
default of the other