SSS vs. Moonwalk Devt and Housing Corp When does delay arise?
When does delay arise? Under the Civil Code, delay begins from the time the
Facts:
SSS approved R’s application for an interim loan amounting to 30M pesos for a
housing project.
9,595,000 of the 30M was initially released to R.
2,659,700 was subsequently released to R. Then R gave SSS a promissory note to
SSS for the total amount released to them.
R then made a total payment of 23,657,901.84 for the loan principal of 12M
released to them. The last payment made by Moonwalk in the amount of
P15,004,905.74 were based on the Statement of Account prepared by P SSS.
After settlement of account, SSS released to R the RELEASE OF MORTGAGE for
R’s mortgage properties. Then, SSS sent letters to R alleging that it committed and
honest mistake in releasing defendant.
R replied, stating that it had completely paid its obligation
Trial Court - dismissed SSS complain on the ground that the obli was already
extinguished by the payment of Moonwalk and by SSS act of cancelling the real
estate mortgages. <R was dismissed
IAC - affirmed trial court
Hence, this petition
Issue: WON penalty is still demandable even after the extinguishment of the
principal obligation?
Held:
Article 1226 of the Civil Code provides…
A penal clause is an accessory undertaking to assume greater liability in case of
breach. It has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach. From the foregoing, it is clear that a penal
clause is intended to prevent the obligor from defaulting in the performance of his
obligation.
obligee judicially or extrajudicially demands from the obligor the performance of
the obligation.
There are only three instances when demand is not necessary to render the obligor
in default. These are the following:
“(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When the demand would be useless, as when the obligor has rendered it
beyond his power to perform.
This case does not fall within any of the established exceptions. Petitioner is not
excused from making a demand. Moonwalk has been long delinquent in meeting
its monthly arrears however mere delinquency in payment does not necessarily
mean delay in the legal concept.
Nowhere in this case did it appear that SSS demanded from Moonwalk the
payment of its monthly amorizations. Thus, moonwalk was never in default
because it was never compelled of performance.
Thus, this Court agrees with the decision of the respondent court.
The case at bar does not refer to any penalty provided for by law nor does it refer to
the non remittance of premium. The case at bar refers to a contract of loan entered
into between plaintiff and defendant Moonwalk Development and Housing
Corporation. Note, therefore, that no provision of law is involved in this case, nor is
there any penalty imposed by law nor a case about non-remittance of premium
required by law. The present case refers to a contract of loan payable in
installments not provided for by law but by agreement of the parties.
SSS cannot condone a mandatory provision of law providing for the payment of
premiums and for penalties for non remittance. what is sought to be condoned or
waived are penalties not imposed by law for failure to remit premiums required by
law, but a penalty for non payment provided for by the agreement of the parties in
the contract between them.
RCBC vs. CA
 could have easily called the attention of the PR so that the latter could affix his
Facts: signature. Notably, all the other checks issued by the appellee dated subsequent to
Respodent Atty Lustre, purchased a Toyota Corrola from Toyota Shaw to be paid August 10, 1991 and dated earlier than the demand letter, were duly encashed.
in 24 equal monthly installment. Atty. Lustre thus issued 24 postdated checks as This fact should have already prompted the appellant bank to review its action
payment. relative to the unsigned check.

To secure the balance, Atty. Lustre executed a promissory note and a contract of
chattel mortgage over the vehicle in favor of Toyota Shaw. The contract provided
for an acceleration clause stating that should the mortgagor default in the
payment of any installment, the whole amount remaining unpaid shall become
due. In addition, the mortgagor shall be liable for 25% of the principal due as
liquidated damages.
Toyota Shaw assigned all its rights and interests to P RCBC. All the checks were
encashed and debited by RCBC from Atty. Lustre’s accounts except for one which
was unsigned.
> Previously, the amount of such check was debited from PR’s account but was
later recalled and re-credited to him. Because of such recall, the last 2 checks were
no longer presented for payment. Apparently, this was in conformity with the
bank’s procedure that once a client’s account was forwarded to its account
representative, all remaining checks outstanding as of the date the account was
forwarded were no longer presented for payment.
Acting on the theory that PR defaulted in his payments, P demanded from PR the
payment of the balance including the liquidated damages.
> Nevertheless, contracts of adhesion are not invalid per se; they are not entirely
prohibited. While ambiguities in a contract of adhesion are to be construed against
the party that prepared the same, stipulations in such contract are obscure or
ambiguous. If the terms thereof are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control.
>Article 1170 of the Civil Code states that those who in the performance of their
obligations are guilty of delay are liable for damages. The delay in the performance
of the obligation, however, must be either malicious or negligent. There is no
imputation, much less evidence, that private respondent acted with malice or
negligence in failing to sign the check.
>Petitioner’s conduct, in the light of the circumstances of this case, can only be
described as mercenary. Petitioner had already debited the value of the unsigned
check from private respondent’s account only to re-credit it much later to him.
Thereafter, petitioner encashed checks subsequently dated, then abruptly refused
to encash the last two.

PR refused.

RTC - ruled in favor of PR, ordered P RCBC to accept the three checks as payment,
cancel the mortgage on the car, and pay PR for damages.

On appeal, CA - affirmed RTC’s decision.

> A contract of adhesion is strictly to be construed against appellant bank which
prepared the form.
> P imputation of default to PR rested solely on the fact that the 5th check was
recalled for the lack of signature. However, such check was recalled only after the
amount covered thereby had been deducted from PR’s account. The default was
therefore not a case of failure to pay, the check being sufficiently funded, and
which amount was in fact already debitted from PR by RCBC which subsequently BARZAGA vs. CA
re-credited the amount to PR’s account for lack of signature.
> RCBC did all these actions on its own w/o notifying PR until 16 months later when Facts:
it wrote its demand letter. Clearly, RCBC was remiss in the perf of its functions for it
Dec, 21, P went to the hardware store of R Alviar to inquire about the availability of
materials to be used in the construction of a niche for P’s wife and asked if the
materials could be delivered at once.
The storekeeper replied that she had yet to verify is the store had pending
deliveries that afternoon because if there were then all subsequent purchases
would have to be delivered the following day.
Next morning, P returned to follow up his purchase and told the store that the
materials he was buying would have to be delivered by 8 am that morning since his
hired workers were already at the burial and time was of the essence. A
storekeeper agreed to deliver the items at the designated time, date and place.
With this assurance, P purchased the materials and paid the full amount. He then
went to the cemetery, which was only a kilometer away, to await the delivery.
However, it never came despite several follow ups by P.
He decided to dismiss his laborers for the day. He went to the police station to
lodge a complaint against R. He again went to the store, saw that the truck was
already there but the materials he purchased were not yet ready. Distressed, P
cancelled his transaction and looked for it elsewhere.
delivered immediately, and store keeper admitted it was her custom not to
indicate the time of delivery whenever she prepares invoices.
PR cannot invoke fortuitous event. We also find unacceptable respondent’s
justification that his truck had a flat tire, for this event, if indeed it happened, was
foreseeable according to the trial court, and as such should have been reasonably
guarded against.
> Storekeeper also withheld the information from P, when they were negotiating,
that the truck arrived a little late than usual because it delivered in Cavite. (bad
faith)
>Respondent’s delay in the delivery of the construction materials wasted so much
time that construction of the tomb could start only on the twenty-third. It could
not be ready for the scheduled burial of petitioner’s wife.
>This case is clearly one of non-performance of a reciprocal obligation. In their
contract of purchase and sale, petitioner had already complied fully with what was
required of him as purchaser. It was incumbent upon respondent to immediately
fulfill his obligation to deliver the goods otherwise delay would attach.

In the afternoon, P was able to buy from another store but since it was already
dark, the construction would start the following morning - however due to time
constraints, the niche was not finished before christmas day and was only
completed in dec 26, afternoon.

Tormented, P wrote to PR demanding recompense for the damage he suffered. PR

did not respond and before the RTC, he contended that legal delay could not be
validly ascribed to him because no specific time of delivery was agreed upon
between them and that the delivery truck suffered a flat tire on the way to the
store to pick up the materials. That it was the refusal of P to accept the delivery(the
following morning) that caused the delay.

RTC - upheld that R incurred in delay, ordered R to pay

On appeal, CA reversed and ruled that there was no contractual commitment as
the exact time was not indicated in the receipt. That the arrangement merely
implied that delivery should be made within a reasonable time.

SC - upheld RTC’s decision. Alviar was negligent and incurred in delay in the
performance of his contractual obligation. Contrary to the appellate court’s factual
determination, there was a specific time agreed upon (P inquired if it could be
PANTALEON vs. AMERICAN EXPRESS INTERNATIONAL
Facts:
P and his wife were about to purchase a diamond, pendant, and chain which
totaled USD 13, 826.00 and to pay for these, P presented his AMEX credit card and
his passport to the Coster sales clerk. (9:15, 15 mins before the tour group was
scheduled to depart from the store)
Charge purchase was referred electronically to R’s Amsterdam Office at 9:20 am
but after 10 mins, it still had not yet been approved. At 9:40, with the entire tour
group was already waiting for them, P asked the store clerk to cancel the sale.
Clerk asked to wait a few more minutes. 15 minutes later, P was informed that R
demanded bank references to which P supplied information.
10am/45 mins after the presentation of card, Coster decided to release the items
even without R’s approval of the purchase. The tour group’s schedule for the day
was cancelled due to lack of time.
Same thing happened to P while they were in the US. Hence, after coming back to
Manila, P sent a letter to R demanding an apology for the inconvenience and
humiliation.
R sent a letter stating among others that the delay was attributable to the
circumstance that the purchase was out of the usual charge purchase pattern
established.
Aggrieved, P instituted and action for damages. P argues that the failure to timely
approve or disapprove the purchase constituted mora solvendi on the part of the R
in the performance of its obligation.
RTC - concluded that R had been in clear delay based on the standard that the
normal approval time for purchase was “a matter of seconds.” (CAS) record on the
Amsterdam transaction shows how Amexco Netherlands viewed the delay as
unusually frustrating. Netherlands office continuously asked Manila office “how
long will this take?” The Court is convinced that defendants delay constitute[s]
breach of its contractual obligation to act on his use of the card abroad “with
special handling.
Issue: WON R had committed a breach of its obligations to Pantaleon?
Held:
Generally, the relationship between a credit card provider and its card holders is
that of creditor-debtor, with the card company as the creditor extending loans and
credit to the card holder, who as debtor is obliged to repay the creditor.
This relationship already takes exception to the general rule that as between a
bank and its depositors, the bank is deemed as the debtor.
> P is asking us, not baselessly, to again shift perspectives and again see
the credit card company as the debtor/obligor, insofar as it has the obli to
the customer as creditor/obligee to act promptly on its purchases on credit.
If there was delay on the part of respondent in its normal role as creditor to the
cardholder, such delay would not have been in the acceptance of the performance
of the debtor’s obligation (i.e., the repayment of the debt), but it would be delay in
the extension of the credit in the first place.
>Such delay would not fall under mora accipiendi, which contemplates that
the obligation of the debtor, such as the actual purchases on credit, has
already been constituted.
Herein, the establishment of the debt itself (purchases on credit of the jewelry) had
not yet been perfected, as it remained pending the approval or consent of the
respondent credit card company.
The findings of the trial court, amply established that the tardiness on the part of
the respondent in acting on P’s purchase did constitute delay on its part in
complying with its obligation to act promptly on its customer’s purchase request.
The waiting time of one hour was long enough time for the customer to walk to a
bank a km away, withdraw money over the counter, and return to the store.
Obli was to approve/disapprove in timely dispatch not to approve instantaneously.
Had R disapproved P’s purchase within second, this action would have never seen
the light of day.
The culpable failure of respondent herein is not the failure to timely approve
petitioner’s purchase, but the more elemental failure to timely act on the same,
whether favorably or unfavorably.
In that way, petitioner would have had informed basis on whether or not to pursue
the transaction at Coster, given the attending circumstances.
The delay committed by defendant was clearly attended by unjustified neglect and
bad faith, since it alleges to have consumed more than one hour to simply go over
plaintiff’s past credit history with defendant, his payment record and his credit and
bank references, when all such data are already stored and readily available from
its computer.
LORENZO SHIPPING CORP vs. BJ MARTHEL INTERNATIONAL
Facts:
P is a domestic corporation engaged in coastwise shipping.
R is engaged in trading, marketing, selling of various industrial commodities.
R has been supplying P with spare parts for the latter’s marine engines.
1989, P asked R for a quotation for various machine parts which R furnished and
stipulated in the quotation was:
Delivery: Within 2 months after receipt of firm order
Terms: 25% upon delivery, balance payable in 5 bi- monthly
equal Installment[s] not to exceed 90 days.
P then issued a purchase order but instead of paying the 25% DP, it issued 10 post-
dated checks. Subsequently, P issued another purchase order. This order stated the
term of payment to be “25% upon delivery, balance payable in 5 bi-monthly equal
installment[s].” Like the first order, this one did not state the date of the delivery.
R deposited P’s check however it was dishonored due to insufficiency of funds and
the remaining post-dated checks were returned to P > P claimed that it
replaced the check with a good one > R insisted that it returned
said check with P
R then placed the order with its principal in Japan by opening a letter of credit
under its own name. R then delivered that cylinder liners at P’s warehouse. The
sales invoices both contain the notation “subject to verification” and signed by P’s
warehouseman.
R then sent a Statement of Account to P. The 2 cylinder liners remained unsettled.
R’s VP sent a demand letter to P requiring P to pay for the liners.
> Instead of paying full amount, P offered to pay only 150K, claiming that the
cylinder liners were delivered late and due to the scrapping of the M/V, they would
have to sell the cylinder liners and pay the balance from the proceeds.
> R sent another demand letter requiring P to settle its obligation.
> Due to P’s failure, R filed before RTC.
RTC - held R bound to the quotation it submitted with respect to the terms of
payment and delivery of the order. It also declared that R had agreed to the
cancellation of the contract when it returned the postdated checks issued by
petitioner.
CA - reversed RTC. Held that respondent could not have incurred delay in the
delivery of cylinder liners as no demand, judicial or extrajudicial, was made by
respondent upon petitioner in contravention of the express provision of Article
1169 of the Civil Code.
Hence this petition.
Issue: Was there late delivery of the subjects of the contract of sale to justify
petitioner to disregard the terms of the contract considering that time was of the
essence thereof?
Held:
Petitioner theorizes that the quotation embodied the offer from respondent while
the purchase order represented its (petitioner’s) acceptance of the proposed terms
of the contract of sale. Thus, petitioner is of the view that these two documents
“cannot be taken separately as if there were two distinct contracts.”
We do not agree. It is a cardinal rule in interpretation of contracts that if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning shall control
In this case, both Purchase Order made no mention at all of the due dates of the
delivery. This court ruled in Bugatti v. CA we reiterated the principle that “[a]
contract undergoes three distinct stages— preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends at
the moment of agreement of the parties. The perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract.
The last stage is the consummation of the contract wherein the parties fulfill or
perform the terms agreed upon in the contract, culminating in the extinguishment
thereof.”
>the formal quotation represented the negotiation phase of the contract
and as of that time, the parties had not yet reached an agreement.
Notably, petitioner was the one who caused the preparation of Purchase Orders
yet it utterly failed to adduce any justification as to why said documents contained
terms which are at variance with those stated in the quotation provided by
respondent. The only plausible reason for such failure on the part of petitioner is
that the parties had, in fact, renegotiated the proposed terms of the contract of
sale. Moreover, as the obscurity in the terms of the contract between respondent
and petitioner was caused by the latter when it omitted the date of delivery of the
cylinder liners in the purchase orders and varied the term with respect to the due
date of the down payment, said obscurity must be resolved against it.
The failure of petitioner to notify respondent of said date is fatal to its claim that
time was of the essence in the subject contracts of sale.

We, therefore, hold that in the subject contracts, time was not of the essence. The
delivery of the cylinder liners on 20 April 1990 was made within a reasonable period
of time considering that respondent had to place the order for the cylinder liners
with its principal in Japan and that the latter was, at that time, beset by heavy
volume of work.

There having been no failure on the part of the respondent to perform its
obligation, the power to rescind the contract is unavailing to the petitioner. Here,
there is no showing that petitioner notified respondent of its intention to rescind
the contract of sale between them.
SOLAR HARVEST VS. DAVAO CORRUGATED CARTON CORPORATION
Facts:
P entered into an agreement, not reduced into writing, with R for the purchase of
corrugated carton boxes for P’s business of exporting fresh bananas. USD 1.10 each
P deposited on March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings
Account with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, P did not receive any boxes from R.
Jan 3, 2001, P wrote a demand letter for reimbursement of amount paid.
Feb 19, 2001, R replied that the boxes had been completed as early as April 3, 1998
and that petitioner failed to pick them up from R’s warehouse 30 days from
completion as agreed upon. R mentioned that P even placed an additional order of
24k boxes, out of which, 14K had been manufactured without any advanced
payment from P.
> R then demanded P to remove the boxes from the factory and to pay the
balance for additional boxes and storage fee.
P filed a complaint, averred that the parties agreed that the boxes will be delivered
within 30 days from payment but respondent failed to manufacture and deliver the
boxes within such time.
>R stated that P’s representative went to the factory and saw that the
boxes were ready for pick up and months later, rep visited again and
advised R to sell the boxes as rejects to recoup the cost of the unpaid boxes
because P’s transaction to ship bananas to China did not materialize.
RTC - ruled that R did not commit and breach of faith that would justify rescission
of contract and reimbursement of the amount paid by petitioner.
CA - held that P failed to discharge its burden of proving what it claimed to be the
parties’ agreement with respect to the delivery of the boxes. It was unthinkable
that over a period of more than 2 years, P did not even demand for the delivery of
boxes. R would be liable for breach of contract as P had not yet demanded from it
the delivery of the boxes.
Issue: WON there was delay in the performance of R’s obligation to P?
Held: The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law.
In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties’ respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in delay.
>But when different dates for performance of the obligations are fixed, the
default for each obligation must be determined by the rules given in the
first paragraph of the present article, that is, the other party would incur in
delay only from the moment the other party demands fulfillment of the
former’s obligation. Thus, even in reciprocal obligations, if the period for
the fulfillment of the obligation is fixed, demand upon the obligee is still
necessary before the obligor can be considered in default and before a
cause of action for rescission will accrue.
Indeed, there was lack of demand by P upon R to fulfill its obligation to
manufacture and deliver the boxes. The complaint only alleged that P made a
follow-up.
There is ample showing that the boxes had already been manufactured by
respondent. We note that R was willing to shoulder expenses for a representative
of the court to visit the plant and see the boxes. We also believe that the
agreement between the parties was for petitioner to pick up the boxes from
respondent’s warehouse, contrary to petitioner’s allegation. Thus, it was due to
petitioner’s fault that the boxes were not delivered to TADECO.
In sum, the Court finds that petitioner failed to establish a cause of action for
rescission, the evidence having shown that respondent did not commit any breach
of its contractual obligation. As previously stated, the subject boxes are still within
respondent’s premises. To put a rest to this dispute, we therefore relieve
respondent from the burden of having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after petitioner is given a period
of time within which to remove them from the premises.
CATHAY PACIFIC AIRWAYS vs. VASQUEZ
Facts:
Cathay Pacific accords its frequent flyers membership in its Marco Polo Club. One
of the several privileges that the members enjoy is that a frequent flyer booked in
the Business Class has priority for upgrading to First Class if the Business Class
Section is fully booked.

Respondent-spouses Vasquez are frequent flyers and gold card members of its
marco polo club. The pair, together with their friend went to hongkong and on
their return flight to Manila, upon presenting their boarding pass, the ground
stewardess saw a message that the couple were being upgraded to first class. Ms.
Chiu informed the pair but they refused as it would not look nice that they would
be in 1st class while their guests would remain in business class.
Ms. Chiu then informed them that if they would not avail of the privilege, they
would not be allowed to take the flight. Respondents fave in after talking to their
friends.
Upon their return to Manila, R demanded that they be indemnified in the amount
of 1M for the humiliation and embarrassment caused by its employees.
After Cathay’s failure to give them any feedback within its self-imposed deadline, R
instituted before RTC an action for damages against Cathay.
R’s claimed that Ms. Chiu was loud and discourteous and embarrassed them. They
also claimed that they were unjustifiably delayed to board the plane.
Cathay alleged that it is a practice among commercial airlines to upgrade
passengers to the next better class of accommodation, whenever opportunity
arises, such as when a certain section is fully booked. When Dr. Vazquez refused,
he then stood at the entrance & blocked the queue of passengers from boarding
the plane, which inconvenienced other passengers.
Cathay also asserted that its employees at the Hong Kong airport acted in good
faith in dealing with Vazquezes. Cathay also testified that overboooking is a widely
accepted practice in the airline industry and is in accordance with the International
Air Transport Association regulations.
Trial Court - Found for the Vazquezes. According to them, cathay offers various
classes of seats from which passengers are allowed to choose regardless of their
reasons or motives. The choice imposes a clear obligation on Cathay to transport
the passengers in the class chosen by them. The carrier cannot, without exposing
itself to liability, force a passenger to involuntarily change his choice. Cathay’s
actuations in this case displayed deceit, gross negligence, and bad faith, which
entitled the Vazquezes to awards for damages.
CA - Ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated
the contract of carriage without the former’s consent. However, Ms. Chiu shouted
at Dr. Vazquez, although it might seemed that way to the latter. It did not find her
to have acted with deliberate malice, deceit, gross negligence or bad faith.
Issue:
1. WON by upgrading the seat accommodation of the Vazquezes from Business
Class to First Class Cathay breached its contact of carriage with the Vazquezes
2. WON the upgrading was tainted with fraud or bad faith
3. WON the Vazquezes are entitled to damages
Held:
1. Breach of contract is defined as the “failure without legal reason to comply with
the terms of a contract. It is also defined as the “[f]ailure, without legal excuse,
to perform any promise which forms the whole or part of the contract.” It
turned out that the Business Class was overbooked in that there were more
passengers than the number of seats. Thus, the seat assignments of the
Vazquezes were given to waitlisted passengers, and the Vazquezes, being
members of the Marco Polo Club, were upgraded from Business Class to First
Class.
The Vazquezes should have been consulted first whether they wanted to
avail themselves of the privilege or would consent to a change of seat
accommodation before their seat assignments were given to other
passengers. They clearly waived their priority or preference when they
asked that other passengers be given the upgrade. It should not have been
imposed on them over their vehement objection. By insisting on the
upgrade, Cathay breached its contract of carriage with the Vazquezes.
2. Court is not convinced that the upgrading or the breach of contract was
attended by fraud or bad faith. They are serious accusations that can be so
conveniently and casually invoked, and that is why they are never
presumed. They amount to mere slogans or mudslinging unless
convincingly substantiated by whoever is alleging them. She was honest in
telling them that their seats were already given to other passengers and
the Business Class Section was fully booked. Needless to state, an
upgrading is for the better condition and, definitely, for the benefit of the
passenger.
There was no evidence of over- booking of the plane beyond ten percent,
and no passenger was ever bumped off or was refused to board the
aircraft.
3. In this case, we have ruled that the breach of contract of carriage, which
consisted in the involuntary upgrading of the Vazquezes’ seat
accommodation, was not attended by fraud or bad faith.
MERALCO v. RAMOY
Facts:
1987, National Power Corporation filed with the MTC QC a case for ejectment
against several persons allegedly illegally occupying its properties in Baesa,QC.
Among the defendants in the ejectment case was Ramoy.
MTC QC - rendered judgment for Meralco and ordered D to demolish or remove
the building and structures they built on the land of P.
that “as a public utility, MERALCO has the obligation to discharge its functions with
utmost care and diligence.”
The Court agrees with CA that Meralco failed to exercise the utmost degree of care
and diligence required of it. To repeat, it was not enough for MERALCO to merely
rely on the Decision of the MTC without ascertaining whether it had become final
and executory. Verily, only upon finality of said Decision can it be said with
conclusiveness that respondents have no right or proper interest over the subject
property, thus, are not entitled to the services of MERALCO.

NPC wrote Meralco requesting for the immediate disconnection of electric power The utmost care and diligence required of MERALCO necessitates such great
supply to all residential and commercial establishments in Baesa, QC. Ramoy’s was degree of prudence on its part, and failure to exercise the diligence required means
included in the list of establishments. Meralco then issued notice of disconnection that MERALCO was at fault and negligent in the performance of its obligation.
to R
This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.
In due time, the electric service connection of the R was disconnected. R Ramoy
testified that they are the registered owner of the parcel of land and that their
property was OUTSIDE the NPC property. They informed the Meralco foreman of
such fact but since he was threatened and told not to interfere, their electric power
was cut off.

It was found out that the residence of R Ramoy was indeed outside the NPC
Property.

RTC - ruled in favor of Meralco and dismissed R’s claim for damages. However, it
ordered Meralco to restore the electric power supply of respondents.

CA - faulted Meralco for not requiring from NPC a writ of execution or demolition
and in not coordinating with the court sheriff. Held Meralco liabe for damages.

Issue: WON Meralco was negligent when it disconnected the subject electric
service of R?

Held:
R’s cause of action against Meralco is anchored on culpa contractual or breach of
contract for the latter’s discontinuance of its service to respondents under Article
1170 of the Civil Code.
AREOLA vs. CA
Article 1173 also provides that the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and Facts:
corresponds with the circumstances of the persons, of the time and of the place.
The Court emphasized in Ridjo Tape & Chemical Corporation v. Court of Appeals
P was issued a Personal Accident Insurance Policy by R. However, after 7 months, R
unilaterally cancelled the same since company records revealed that P failed to pay
his premiums.
> covered a one year period
> P paid for the premium, documentary stamp and premium tax but did not
receive any official receipt.
> Subsequently, R sent P an endorsement stating that the policy is
cancelled for non-payment
> P confronted R and demanded issuance of an official receipt. Agent of R
told P that the cancellation was a mistake.
> P demanded that he be insured under same T&C or that the current
commercial rate of increase on the payment he made be returned.
> He then received a letter that the partial payment he made had been
exhausted pursuant to the provisions of Short Period Rate Scale at the
back of the policy.
> R further added that the amount P paid was in fact received.
R offered to extend the policy but P had already filed a complaint for breach of
contract.
RTC - ruled in favor of P, ordered R to pay damages. Declared that respondent
insurance company acted in bad faith in unilaterally cancelling subject insurance
policy, having done so only after seven months from the time that it had taken
force and effect and despite the fact of full payment of premiums and other
charges on the issued insurance policy. Held that there was breach of contract.
CA - reversed, respondent insurance company was not motivated by negligence,
malice or bad faith in cancelling subject policy rather, the cancellation of the
insurance policy was based on what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming payment of premiums.
Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a
furtive design or ulterior purpose, proof of which must be established convincingly.
Issue: WON the cancelling of the insurance policy was done with bad faith and/or
gross negligence?
Held:
Malapit’s fraudulent act of misappropriating the premiums paid by petitioner-
insured is beyond doubt directly imputable to respondent insurance company.
Malapit was the manager of its Baguio branch. It is beyond doubt that he
represented its interests and acted in its behalf. His act of receiving the premiums
collected is well within the province of his authority. Thus, his receipt of said
premiums is receipt by private respondent insurance company who, by provision of
law, particularly under Article 1910 of the Civil Code, is bound by the acts of its
agent.
Malapit’s failure to remit the premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration from liability could result
therefrom
Respondent company should be reminded that a contract of insurance creates
reciprocal obligations for both insurer and insured. Reciprocal obligations are those
which arise from the same cause and in which each party is both a debtor and a
creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.
Under the circumstances of the instant case, the relationship as creditor and debtor
between the parties arose from a common cause: i.e., by reason of their agreement
to enter into a contract of insurance under whose terms, respondent insurance
company promised to extend protection to petitioner-insured against the risk
insured for a consideration in the form of premiums to be paid by the latter.
TANGUILIG vs. CA
Facts:
P was doing business under the name and style JMT Engineering and General
Merchandising when it proposed to R to construct a windmill system for him.
> 60,000 with a one year guaranty from the date of completion and
acceptance by respodent.
Pursuant to the agreement, R paid P a downpayment of 30K and installment
payment of 15K
P then filed a complaint to collect the balance due to the refusal and failure of
respondent to pay the balance. R denied the claim saying that he had already paid
this amount to San Pedro General Merchandising which constructed the deep well
to which the windmill system was to be connected
> R argued that since the deep well formed part of the system the payment
he tendered to SPGMI should be credited to his account by petitioner. He
further assumed that his balance should be offset by the defects in the
windmill system which cause the structure to collapse after a strong wind
hit their place.
P denied that the construction of a deep well was included in the agreement to
build the windmill system for the 60K was solely for the windmill. He also disowned
any obligation to repair the system and insisted that its collapse was attributable to
a typhoon, a force majuere, which relieved him of any liability.
Issue/s:
1. WON the agreement to construct the windmill system included the installation
of a deep well
2. WON the P is under obligation to reconstruct the windmill after in collapsed?
Held:
1. Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. Moreover, it is a cardinal rule in the interpretation of contracts
that the intention of the parties shall be accorded primordial consideration and in case of
doubt, their contemporaneous and subsequent acts shall be principally considered. \
2. The second issue is not a novel one. In a long line of cases this Court has consistently held
that in order for a party to claim exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the
loss or destruction of the object of the contract.
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—unforseeable nor unavoidable. On the
contrary, a strong wind should be present in places where windmills are constructed,
otherwise the windmills will not turn.

RTC - held that the construction of the deep well was not part of the windmill
project as evidenced clearly by the letter proposals submitted by petitioner to
respondent. 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.

CA - reversed, ruled that the construction of the deep well was included in the
agreement of the parties because the term “deep well” was mentioned in both
proposals. Gave credence to the proprietor of SPGMI which installed the deep well
that P told him that the cost of constructing the deep well would be deducted from
the contract price of 60k.
>R’s payment of 15K to SPGMI should be applied to his remaining balance
with P thus effectively extinguishing his contractual obligation.
> Rejected P’s claim of force majeure and ordered latter to reconstruct the
windmill.
NAKPIL SONS vs. CA
Facts:
The office building of R Philippine Bar Association was constructed by United Constructions
and it was completed by 1966.
Two years later, an unusually strong earthquake hit Manila and the building sustained major
damage. As a temporary remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28
Plaintiff commenced this action for recovery of damages arising for the partial collapse of the
building against United Construction, Inc.
> Plaintiff alleges that the collapse of the building was due to the defects in the
construction, failure of the contractors to follow plans and specifications and
violations by the defendants of the terms of the contract.
Defendants in turn filed a 3rd party claim against the architects who prepared the plans and
specifications, alleging in essence that the collapse was due to the defects in the said plans
and specifications.
After the protracted hearings, the Commissioner eventually submitted his report with the
findings that while the damage sustained was caused directly by the earthquake, they were
also caused by the defects in the plans and specifications prepared by the 3rd party
defendants’ architects, deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite workmanship in the construction
of the building.
RTC - agreed with the findings of the Commissioner, except as to the holding that the owner
is charged with full time supervision of the construction.
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus Juris 1174).
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 negligence of the defendant and the third-party defendants petitioners was established
beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made substantial deviations from the plans
and specifications, and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications
prepared by them.

CA - modified the decision of RTC and included an award of an additional amount to R

Hence this petition

Issue: WON an act of God - earthquake, which caused the failure of the building, exempts
from liability, parties who are otherwise liable because of their negligence?

Held:

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of
the New Civil Code.

On the other hand, the general rule is that no person shall be responsible for events which
could not be foreseen or which, though foreseen, were inevitable.
REPUBLIC vs. LUZON STEVEDORING

Facts:
A barge owned by R was being towed down the Pasig river by tugboats that also belonged to
R. The barge rammed against one of the wooden piles of the Nagtahan bailey bridge,
smashing the posts and causing the bridge to list.

Sued by the Republic for actual and consequential damages, R disclaimed liability on the
ground that it had exercised due diligence in the selection and supervision of its employees,
that the damages were cause by force majeure; Nagtahan bridge is an obstruction to
navigation.

RTC - held the R liable for the damage cause and ordered it to pay the P the actual cost of the
repair of the bridge.

Issue/s:
• WON the collision of appellant's barge with the supports or piers of the Nagtahan bridge
was in law caused by fortuitous event or force majeure, and

Held:

As to the first question, considering that the Nagtahan bridge was an immovable and
stationary object and uncontrovertedly provided with adequate openings for the passage of
water craft, including barges like of appellant’s, it is undeniable that the unusual event that
the barge, exclusively controlled by appellant, rammed the bridge supports raises a
presumption of negligence on the part of appellant or its employees manning the barge or
the tugs that towed it. For in the ordinary course of events, such a thing does not happen if
proper care is used

Force majeure by definition, are extraordinary events not foreseeable or avoidable. It is,
therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty
to foresee the happening is not impossibility to foresee the same:

P knowing and appreciating the perils posed by the swollen stream and its swift current,
voluntarily entered into a situation involving obvious danger; it therefore assured the risk, and
can not shed responsibility merely because the precautions it adopted turned out to be
insufficient.
FAR EASTERN BANK TRUST CO vs. CA
Facts:
PR Luna applied and was accorded a FAREASTCARD issued by P. Upon his request,
the bank also issued a supplemental card to PR Clarita Luna.
1988, Clarita lost her credit card and P was informed. In cases of this nature, the
policy was to record the lost card, along with the principal card, as a Hot Card or
Cancelled Card in its master file.
Luis tendered a despedida lunch for a friend at Hotel Intercontinental Manila. Luis,
presented his FAREASTCARD to the attending waiter who promptly had it verified
through a telephone call to the bank’s credit card dept. Card wasnt honored, Luis
had to pay in cash and was embarassed.
PR demanded from P the payment of damages.
VP of the bank expressed their apologies and mentioned that their investigation
revealed that FAREASTCARD failed to inform you about its security policy and that
an employee of them did not consider the possibility that it may have been you
who was presenting the card at that time.
Still, PR filed a complaint for damages.
RTC - rendered a decision ordering P to pay PR
CA - affirmed the decision of trial court
Issue:
Held:
In culpa contractual, moral damages may be recovered where the defendant is
shown to have acted in bad faith or with malice in the breach of the contract.
Concededly, the bank was remiss in indeed neglecting to personally inform Luis of
his own card's cancellation. Nothing in the findings of the trial court and the
appellate court, however, can sufficiently indicate any deliberate intent on the part
of FEBTC to cause harm to private respondents. Neither could FEBTC's negligence
in failing to give personal notice to Luis be considered so gross as to amount to
malice or bad faith.
Article 21 of the Code, it should be observed, contemplates a conscious act to
cause harm. Thus, even if we are to assume that the provision could properly relate
to a breach of contract, its application can be warranted only when the defendant's
disregard of his contractual obligation is so deliberate as to approximate a degree
of misconduct certainly no less worse than fraud or bad faith. Most importantly,
Article 21 is a mere declaration of a general principle in human relations that clearly
must, in any case, give way to the specific provision of Article 2220 of the Civil
Code authorizing the grant of moral damages in culpa contractual solely when the
breach is due to fraud or bad faith.
The Court has not in the process overlooked another rule that a quasi-delict can be
the cause for breaching a contract that might thereby permit the application of
applicable principles on tort even where there is a pre-existing contract between
the plaintiff and the defendant.
This doctrine, unfortunately, cannot improve private respondents' case for it can
aptly govern only where the act or omission complained of would constitute an
actionable tort independently of the contract.
Where, without a pre-existing contract between two parties, an act or omission can
nonetheless amount to an actionable tort by itself, the fact that the parties are
contractually bound is no bar to the application of quasi-delict provisions to the
case. Here, private respondents' damage claim is predicated solely on their
contractual relationship; without such agreement, the act or omission complained
of cannot by itself be held to stand as a separate cause of action or as an
independent actionable tort.
Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card
issued to private respondent Luis should entitle him to recover a measure of
damages sanctioned under Article 2221 of the Civil Code
SALUDAGA vs. FEU
Facts:
Petitioner Saludaga was a.sophomore law student of respondent
FEU when he was shot by Rosete, one of the security guards on
duty at school on Aug. 18, 1996. Rosete was brought to the
police where he explained that the shooting was accidental and
he sas eventually released.
Saludaga thereafter filed a complaint for dagaes against
respondents on the ground thatthey breached their oligation to
provide students with a safe and secure environment and an
atmosphere conducive to learning.
Respondents in tirn diled a thir-party companit against Galaxy
Development and Management Corporation (Galaxy), the
agency contracted by FEU to provide security services and
Imperial, Galaxy’s president to indemnify them for whataver
and pay attorney;s fees and cost of the suit.
Galaxy and Imperial filed a fourth-arty complaint against AFP
General Insurance.
RTC – FEU AND De Jesus(FEU President) to pay jointly and
severally Joseph Saladuga; Galaxy Management and
Imperial(Galaxy President) to indemnify jointly and severally
FEU and De Jesus for the above mentioned amounts.
CA – reversed the decision. Complaint filed by Saludaga
against FEU is dismissed.
ISSUE/S:
1. W/N FEU breached its contract to ensure and take
adequate steps to maintain peace and order within the
campus -NO
2. W/N The shooting incident is a fortuitous event – NO
3. W/N respondents shall be held liable for damages under
Art. 2180 of the civil code. - NO
The incident is not a fortuitous event. In order for force
majeure to be considered, respondents must show that no
negligence or misconduct was committed that may have
occasioned the loss. A n act of God cannot be invoked to
protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One’s negligence
may have concurred with an act of God in producing damage
and injury to another; nonetheless, showing that the immediate
or proximate cause of the damage or injury was a fortuitous
event would not exempt one from liability. When the effect is
found to be partly the result of a person’s participation—
whether by active intervention, neglect or failure to act—the
whole occurrence is humanized and removed from the
rulesapplicable to acts of God.
Article 1170 of the Civil Code provides that those who are
negligent in the performance of their obligations are liable for
damages. Accordingly, for breach of contract due to negligence
in
providing a safe learning environment, respondent FEU is
liable to
petitioner for damages.
In the instance case, it was established thatpetitioner
spent 35, 298.25 for his hospitalization and
 othermedical expenses. While the trial court correctly
imposed interest on said amount, however, the case at
bar involves an obligation arising from a contract and
not a lon or forbearance of money. As such, the proper
rate of legal interest is 6% per annum of the amount
demanded. After this Decision becomes final and
executory, the rate shal l be 12% per annum until its
satisifcation.
We agree with the findings of the Court of Appeals that
respondents cannot be held liable for damages under Art. 2180
of the Civil Code because respondents are not the employers of
Rosete. The latter was employed by Galaxy. The instructions
issued by respondents’ Security Consultant to Galaxy and its
security guards are ordinarily no more than requests commonly
envisaged in the contract for services entered into by a principal
and a security
agency. They cannot be construed as the element of control as
to treat respondents as the employers of Rosete
In Soliman, Jr. v. Tuazon,
recruits, hires and assigns the works of its watchmen or security
guards to a client, the employer of such guards or watchmen is such
agency, and not the client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence of a good
father of a family cannot be demanded from the said client:
... [I]t is settled in our jurisdiction that where the security agency, as
here, recruits, hires and assigns the work of its watchmen or security
guards, the agency is the employer of such guards or watchmen.
Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers
of such agency. As a general rule, a client or customer of a security
agency has no hand in selecting who among the pool of security
guards or watchmen employed by the agency shall be assigned to it;
the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are protected
by the security guards.
Third party claim against galaxy
“a. respondent Far Eastern University (FEU) is ORDERED to
pay petitioner actual damages in the amount of P35,298.25,
plus 6% interest per annum from the filing of the complaint
until the finality of this Decision. After this decision becomes
final and executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner
temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorney’s fees and
litigation expenses in the amount of P50,000.00;
c. the award of exemplary damages is DELETED.”
The Complaint against respondent Edilberto C. De Jesus is
DISMISSED. The counterclaims of respondents are likewise
DISMISSED.
Galaxy Development and Management Corporation (Galaxy)
and its president, Mariano D. Imperial are ORDERED to jointly
and severally pay respondent FEU damages equivalent to the
above- mentioned amounts awarded to petitioner.
FIL-ESTATE PROPERTIES, INC. and FIL-ESTATE
NETWORK, INC. vs. SPOUSES CONRADO and MARIA
VICTORIA RONQUILLO
Facts:
Petitioner Fil-Estate Properties, Inc. is the owner and developer
of the Central Park Place Tower while co-petitioner Fil-Estate
Network, Inc. is its authorized marketing agent. Respondent
Spouses Conrado and Maria Victoria Ronquillo purchased from
petitioners an 82-square meter condominium unit at Central
Park Place Tower in Mandaluyong City for a pre-selling
contract price of FIVE MILLION ONE HUNDRED
SEVENTY-FOUR THOUSAND ONLY (P5,174,000.00).
On 29 August 1997, respondents executed and signed a
Reservation Application Agreement wherein they deposited
P200,000.00 as reservation fee. As agreed upon, respondents
paid the full downpayment of P1,552,200.00 and had been
paying the P63,363.33 monthly amortizations until September
1998.
Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of P2,198,949.96 to
petitioners, respondents through two (2) successive letters,
demanded a full refund of their payment with interest.
respondents were constrained to file a Complaint for Refund
and Damages before the Housing and Land Use Regulatory
Board (HLURB). Respondents prayed for
reimbursement/refund of P2,198,949.96 representing the total
amortization payments, P200,000.00 as and by way of moral
damages, attorney’s fees and other litigation expenses.
Petitioners filed a motion to lift order of default and attached
their position paper attributing the delay in construction to the
1997 Asian financial crisis. Petitioners denied committing fraud
or misrepresentation which could entitle respondents to an
award of moral damages.
On 2002, the HLURB, through Arbiter Atty. Joselito F.
Melchor, rendered judgment ordering petitioners to jointly and
severally pay respondents. The Arbiter considered petitioners’
failure to develop the condominium project as a substantial
breach of their obligation which entitles respondents to seek for
rescission with payment of damages. The Arbiter also stated
that mere economic hardship is not an excuse for contractual
and legal delay.
On 17 February 2005, the Board of Commissioners of the
HLURB denied[4] the petition and affirmed the Arbiter’s
Decision. The HLURB reiterated that the depreciation of the
peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of
their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied[
1) whether or not the Asian financial crisis constitute a
fortuitous event which would justify delay by petitioners in the
performance of their contractual obligation;- NO
 2) assuming that petitioners are liable, whether or not 12%
interest was correctly imposed on the judgment award, and 3)
whether the award of moral damages, attorney’s fees and
administrative fine was proper.
w/n RESPONDENTS ARE ENTITLED TO RESCISION OF
CONTRCATS UNDER ART. 1191 OF THE ncc- yes
1) The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty
e.g., increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a
real estate enterprise engaged in the pre-selling of condominium units
is concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an eve- ryday
occurrence, and fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.[16]
2)the non-performance of petitioners’ obligation entitles
respondents to rescission under Article 1191 of the New Civil
Code which states:
Article 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 payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the
rule governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.—No installment payment
made by a buyer in a subdivision or condominium project for the lot
or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest
thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are
entitled to rescind the contract and demand reimbursement for
the payments they had made to petitioners.
WHEREFORE, the petition is PARTLY GRANTED. The
appealed Decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on the
amount due computed from the time of respondents’ demand
for refund on 8 October 1998.
METRO CONCAST STEEL CORP v. ALLIED BANK CORP.
Metro Concast obtained several loans from Allied Bank. These
loan transactions were covered by a promissory note and
separate letters of credit/trust receipts.
Petitioners failed to settle their obligations under the
aforementioned promissory note and trust receipts, hence,
Allied Bank, through counsel, sent them demand letters,[20] all
dated December 10, 1998, seeking payment of the total amount
of P51,064,093.62, but to no avail. Thus, Allied Bank was
prompted to file a complaint for collection of sum of money.
(subject complaint) against petitioners before the RTC.
petitioners admitted their indebtedness to Allied Bank but
denied liability for the interests and penalties charged.
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the
peso against the US dollar contributed greatly to the downfall
of the steel industry, directly affecting the business of Metro
Concast. Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concast’s remaining
assets, consisting of machineries and equipment, to Allied
Bank, which the latter, however, refused. Instead, Allied Bank
advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations.
In 2002, Peakstar Oil Corporation (Peakstar), represented by
one Crisanta Camiling (Camiling), expressed interest in buying
the scrap metal.
During the negotiations with Peakstar, petitioners claimed that
Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal
department, acted as the latter’s agent. Eventually, with the
alleged conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement was drawn between Metro
Concast, represented by petitioner Jose Dychiao, and Peakstar,
through Camiling, under which Peakstar obligated itself to
purchase the scrap metal.
Unfortunately, Peakstar reneged on all its obligations under the
MoA. In this regard, petitioners(MoonCast) asseverated that:
(a) their failure to pay their outstanding loan obligations to
Allied Bank must be considered as force majeure; and (b) since
Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners
mooncast must therefore be deemed to have settled their
obligations to Allied Bank.
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of moral
damages
RTC - dismissed the subject complaint, holding that the “causes
of action sued upon had been paid or otherwise extinguished.”
It ruled that since Allied Bank was duly represented by its
agent, Atty. Saw, in all the negotiations and transactions with
Peakstar considering that Atty. Saw (a) drafted the MoA, (b)
accepted the bank guarantee issued by Bankwise, and (c) was
apprised of developments regarding the sale and disposition of
the scrap metal — then it stands to reason that the MoA
between Metro Concast and Peakstar was binding upon said
bank.
CA - Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the
thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor,
compensation or novation.
In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due
to Peakstar’s failure to perform its own obligations to Metro
Concast pursuant to the MoA. Petitioners classify Peakstar’s
default as a form of force majeure in the sense that they have,
beyond their control, lost the funds they expected to have
received from the Peakstar (due to the MoA) which they would,
in turn, use to pay their own loan obligations to Allied Bank.
They further state that Allied Bank was equally bound by
Metro Concast’s MoA with Peakstar since its agent, Atty. Saw,
actively represented it during the negotiations and execution of
the said agreement.
Petitioners’ arguments are untenable.
The MoA is a sale of assets contract, while petitioners’
obligations to Allied Bank arose from various loan transactions.
Absent any showing that the terms and conditions of the latter
transactions have been, in any way, modified or novated by the
terms and conditions in the MoA, said contracts should be
treated separately and distinctly from each other, such that the
existence, performance or breach of one would not depend on
the existence, performance or breach of the other.
the issue on whether or not Allied Bank expressed its
conformity to the assets sale transaction between Metro
Concast and Peakstar (as evidenced by the MoA) is actually
irrelevant to the issues related to petitioners’ loan obligations to
the bank.
While it may be argued that Peakstar’s breach of the MoA was
unforeseen by petitioners, the same is clearly not “impossible”
to foresee or even an event which is “independent of human
will.”
Now, anent petitioners’ reliance on force majeure, suffice it to
state that Peakstar’s breach of its obligations to Metro Concast
arising from the MoA cannot be classified as a fortuitous event
under jurisprudential formulation.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to
foresee the same.
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render
it impossible for the debtor to fulfill obligations in a normal
manner; and, (d) the obligor must be free from any participation in
the aggravation of the injury or loss.
While it may be argued that Peakstar’s breach of the MoA was
unforeseen by petitioners, the same is clearly not “impossible”
to foresee or even an event which is “independent of human
will.”

While it may be argued that Peakstar’s breach of the MoA was

unforeseen by petitioners, the same is clearly not “impossible”
to foresee or even an event which is “independent of human
will.” Neither has it been shown that said occurrence rendered
it impossible for petitioners to pay their loan obligations to
Allied Bank and thus, negates the former’s force majeure
theory altogether.
SEOANE, administratrix of The Intestate Estate of Eduardo
Fargas, plaintiff and appelle v. FRANCO, administratrix of
The Intestate Estate of Manuel Franco, defendant and appellant.
AUSTRIA v. CA
In a receipt dated 30 January 1961, Maria G. Abad
acknowledged having received from Guillermo Austria one (1)
pendant with diamonds valued at P4,500.00, to be sold on
commission basis or to be returned on demand. On 1 February
1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by
two men, one of whom hit her on the face, while the other
snatched her purse containing jewelry and cash, and ran away.
Among the pieces of jewelry allegedly taken by the robbers
was the consigned pendant. The incident became the subject of
a criminal case filed in the Court of First Instance of Rizal
against certain persons (Criminal Case No. 10649, People vs.
Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value
notwithstanding demands, Austria brought in the Court of First
Instance of Manila an action against her and her husband f or
recovery of the pendant or of its value, and damages.
Answering the allegations of the complaint, defendants spouses
set up the defense that the alleged robbery had extinguished
their obligation.
RTC – ordered defendant spouses Abad, jointly and severally
pay the sum of 4,500 with legal interest. It held that defendants
failed to prove the fact of robbery, or if indeed it was
committed, Abad was guilty of negligence and such negligence
di not free her from liability for damages for the loss of the
jewelry.
CA – reversed the judgment. The facts of robbery have been
duly established and the loss of jewelry was on a ccount of a
fortuitous event, and relieved them from liability for damages
to the ownder.
Hence, this petition
Petitioner’s contention: for a robbery to fall under FE and
relieve the obligor from obligation under Art 1174, the
occurrence of robbery should be proved by a final judgment of
conviction ina criminal case.
W/N there is fortuitous event.
The court finds no merit in the contention of petitioner.
To constitute a case of fortuoties event that would exempt a
person from responsibility, it is necessary that (1) the event
must be independent of the human will (or rather, of the
debtor's or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal
manner; and that (3) the obligor must be free of participation in,
or aggravation of, the injury to the creditor. A fortuitous event,
therefore, can be produced by nature, e.g., earthquakes, storms,
floods, etc., or by the act of man, such as war, attack by bandits,
robbery, etc., provided that the event has all the characteristics
enumerated above.
The point at issue in this proceeding is how the fact of robbery
is to be established in order that a person may avail of the
exempting provision of Article 1174 of the new Civil Code,
which reads as follows:
"ART. 1174. Except in cases expressly specified by law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, WHEREFORE, finding no error in the decision of the Court of
though foreseen, were inevitable." Appeals under review, the petition in this case is hereby
dismissed, with costs against the petitioner.
To avail of the exemption granted in the law, it is not necessary
that the persons responsible for the occurrence should be found
or punished; it would only be sufficient to establish that the
unforeseeable event, the robbery in this case, did take place
without any concurrent fault on the debtor's part, and this can
be done by preponderant evidence.

in order to completely exonerate the debtor

for reason of a fortuitous event, such debtor must, in addition to

the casus itself, be free of any concurrent or contributory fault
or negligence, This is apparent from Article 1170 of the Civil
Code of the Philippines, providing that:

"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."

It is clear that under the circumstances prevailing at present in

the City of Manila and its suburbs, with their high Incidence of
crimes against persons and property, that renders travel after
nightfall a matter to be sedulously avoided without suitable
precaution and protection, the conduct of respondent Maria G.
Abad, in returning alone to her house in the evening, carrying
jewelry of considerable value, would be negligent per se, and
would not exempt her from responsibility in the case of a
robbery. We are not persuaded, however, that the same rule
should obtain ten years previously, in 1961, when the robbery
in question did take place, for at that time criminality had not JUNTILLA v. FONTINAR
by far reached the levels attained in the present day.
Petitioner Juntilla was a passenger of a PUJ on the course of trip from Danao City
to Cebu City. The jeepney was driven by defendant Berfol Camoro. It
was registered under the franchise of defendant Clemente Fontanar
but was actually owned by defendant Fernando Banson. When the
jeepney reached Mandaue City, the right rear tire exploded causing
the vehicle to turn turtle. In the process, the plaintiff who was sitting
at the front seat was thrown out of the vehicle. Upon landing on the
ground, the plaintiff momentarily lost consciousness. When he came
to his senses, he found that he had a lacerated wound on his right
palm. Aside from this, he suffered injuries on his left arm, right thigh
and on his back.
Because of his shock and injuries, he went back to Danao City but on
the way, he discovered that his ‘Omega’ wrist watch was lost. Upon
his arrival in Danao City, he immediately entered the Danao City
Hospital to attend to his injuries, and also requested his father-in-law
to proceed immediately to the place of the accident and look for the
watch. In spite of the efforts of his father-in-law, the wrist watch,
which he bought for P852.70 (Exh. “B”) could no longer be found.”
Juntilla filed a civil ase for breach of contract
with damages against
Clemente Fontanar, Fernando Banzon and Berfol Camoro.
RTC Cebu branch 1 – in favor of petitioner and ordered jointly
and severally to pay plaintiff of reimbursement of lost watcg,
doctor fees ad unrealozed zalary.
RTC Cebu Branch XIV – in favor of respondents finding
accident was due to a fortuitous event, hence not liable. A tire
blowout, such as what happened in the case at bar, is an inevitable
accident that exempts the carrier from liability, there being absence
of a showing that there was misconduct or negligence on the part of
the operator in the operation and maintenance of the vehicle
involved. The fact that the right rear tire exploded, despite being
brand new, constitutes a clear case of caso fortuito which can be a
proper basis for exonerating the defendants from liability. x x x” The
Court of First Instance relied on the ruling of the Court of
Appeals in Rodriguez v. Red Line Transportation Co., CA-G.R.
No. 8136, December 29, 1954, where the Court of Appeals
ruled that:
“A tire blow-out does not constitute negligence unless the tire was
already old and should not have been used at all. Indeed, this would
be a clear case of fortuitous event.”
However, In the case at bar, there are specific acts of
negligence on the part of the respondents. The records show
that the passenger jeepney turned turtle and jumped into a ditch
immediately after its right rear tire exploded. The evidence
shows that the passenger jeepney was running at a very fast
speed before the accident. We agree with the observation of the
petitioner that a public utility jeep running at a regular and safe
speed will not ump into a ditch when its right rear tire blows
up. There is also evidence to show that the passenger jeepney
was overloaded at the time of the accident. The petitioner stated
that there were three (3) passengers in the front seat and
fourteen (14) passengers in the rear. The sudden blowing-up,
therefore, could have been caused by too much air pressure
injected into the tire coupled by the fact that the jeepney was
overloaded and speeding at the time of the accident.
In a legal sense and, consequently, also in relation to contracts, a
caso fortuito presents the following essential characteristics: (1) The
cause of the unforeseen and unexpected occurrence, or of the failure
of the debtor to comply with his obligation, must be independent of
the human will. (2) It must be impossible to foresee the event which
constitutes the caso fortuito, or if it can be foreseen, it must be
impossible to avoid. (3) The occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner.
And (4) the obligor (debtor) must be free from any participation in
the aggravation of the injury resulting to the creditor.’ (5
Encyclopedia Juridica Española, 309.)”

In the case at bar, the cause of the unforeseen and unexpected

occurrence was not independent of the human will. The
accident was caused either through the negligence of the driver
or because of mechanical defects in the tire. Common carriers
should teach their drivers not to overload their vehicles, not to
exceed safe and legal speed limits, and to know the correct
measures to take when a tire blows up thus insuring the safety
of passengers at all times.

It is sufficient to reiterate that the source of a common carrier’s

legal liability is the contract of carriage, and by entering into
the said contract, it binds itself to carry the passengers safely as
far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with a due regard for all the
circumstances. The records show that this obligation was not
met by the respondents.

Wherefore, rtc branch XIV’s decision was reversed.

HERNANDEZ v. COA Chairman
Teodoro M. Hernandez was the officer-in-charge and special
disbursing officer of the Ternate Beach Project of the
Philippine Tourism Authority in Cavite. As such, he went to the
main office of the Authority in Manila on July 1, 1983, to
encash two checks covering the wages of the employees and
the operating expenses of the Project. He estimated that the
money would be available by ten o’clock in the morning and
that he would be back in Ternate by about two o’clock in the
afternoon of the same day. For some reason, however, the
processing of the checks was delayed and was completed only
at three o’clock that afternoon. Petitioner decided nevertheless
to encash them because the Project employees would be
waiting for their pay the following day. He thought he had to do
this for their benefit as otherwise they would have to wait until
the following Tuesday at the earliest when the main office
would reopen. And so, on that afternoon of July 1, 1983, he
collected the cash value of the checks and left the main office
with not an insubstantial amount of money in his hands. After,
The petitioner had two choices, to wit: (1) return to Ternate,
Cavite, that same afternoon and arrive there in the early
evening; or (2) take the money with him to his house in
Marilao, Bulacan, spend the night there, and leave for Ternate
the following morning. He opted for the second, thinking it the
safer one. And so, on that afternoon of July 1, 1983, at a little
past three o’clock, he took a passenger jeep bound for his house
in Bulacan. It was while the vehicle was along Epifanio de los
Santos Avenue that two persons boarded with knives in hand
and robbery in mind. One pointed his weapon at the petitioner’s
side while the other slit his pocket and forcibly took the money
he was carrying. The two then jumped out of the jeep and ran.
Hernandez, after the initial shock, immediately followed in
desperate pursuit. He caught up with Virgilio Alvarez and over-
came him after a scuffle. The petitioner sustained injuries in the
lip, arms and knees. Alvarez was subsequently charged with
robbery and pleaded guilty. But the hold-upper who escaped is
still at2large and the stolen money he took with him has not
been recovered.
On July 5, 1983, the petitioner, invoking the foregoing facts,
filed
a request for relief from money accountability under Section
638 of
the Revised Administrative Code. This was favorably indorsed
by
the General Manager of the Philippine Tourism Authority the
same
day and by its Corporate Auditor and absolved Hernandez of
negligence.
however, the Commission on Audit, through then Chairman
Francisco S. Tantuico, Jr. denied the petitioner’s request,
observing inter alia:
In the instant case, the loss of the P10,175.00 under the
accountability of
Mr. Hernandez can be attributed to his negligence because had he
brought
the cash proceeds of the checks (replenishment fund) to the Beach
Park in
Ternate, Cavite, immediately after encashment for safekeeping in his
office,
which is the normal procedure in the handling of public funds, the
loss of said cash thru robbery could have been aborted.
The petitioner stresses that he decided to encash the checks in
the afternoon of July 1, 1983, which was a Friday, out of
concern for the employees of the Project, who were depending
on him to make it possible for them to collect their pay the
following day. July 2 and 3 being non-working days and July 4
being a holiday, they could receive such payment only on the
following Tuesday unless he brought the encashed checks on
July 1, 1983, and took it to Ternate the following day.
On his decision to take the money home that afternoon instead
of returning directly to Ternate, he says that the first course was
more prudent as he saw it, if only because his home in Marilao,
Bulacan, was much nearer than his office in Ternate, Cavite.
The drive to Ternate would take three hours, including a 30-
minute tricycle ride along the dark and lonely Naic-Ternate
road; and as he would be starting after three o’clock in the
afternoon, it was not likely that he would reach his destination
before nightfall. By contrast, the road to Marilao was nearer
and safer (or so he reasonably thought) and there was less risk
involved in his taking the money the following morning to
Ternate rather than on that same afternoon of July 1.
The petitioner maintains that the likelihood of robbery during
the time in question was stronger in Ternate than in Marilao, so
he should not be blamed if the robbery did occur while he was
on the way to Marilao that afternoon. That was a fortuitous
event that could not have reasonably been foreseen, especially
on that busy highway.
W/N it was a FE – YES
It is pointless to argue that Hernandez should have encashed the
vouchers earlier because they were dated anyway on June 29,
1983. He was not obliged to encash the checks earlier and then
again there might have been any number of reasons why he did
so only on July 1, 1983. The point is that he did encash the
checks on that date and took the money to Marilao and not
Ternate in view of the lateness of the hour. The question before
us is whether these acts are so tainted with negligence or
recklessness as to justify the denial of the petitioner’s request
for relief from accountability for the stolen money.
It seems to us that the petitioner was moved only by the best of
motives when he encashed the checks on July 1, 1983, so his
co- employees in Ternate could collect their salaries and wages
the following day. Significantly, although this was a non-work-
ing day, he was intending to make the trip to his office the
following day for the unselfish purpose of accommodating his
fellow workers. The other alternative was to encash the checks
on July 5, 1983, the next working day after July 1, 1983, which
would have meant a 5-day wait for the payment of the said
salaries and wages. Being a modest employee himself,
Hernandez must have realized the great discomfort it would
cause the laborers, who were dependent on their wages for their
sustenance and were anxious to collect their pay as soon as
possible.
For such an attitude, Hernandez should be commended rather
than faulted.
As for Hernandez’s choice between Marilao, Bulacan, and
Ternate, Cavite, one could easily agree that the former was the
safer destination, being nearer, and in view of the comparative
hazards in the trips to the two places. It is true that the
petitioner miscalculated, but the Court feels he should not be
blamed for that. The decision he made seemed logical at that
time and was one that could be expected of a reasonable and
prudent person. And if, as it happened, the two robbers attacked
him in broad daylight in the jeep while it was on a busy
highway, and in the presence of other passengers, it cannot be
said that all this was the result of his imprudence and
negligence. This was undoubtedly a fortuitous event covered by
the said provisions, something that could not have been
reasonably foreseen although it could have happened, and did.

We find, in sum, that under the circumstances as above

narrated, the petitioner is entitled to be relieved from
accountability for the money forcibly taken from him in the
afternoon of July 1, 1983.

FIL-ESTATE PROPERTIES, INC. V. SPOUSES GO
On December 29, 1995, petitioner Fil-Estate Properties, Inc.
(Fil- Estate) entered into a contract to sell a condominium unit
to respondent spouses Gonzalo and Consuelo Go at “Eight Sto.
Domingo Place,” a condominium project of petitioner located
on Sto. Domingo Avenue, Quezon City. The spouses paid a
total of P3,439,000.07 of the full contract price set at
P3,620,000.00.
Because petitioner failed to develop the condominium project,
on August 4, 1999, the spouses demanded the refund of the
amount they paid, plus interest. When petitioner did not refund
the spouses, the latter filed a complaint against petitioner for
reimbursement
In answer, petitioner claimed that respondents had no cause of
action since the delay in the construction of the condominium
was caused by the financial crisis that hit the Asian region, a
fortuitous event over which petitioner had no control.
HLURB – In favor of spouses Go. The HLURB ratiocinated
that the Asian financial crisis that resulted in the depreciation of
the peso is not a fortuitous event as any fluctuation in the value
of the peso is a daily occurrence which is foreseeable and its
deleterious effects avoided by economic measures. The
HLURB went on to say that when petitioner discontinued the
development of its condominium project, it failed to fulfill its
contractual obligations to the spouses. And following Article
3
1475 of the Civil Code, upon perfection of the contract, the
parties, here the spouses Go, may demand performance. And
4 Also, we cannot generalize that the Asian financial crisis in
under Article 1191 of the same code, should one of the parties,
in this instance Fil-Estate, fail to comply with the obligation,
the aggrieved party may choose between fulfillment or
rescission of the obligation, with damages in either case.
Inasmuch as Fil-Estate could no longer fulfill its obligation, the
spouses Go may ask for rescission of the contract with
damages. Ordered fil estate to refund plus 12% interest.
CA – affirmed HLURB’s decision and declared that the Asian
financial crisis could not be considered a fortuitous event and
8
that respondents’ right is provided for in Section 23 of
Presidential Decree (P.D.) No. 957, otherwise known as “The
Subdivision and Condominium Buyers’ Protective Decree.”
The appellate court also noted that there was yet no crisis in
1995 and 1996 when the project should have been started, and
petitioner cannot blame the 1997 crisis for failure of the project,
nor for even not starting it, because the project should have
been completed by 1997.
W/N the Asian financial crisis is a FE – NO
in a previous case, Asian Construction and Development
Corporation v. Philippine Commercial International Bank, the
Court had said that the 1997 financial crisis that ensued in Asia
did not constitute a valid justification to renege on obligations.
We emphatically stressed the same view in Mondragon Leisure
and Resorts Corporation v. Court of Appeals, that the Asian
financial crisis in 1997 is not among the fortuitous events
contemplated under Article 1174 of the Civil Code.
1997 was unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently met with sum cost of the condominium, more than their actual payment
considerable difficulty e.g. increase cost of materials and labor, of
even before the scheduled commencement of its real estate
project as early as 1995. However, a real estate enterprise P3,439,000.07. We are thus constrained to award only
engaged in the pre-selling of condominium units is concededly
a master in projections on commodities and currency P3,439,000.07, representing the sum of their actual payments
movements and business risks. The fluctuating movement of plus
the Philippine peso in the foreign exchange market is an
everyday occurrence, and fluctuations in currency exchange amortization interests and interest at legal rate which is 6% per
rates happen everyday, thus, not an instance of caso fortuito.
annum from the date of demand on August 4, 1999.
Are respondents entitled to reimbursement of the amount
paid, plus interest and attorney’s fees? – yes

It will be noted that respondents sent a demand letter dated

August 4, 1999 to Fil-Estate asking for the return of “the total

amount paid including amortization interests” and “legal

interest due
16
thereon.” The latter did not respond favorably, and so the
spouses

filed a complaint demanding the reimbursement of P3,620,000

representing the lump sum price of the condominium unit with

interest at the legal rate, and P100,000 attorney’s fees. But the

respondents actually sought the refund of P3,620,000.00, the

lump