Nature and Effects of Obligations Consolidated Case Digests PDF

Concept of Breach
1. Spouses Guanio vs. Makati Shangri-la

KEY TAKE-AWAY OR DOCTRINE TO REMEMBER
Breach of contract is defined as the failure without legal reason to comply with the terms of a contract.
FACTS
Luigi M. Guanio and Anna Hernandez-Guanio booked at the Shangri-la Hotel Makati for their wedding reception.
Petitioners claim, among other things, that during the reception their guests complained of the delay in the service of
the dinner; certain items listed in the published menu were unavailable; the hotel’s waiters were rude and
unapologetic when confronted about the delay. Petitioners sent a letter-complaint to the hotel and received an
apologetic reply from Krister Svensson, the hotels Executive Assistant Manager. The petitioners then filed a complaint
for breach of contract and damages before the RTC Makati City.
Respondent claimed that while there was a delay in the service of the meals, the same was occasioned by
the sudden increase of guests to 470 from the guaranteed expected minimum number of guests of 350
to a maximum of 380, as stated in the Banquet Event Order (BEO).
RTC ruled in favor of the petitioners relying on respondent’s admission of responsibility in its letter to the petitioners.
On appeal, CA reversed the decision saying that the proximate cause of the delay was the unexpected increase in their
guests. Hence, the present petition.
ISSUE/S STATUTES/ARTICLES INVOLVED
WON the hotel can be held liable for breach of 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
contract liable for damages.
“4.5. The ENGAGER must inform the HOTEL at least forty 48 hours before the
scheduled date and time of the Function of any change in the minimum guaranteed
covers. In the absence of such notice, paragraph 4.3 shall apply in the event of under
attendance. In case the actual number of attendees exceed the minimum
guaranteed number by 10%, the HOTEL shall not in any way be held
liable for any damage or inconvenience which may be caused thereby.
The ENGAGER shall also undertake to advise the guests of the situation and take
positive steps to remedy the same.”
HELD
NO but they are still liable to pay damages under considerations of equity. The lower courts observed that
Spouses Guanio were remiss in their obligation to inform respondent of the change in the expected number of guests.
Petitioners’ failure to discharge such obligation thus excused the respondent from liability for “any damage or
inconvenience” occasioned thereby.
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 respondent’s 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.
In the present petition, under considerations of equity, the Court deems it just to award the amount of P50, 000.00
by way of nominal damages to petitioners, for the discomfiture that they were subjected to during to the event. The
Court recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of mind.
Respondent’s lack of prudence is an affront to this right.
Modes of Breach - Delay
1. SSS V. Moonwalk Development and Housing Corp
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.”
In order that the debtor may be in default it is necessary that the following requisites be present:
1. that the obligation be demandable and already liquidated;
2. that the debtor delays performance; and
3. that the creditor requires the performance judicially and extrajudicially.
FACTS
“On February 20, 1980, SSS filed a complaint in the CFI of Rizal against Moonwalk alleging that the former had committed an
error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk—resulting in a chain of errors in
the application of payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of
P7,053.77 and, also in not reflecting in its statement of account an unpaid balance on the said penalties for delayed payments in
the amount of P7,517,178.21 as of October 10, 1979.
On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the obligation was already
extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter’s act of cancelling the real estate
mortgages executed in its favor by defendant Moonwalk.
MR was also dismissed and CA affirmed the dismissal. SSS filed the present petition on certiorari.
WON SSS is entitled to penalty due to the delayed “Art. 1169. Those obliged to deliver or to do something incur in delay
payments of Moonwalk from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.”
HELD
WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent court is AFFIRMED.
There are only three instances when demand is not necessary to render the obligor in default. These are the following:
4. When the obligation or the law expressly so declares;
5. 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
6. When the demand would be useless, as when the obligor has rendered it beyond his power to perform.”
This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that “(a)ll
amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the loan or
any portion thereof actually released has been fully paid,” petitioner is not excused from making a demand. It has been
established that at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting
its monthly arrears and in paying the full amount of the loan itself as the obligation matured sometime in January, 1977.
But mere delinquency in payment does not necessarily mean delay in the legal concept. To be in default “x x x is different from
mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar
effects or results.”
In order that the debtor may be in default it is necessary that the following requisites be present:
4. that the obligation be demandable and already liquidated;
5. that the debtor delays performance; and
6. that the creditor requires the performance judicially and extrajudicially.
Default generally begins from the moment the creditor demands the performance of the obligation. Nowhere in this case did it
appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show that petitioner
demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization.
What the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real
estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk’s requests and
promises to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to
Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was
never in default because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from
doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the
demand was complied with on time.
Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable. Since
there was no default in the performance of the main obligation—payment of the loan—SSS was never entitled to
recover any penalty, not at the time it made the Statement of Account and certainly, not after the
extinguishment of the principal obligation because then, all the more that SSS had no reason to ask for the
penalties.
Thus, there could never be any occasion for waiver or even mistake in the application for payment because there was nothing for
SSS to waive as its right to enforce the penalty did not arise.
Delay
3. Santos Ventura Hocorma Foundation, Inc. vs. Santos
The compromise agreement as a consensual contract becomes binding between the parties upon its execution and not upon
its court approval.
Defaults; Delay as used in Art. 1169 of the New Civil Code is synonymous to default or mora which means delay in the
fulfilment of obligations—it is the nonfulfillment of the obligation with respect to time.
In order for the debtor to be in default, it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.
FACTS
1. 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 the discretion of the Foundation,
within a period of not more than two (2) years from the execution of this agreement.
2. In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of several civil cases. He
also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid
P1.5 million to respondent Santos, leaving a balance of P13 million. Subsequently, petitioner SVHFI sold to
Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner demanding the
payment of the remaining P13 million, which was ignored by the latter.
3. On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of
P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial
Court of Makati City for the issuance of a writ of execution.
4. 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 October 26, 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.
Whether or not SVHFI incurred in delay based on the Article 1169. Those obliged to deliver or to do something
compromise agreement and thereby liable for legal interest incur in delay from the time the oblige judicially or
extrajudicially demands from them the fulfilment of their
obligation.
HELD
Yes. SVHFI is liable for legal interest as penalty on account of delay. The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication
from its terms should be deemed to have been included therein. This holds true even if the agreement has not been judicially
approved. Article 1169 of the New Civil Code provides that those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extrajudicially.
Requisite 1: In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the
execution of the contract. The Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially
approved on September 30, 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. From the time a compromise is
validly entered into, it becomes the source of the rights and obligations of the parties thereto. Hence, the two-year period
must be counted from October 26, 1990. The two-year period ended on October 26, 1992.
When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and
demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when
he is to pay it.
Requisite 2: Petitioner delayed in the performance. It was able to fully settle its outstanding balance only on February 8,
1995, which is more than two years after the extrajudicial demand. Moreover, it filed several motions and elevated adverse
resolutions to the appellate court to hinder the execution of a final and executory judgment, and further delay the fulfillment
of its obligation.
Requisite 3: The demand letter sent to the petitioner on October 28, 1992, was in accordance with an extrajudicial demand
contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article
1170 of the New Civil Code.
Nature and Effects of Obligation
4. Pantaleon v. American Express International, Inc.
Under mora solvendi, the three requisites for a finding of default are that the obligation is demandable and
liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires the debtor’s
performance.
The requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity; the
offer must be to comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.
FACTS
● The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an
escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd.
● The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of
Amsterdam.
● Mrs. Pantaleon purchased a 2.5 karat diamond brilliant cut and also selected for purchase a pendant and a 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. This occurred at around 9:15am. The charge purchase was then referred electronically to respondent's
Amsterdam office at 9:20 a.m.
● Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
● As it was already 9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked the
store clerk to cancel the sale. 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.
● At around 10:00 a.m., or around 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 respondent's approval of the
purchase.
● The tour group's visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to
be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.
● 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.
● On 4 March 1992, after coming back to 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 respondent's
refusal to provide credit authorization for the aforementioned purchases.
● In response, respondent sent a letter stating among others that the delay in authorizing the purchase from Coster was
attributable to the circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase pattern
established".
WON American Express International incurred delay in ARTICLE 1169. Those obliged to deliver or to do something
providing credit authorization. incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
their obligation.
xxxx
HELD
Yes.
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the
obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially or
extrajudicially requires the debtor’s performance.
The requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity; the
offer must be to comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.
In order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there was indeed an
obligation on the part of respondent to act on petitioner's purchases with "timely dispatch", or for the purposes of this case,
within a period significantly less than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on
petitioner's purchase at Coster did constitute culpable delay on its part in complying with its obligation to act promptly on its
customer's purchase request, whether such action be favorable or unfavorable
We do not wish to dispute that respondent has the right, if not the obligation, to verify whether the credit it is extending upon on
a particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to make such
transaction. 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. Even assuming that
respondent’s 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.
Breach of Obligation (Delay – mora)
5. Solar Harvest Inc. v Davao Corrugated Carton Corp
• 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
• In reciprocal obligation, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective
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 will accrue.
• Without a previous demand for the fulfilment of the obligation, petitioners would not have a cause of action for
rescission against respondent as the latter would not yet be considered in breach of its contractual obligation
FACTS
1. 1st quarter of the 1998 Solar Harvest Inc (petitioner) entered into agreement with Davao Corrugated Carton Corp
(respondent) for the purchase of corrugated carton boxes specific for the fresh banana business of petitioner, at
US$1.10 each. Agreement was not in writing.
2. March 31, 1998 - Petitioner deposited US$40,150.00 in respondent’s US Dollar Savings account with Westmont Bank
as full payment
3. Despite payment, petitioner did not receive any boxes.
4. Jan 3, 2001 – petitioner wrote demand letter for reimbursement
5. Feb 19, 2001 – respondent replied that boxes has been completed as early as April 3, 1998, and petitioner failed to pick
up said boxes at the warehouse, 30 days from completion as agreed upon. Respondent mentioned that petitioner even
placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced
payment from petitioner. Respondent then demanded petitioner 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.
6. August 17, 2001 - petitioner filed a Complaint for sum of money and damages against respondent. The 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.
7. Respondents in their response, stated that petitioner did not picked up said boxes. That during that time a
representative of petitioner went to the warehouse to pick-up said boxes but did not do so because the banana did not
materialize, and that petitioner must pay the additional boxes as it takes up space in the warehouse.
8. RTC ruled respondent did not commit any breach of faith that would justify rescission of the contract and the
consequent reimbursement of the amount paid by petitioner.
9. CA denied petition for lack of merit and affirmed decision of RTC
WON respondents had a breach in their obligations Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
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.”
HELD
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated September 21, 2006 and
Resolution dated February 23, 2007 are AFFIRMED. In addition, petitioner is given a period of 30 days from notice within
which to cause the removal of the 36,500 boxes from respondent’s warehouse. After the lapse of said period and petitioner fails
to effect such removal, respondent shall have the right to dispose of the boxes in any manner it may deem fit.
NO. The court held that 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, 19 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.
Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent
to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a “follow-up”
upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioner’s witness also
testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against
respondent as the latter would not yet be considered in breach of its contractual obligation.
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 there fore 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.
Modes of Breach – Fraud
6. Tankeh v. DBP
There are two types of fraud contemplated in the performance of contracts: dolo incidente (incidental fraud) and dolo
causante or fraud serious enough to render a contract voidable.
1. Dolo incidente (Art. 1344) – those which are not serious in character and without which the other party would still
have entered into the contract. It refers only to some particular or accident of the obligation. It only obliges the person
employing it to pay damages.
2. Dolo causante (Art. 1338) – those deceptions/misrepresentations of a serious character employed by one party &
without which the other party would not have entered into the contract. It determines or is the essential cause of the
consent. The effects are nullity of the contract and indemnification of damages.
Requisites for Annulling a Contract Based on Dolo Causante:
1. The deceit must be serious or sufficient to impress and lead an ordinarily prudent person to error.
2. The standard of proof required is clear and convincing evidence. (Less than proof beyond reasonable but greater than
preponderance of evidence)
FACTS
1. Ruperto Tankeh, president of Sterling Shipping Lines, Inc. (SSLI) which operates ocean-going vessels engaged primarily
in foreign trade, obtained a loan from DBP for partial financing of M/V Golden Lilac. To authorize the loan, DBP required,
among others that Alejandro Tankeh, Jose Marie Vargas, SSLI, and Vicente Arenas be held jointly and severally liable
for said loan.
2. According to Alejandro, Ruperto informed him about the latter’s new business venture and that 1,000 shares would be
given to him to be one of its directors. Ruperto promised Alejandro that he would be part of the administration and oversee
company operations. On the basis of said promise, Alejandro signed the the Promissory Note (PN). Consequently, DBP
approved the loan and SSLI executed a Deed of Assignment in favor of DBP.
3. 2 yrs later, Alejandro wrote a letter to Rupert saying that he was terminating his involvement with SSLI. He required that
he be released from all liabilities particularly that of SSLI’s loan to DBP. Years later, the vessel was sold in Singapore by
DBP and when Alejandro came to know of this, he wrote the bank to express that the final price was inadequate and the
said transaction is irregular. At this time, Alejandro was still bound as a debtor of the PN.
4. Alejandro filed complaints against DBP praying that the PN be declared null and void on the ground that Ruperto had
exercised deceit and fraud in causing him to bind himself jointly and severally to pay DBP the mortgage loan. Alejandro
claimed that he had been excluded deliberately from participating in the affairs of SSL and had never been compensated
as a director and stockholder, which was contrary to what Ruperto promised him.
5. Ruperto denied employing fraud and deceit to secure Alejandro’s involvement in the company and Alejandro had been
fully aware of company operations. RTC ruled in favor of Alejandro saying that were it not for the machinations used by
Ruperto to induce Alejandro to be jointly and severally liable for the loan, DBP would not have authorized such loan. On
appeal, CA reversed the decision because there is no competent proof that the promise of a free 1,000-share and
directorship to make him sign the PN amounted to fraud. Hence, the present petition.
WON Ruperto had employed fraud or deceit to Art. 1344. In order that fraud may make a contract voidable, it should be
make Alejandro sign the Promissory Note. serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
HELD
NO. The Court finds that there had been no dolo causante committed by Ruperto against Alejandro when he signed the PN.
Alejandro was fully aware of the magnitude of his undertaking because:
1. He was fully aware of the financial reverses of SSL
2. His background as a doctor, businessman, and bank organizer should have apprised him of the risks of his participation
3. He was aware of the risks of signing the PN.
However, in refusing to allow petitioner to participate in the management of the business, Ruperto was liable for the commission
of incidental fraud. Although there was no fraud that had been undertaken to obtain petitioner’s consent, there was fraud in the
performance of the contract. The records showed that Alejandro had been unjustly excluded from participating in the management
of the affairs of the corporation. This exclusion from the management in the affairs of SSLI constituted fraud incidental (dolo
incidente) to the performance of the obligation. Thus, Ruperto is liable to pay Alejandro for damages.
Modes of Breach - Negligence
07. Gutierrez V Gutierrez
The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the
owner's business, so that he is liable for the negligence of the child because of the relationship of master and
servant.
FACTS
On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on
the Talon bridge on the Manila South Road in the municipality of Las Piñas, Province of Rizal.
The truck was driven by Abelardo Velasco, and was owned by Saturnino Cortez, The automobile was being operated by Bonifacio
Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of
the collision, the father was not in the car, but the mother, together with several other members of the Gutierrez family, seven in
all, were accommodated therein.
The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which required
medical attendance for a considerable period of time.
What is the extent of the liability of each of the Art. 1173. The fault or negligence of the obligor consists in the
defendants to Narciso Gutierrez? omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201 paragraph, shall apply.
HELD
Bonifacio Gutierrez and Maria V. De Gutierrez – Automobile (Not Liable – the father is liable)
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that the youth
Bonifacio was an incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the bridge
and the truck, he lost his head and so contributed by his negligence to the accident. The guaranty given by the father at the time
the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these facts,
pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor or the mother, would be
liable for the damages caused by the minor.
In the United States, it is uniformly held that the head of a house, the owner of an automobile, who maintains it for the general
use of his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car
is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving
it. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of
the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant.
Saturnino Cortez and Abelardo Velasco – Passenger truck (Liable)
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a
different basis, namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the
complaint, not controverted, and the evidence.
The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge, the
speed in operating the machine, and the lack of care employed by the chauffeur. While these facts are not as clearly evidenced as
are those which convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the trial judge.
In its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident.
Negligence - culpa aquiliana vs. culpa contractual
8. De Borja vs. Vazquez
It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct
from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality
is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a
contract duly entered into, or for an act lawfully performed, by them for and in its behalf. Such legal fiction may be
disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose.
FACTS
1. Francisco de Borja purchased from Natividad-Vasquez Sabani Development Co. (NVSD), Inc. cavans of palay to be
delivered on February 1932. On behalf of the company, Antonio Vasquez executed the contract, as acting president
and manager, and Fernando Busuegoas as corporate treasurer. However, NVSD had only delivered portion of the
cavans and refused to deliver the remaining balance. It also failed to return empty sacks owned by De Borja.
Moreover, the company became insolvent. De Borja incurred damages resulting from the undelivered cavans and
that prompted him to sue Vasquez and Busuegoas for the damages.
2. Vasquez contends that he did not enter the contract in his own individual and personal capacity but as the manager
at the time of the transaction.
3. CFI found Vasques guilty of negligence in the performance of the contract and held him personally liable on that
account. It ruled in favor of the plaintiff and ordered Vasquez to pay De Borja of the damages. CA affirmed the
decision of the RTC but reduced the sum. It found Vasquez liable for gross negligence under Articles 1102, 1103, and
1902 of the Old Civil Code and subsidiary liable with NVSD. On the motion of recommendation, CA set aside its
judgment and ordered the case be remanded to the court of origin for further proceedings. Hence, this petition for
certiorari.
WON Vasquez his personally liable for the damages Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201, paragraph
2, shall apply.
HELD
NO.
It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct
from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality
is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a
contract duly entered into, or for an act lawfully performed, by them for and in its behalf. Such legal fiction may be
disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has
been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the
contract of sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it
contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We
find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily.
The trial court and CA found him guilty of negligence in the performance of the contract and held him personally liable on
that account. We think both the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed
to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from an obligation
arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those
incidental to the fulfilment or non-fulfilment of a contractual obligation; while the fault or negligence referred to in article
1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law, which gives rise to an
obligation independently of any contract. The fact that the corporation, acting thru Vazquez as its manager, was
guilty of negligence in the fulfilment of the contract, did not make Vazquez principally or even subsidiarily
liable for such negligence. Since it was the corporation's contract, its non-fulfilment, whether due to
negligence or fault or to any other cause, made the corporation and not its agent liable.
On the other hand, if independently of the contract Vazquez by his fault or negligence caused damage to the plaintiff, he
would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on
culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not
merely subsidiary, as the Court of Ap peals has erroneously held. No such cause of action was alleged in the complaint or
tried by express or implied consent of the parties. Hence the trial court had no jurisdiction over the issue and could not
adjudicate upon it.
9. Radio Communications of the Philippines v. Verchez
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.
In culpa aquiliana (quasi-delict), 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.
FACTS
● On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an ailment.
● On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the Radio
Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida
Verchez-Catibog (Zenaida) reading: "Send check money Mommy hospital."
● As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a
letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid.
● Zenaida disclaimed having received any telegram.
● The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.
● RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the
address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.
WON Radio Communications of the Philippines is negligent in ARTICLE 1173. The fault or negligence of the obligor consists
performing his obligation. in the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of the
persons, of the time and of the place xxx.
ARTICLE 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.
ARTICLE 2176. 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.
HELD
Yes. For breach of contract then, RCPI is liable to Grace for damages. And for quasi-delict, RCPI is liable to Grace's co-
respondents following Article 2176 of the Civil Code (Quasi-delict).
It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to Grace, and on tort with
regard to her co-plaintiffs-herein-co-respondents.
This Court explained: 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
his “restitution 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 x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. In the case at bar, RCPI bound
itself to deliver the telegram within the shortest possible time. It took 25 days, however, for RCPI to deliver it.
Further, for the defense of force majeure to prosper, x x x it is necessary that one has committed no negligence or misconduct that
may have occasioned the loss. An 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 rules applicable to acts of God.
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible time, it
should have at least informed Grace of the non-transmission and the non-delivery so that she could have taken steps to remedy
the situation. But it did not. There lies the fault or negligence.
Standard of care required
10. Francisco v Chemical Bulk Carriers Inc
• Standard of conduct is the level of expected conduct that is required by the nature of the obligation and corresponding
to the circumstances of the person, time and place.
• The standard of conduct for a blind person becomes that of a reasonable person who is blind.
FACTS
1. Since 1965, Francisco was the owner and manager of a Caltex station in Teresa, Rizal. Sometime in March 1993, four
persons, including Gregorio Bacsa (Bacsa), came to Francisco’s Caltex station and introduced themselves as employees
of CBCI. Bacsa offered to sell to Francisco a certain quantity of CBCI’s diesel fuel.
2. After checking his ID, Francisco agreed to purchase CBCI’s diesel fuel. Francisco imposed the following conditions for
the purchase: (1) that Petron Corporation (Petron) should deliver the diesel fuel to Francisco at his business address
which should be properly indicated in Petron’s invoice; (2) that the delivery tank is sealed; and (3) that Bacsa should
issue a separate receipt to Francisco.
3. The deliveries started on 5 April 1993 and lasted for ten months, or up to 25 January 1994. There were 17 deliveries to
Francisco and all his conditions were complied with.
4. February 1996, CBCI sent a demand letter to Francisco regarding the diesel fuel delivered to him but which had been
paid for by CBCI. CBCI demanded that Francisco pay CBCI P1,053,527 for the diesel fuel or CBCI would file a
complaint against him in court. Francisco rejected CBCI’s demand.
5. 16 April 1996, CBCI filed a complaint for sum of money and damages against Francisco and other unnamed
defendants. According to CBCI, Petron, on various dates, sold diesel fuel to CBCI but these were delivered to and
received by Francisco. Francisco then sold the diesel fuel to third persons from whom he received payment. CBCI
alleged that Francisco acquired possession of the diesel fuel without authority from CBCI and deprived CBCI of the use
of the diesel fuel it had paid for. CBCI demanded payment from Francisco but he refused to pay. CBCI argued that
Francisco should have known that since only Petron, Shell and Caltex are authorized to sell and distribute petroleum
products in the Philippines, the diesel fuel came from illegitimate, if not illegal or criminal, acts.
6. RTC ruled in favor of Francisco – on the grounds that CBCI was bound by the acts of Bacsa and that Francisco was in
good faith
7. CA reversed and ruled in favor of CBCI - ruled that Bacsa’s act of selling the diesel fuel to Francisco was his personal
act and that Francisco has failed to verify Bacsa’s identity with diligence and because his been in the business for long,
his blindness should not be a hindrance.
*Francisco died, so heirs became the petitioners
WON the petitioner (Francisco) exercised the required Diligence of a good father of a family
diligence of a blind person in the conduct of his business Art. 1173 paragraph 2
HELD
WHEREFORE, we DENY the petition. We AFFIRM the 31 May 2010 Decision and 31 August 2010 Resolution of the Court of
Appeals.
NO. The court ruled that to determine the diligence which must be required of all persons, we use as basis the abstract average
standard corresponding to a normal orderly person. However, one who is physically disabled is required to use the
same degree of care that a reasonably careful person who has the same physical disability would use.
Physical handicaps and infirmities, such as blindness or deafness, are treated as part of the circumstances
under which a reasonable person must act. Thus, the standard of conduct for a blind person becomes that of
a reasonable person who is blind. Francisco, despite being blind, had been managing and operating the Caltex station for
15 years and this was not a hindrance for him to transact business until this time. In this instance, however, we rule that
Francisco failed to exercise the standard of conduct expected of a reasonable person who is blind. First, Francisco merely relied
on the identification card of Bacsa to determine if he was authorized by CBCI. Francisco did not do any other background
check on the identity and authority of Bacsa. Second, Francisco already expressed his misgivings about the diesel fuel, fearing
that they might be stolen property, yet he did not verify with CBCI the authority of Bacsa to sell the diesel fuel. Third, Francisco
relied on the receipts issued by Bacsa which were typewritten on a half sheet of plain bond paper. If Francisco exercised
reasonable diligence, he should have asked for an official receipt issued by CBCI. Fourth, the delivery to Francisco, as indicated
in Petron’s invoice, does not show that CBCI authorized Bacsa to sell the diesel fuel to Francisco. Clearly, Francisco failed to
exercise the standard of conduct expected of a reasonable person who is blind.
Modes of Breach – Negligence
11. Loadmasters Customs Services, Inc. v. Glodel Brokerage Corporation
When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving their own property or rights—this exacting standard imposed on
common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the
common carrier once the goods have been lodged for shipment.
Whenever an employee’s negligence causes damage/injury to another, there instantly arises a presumption juris tantum that the
employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of
its employees.
FACTS
132 bundles of electric copper cathodes, to be shipped on board a vessel from Leyte to Manila, was insured by R&B Insurance in
favor of Columbia. Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the
subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery
trucks to transport the cargoes to Columbia’s warehouse/plants in Bulacan and Valenzuela.
The goods were loaded on board 12 trucks owned by Loadmasters. 6 trucks were bound for Bulacan and 6 were bound for
Valenzuela. Of the 6 trucks bound for Bulacan, only 5 reached the destination. Later on, the missing truck was recovered but without
the copper cathodes. Because of this, Columbia filed with R&B Insurance a claim for insurance indemnity amounting to 1M which
the insurance company paid after investigation. R&B thereafter filed with RTC Manila a complaint for damages against both
Loadmasters and Glodel. It sought to reimburse the amount it paid for the loss of the cargo.
RTC held Glodel liable for damages for the loss of the cargo and was ordered to pay R&B. On appeal, CA held Loadmasters liable to
Glodel for the insurance indemnity which Glodel had to pay R&B. Hence, the present petition.
Whether the diligence expected to be observed is Art. 1173(2). If the law/contract does not state the diligence which is to be observed
extraordinary diligence or that of a good father of in the performance, that which is expected of a good father of a family shall be
required.
a family.
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them, according to all
the circumstances of each case. xxxxx
HELD
They are expected to observe EXTRAORDINARY DILIGENCE. Art. 1173(2) states that if the law does not state the diligence
to be observed, that which is expected of a good father shall be required. However, Art. 1733 specifically mandates common carriers
to observe extraordinary diligence. Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported
by them according to all the circumstances of such case, as required by Art. 1733.
When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence
and circumspection observe for securing and preserving their own property or rights. This exacting standard imposed on common
carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common
carrier once the goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have
been at fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by proof that the
common carrier has observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary
diligence lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a
right to receive them.
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R & B Insurance
for the loss of the subject cargo. Under Article 2194 “the responsibility of two or more persons who are liable for a quasi-delict is
solidary.”
Modes of Breach - Negligence
12. Crisostomo V CA
Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is
that of a good father of a family under Article 1173 of the Civil Code.
This connotes reasonable care consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether negligence attended the performance of an
obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is guilty of negligence.
FACTS
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc.
to arrange a tour dubbed “Jewels of Europe”. The package tour included the countries of England, Holland, Germany, Austria,
Liechstenstein, Switzerland and France. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioner’s niece, Meriam Menor, was respondent company’s ticketing manager.
Menor went to her aunt’s residence to deliver petitioner’s travel documents and plane tickets. Petitioner, in turn, gave Menor the
full payment for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two
hours before her flight on board British Airways.
Petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the first leg of her journey from Manila to Hong Kong.
To petitioner’s dismay, she discovered that the flight she was supposed to take had already departed the previous day. She learned
that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain. However she was
offered another tour—the “British Pageant”—which included England, Scotland and Wales in its itinerary. For this tour
Package.
Upon her return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the difference
between the sum she paid for “Jewels of Europe” and the amount she owed respondent for the “British Pageant” tour. Despite
several demands, respondent company refused to reimburse the amount, contending that the same was non-refundable.
Petitioner was thus constrained to file a complaint against respondent for breach of contract of carriage and damages.
Petitioner alleged that her failure to join “Jewels of Europe” was due to respondent’s fault since it did not clearly indicate the
departure date on the plane ticket. Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. RTC ruled in favour of Crisostomo, The trial court held that respondent was negligent in erroneously advising
petitioner of her departure date through its employee. CA ruled that the Crisostomo is more negligent that the respondents,
therefore no damage should be awarded to her
WON extraordinary diligence is required of Art. 1173. The fault or negligence of the obligor consists in the omission of that
Caravan Travel and Tours? diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201 paragraph, shall apply.
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. xxxxx
HELD
No. By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to another for a fixed price. Such person or association of persons
are regarded as carriers and are classified as private or special carriers and common or public carriers.
A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by lane, water or air, for compensation, offering their services to
the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither, a private nor a common carrier.
The object of petitioner’s contractual relation with respondent is the latter’s service of arranging and facilitating petitioner’s
booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of
passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for
services and not one of carriage.
Respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in
the performance of its obligation, as petitioner claims. Since the contract between the parties is an ordinary one for services,
the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil
Code.
This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance of an
obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.
13. Samiento v Cabrido
The fault or negligence of the obligor consists in the ‘omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place.
FACTS
1. Petitioner Sarmiento’s friend requested her to find someone to reset a pair of diamond earrings into two gold rings.
Sarmiento sent Tita Payag with the earrings to Dingding’s Jewelry Shop, owned and managed by respondent spouses
Cabrido, which accepted the job order for P400.
2. Respondent Marilou Sun went on to dismount the diamond from original settings. Unsuccessful, she asked their
goldsmith, Zenon Santos, to do it. He removed the diamond by twisting the setting with a pair of pliers, breaking the
gem in the process.
3. Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the
petitioner was forced to buy a replacement in the amount of P30,000.
Whether or not respondents are liable for damages- YES Art. 1173 (par 2). If the law or contract does not state the
diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
HELD
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, 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. The fault or negligence of the obligor consists in the ‘omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It
appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their
original settings. However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the
diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required by the circumstances. It should be
pointed out that Marilou examined the diamond before dismounting it from the original setting and found the same to be in
order. Its subsequent breakage in the hands of Santos could only have been caused by his negligence in using the wrong
equipment.
The preponderance of evidence supports the view that Marilou and Zenon Santos were employed at Dingding’s Jewelry Shop in
order to perform activities which were usually necessary or desirable in its business. We therefore hold that an obligation to pay
actual damages arose in favor of the petitioner against the respondent spouses who admittedly owned and managed Dingding’s
Jewelry Shop
14. Metro Manila Transit Corporation v. Court of Appeals
In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it
is not enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision. As the
negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter
has the burden of proving that it has been diligent not only in the selection of employees but also in the actual
supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies,
without anything more, is decidedly not sufficient to overcome such presumption.
FACTS
● At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a paying passenger
a public utility jeepney.
● While the passenger jeepney was travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast
moving vehicle, a Metro Manila Transit Corp. (MMTC, for short) bus (Philippines) driven by defendant Godofredo C.
Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at Bicutan.
● As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken
their speed; neither did they blow their horns to warn approaching vehicles. As a consequence, a collision between them
occurred, the passenger jeepney ramming the left side portion of the MMTC bus.
● The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger jeepney and
(she) was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries.
● A complaint for damages was filed by herein private respondent.
WON MMTC was able to prove that it exercised the diligence ARTICLE 1173. xxxx
of a good father of the family to exempt him from the liability.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father shall be required.
HELD
No. MMTC is solidarily liable with the other defendants for the damages awarded by the trial court.
While there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, or
even object evidence for that matter, inasmuch as the witnesses' testimonies dwelt on mere generalities, we cannot consider the
same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees.
Petitioner's attempt to prove its diligentissimi patris familias in the selection and supervision of employees
through oral evidence must fail as it was unable to buttress the same with any other evidence, object or
documentary, which might obviate the apparent biased nature of the testimony.
Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and
undoubtedly prove its observance of the diligence of a good father of a family.
Whether or not the diligence of a good father of a family has been observed by petitioner is a matter of proof which under the
circumstances in the case at bar has not been clearly established. It is not felt by the Court that there is enough evidence on record
as would overturn the presumption of negligence, and for failure to submit all evidence within its control, assuming the putative
existence thereof, petitioner MMTC must suffer the consequences of its own inaction and indifference.
Due diligence in the supervision of employees, includes the formulation of suitable rules and regulations for
the guidance of employees and the issuance of proper instructions intended for the protection of the public and
persons with whom the employer has relations through his or its employees and the imposition of necessary disciplinary
measures upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the
business of and beneficial to their employer. To this, we add that actual implementation and monitoring of consistent
compliance with said rules should be the constant concern of the employer, acting through dependable supervisors
who should regularly report on their supervisory functions.
In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it
is not enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision. As the
negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter
has the burden of proving that it has been diligent not only in the selection of employees but also in the actual
supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies,
without anything more, is decidedly not sufficient to overcome such presumption.
We emphatically reiterate our holding, as a warning to all employees, that "(t)he mere formulation of various company
policies on safety without showing that they were being complied with is not sufficient to exempt petitioner
from liability arising from negligence of its employees. It is incumbent upon petitioner to show that in
recruiting and employing the erring driver the recruitment procedures and company policies on efficiency and
safety were followed." Paying lip-service to these injunctions or merely going through the motions of compliance therewith
will warrant stern sanctions from the Court.
15. Sps. Pereña v Zarate
• Common carriers from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them, according to all the
circumstances of each case. (R Transport Corporation vs. Pante, 599 SCRA 747 [2009])
• Common carriers are liable for the death or injury to passengers through the negligence or willful acts of the former’s
employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of
the common carriers
FACTS
1. The Pereñas were engaged in the business of transporting students from their respective residences in Parañaque City
to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the Pereñas used a KIA Ceres Van (van) which
had the capacity to transport 14 students at a time, two of whom would be seated in the front beside the driver, and the
others in the rear, with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.
2. June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On August 22, 1996, as on
previous school days, the van picked Aaron up around 6:00 a.m. from the Zarates’ residence. Aaron took his place on
the left side of the van near the rear door. The van, with its airconditioning unit turned on and the stereo playing
loudly, ultimately carried all the 14 student riders on their way to Don Bosco. Considering that the students were due
at Don Bosco by 7:15 a.m., and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow path underneath
the Magallanes Interchange that was then commonly used by Makati-bound vehicles as a short cut into Makati. At the
time, the narrow path was marked by piles of construction materials and parked passenger jeepneys, and the railroad
crossing in the narrow path had no railroad warning signs, or watchmen, or other responsible persons manning the
crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.
3. At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train), operated by Jhonny
Alano, was in the vicinity of the Magallanes Interchange travelling northbound. As the train neared the railroad
crossing, Alfaro drove the van eastward across the railroad tracks, closely tailing a large passenger bus. His view of the
oncoming train was blocked because he overtook the passenger bus on its left side. The train blew its horn to warn
motorists of its approach. When the train was about 50 meters away from the passenger bus and the van, Alano
applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a collision was
imminent. The passenger bus successfully crossed the railroad tracks, but the van driven by Alfaro did not. The train
hit the rear end of the van, and the impact threw nine of the 12 students in the rear, including Aaron, out of the van.
Aaron landed in the path of the train, which dragged his body and severed his head, instantaneously killing him. Alano
fled the scene on board the train, and did not wait for the police investigator to arrive. Devastated by the early and
unexpected death of Aaron, the Zarates commenced this action for damages against Alfaro, the Pereñas, PNR and
Alano.
4. RTC ruled in favor of the Zarates
5. CA affirmed
WON the petitioners (Pereña) acted with the standard of Article 1755 of the Civil Code specifies that the common carrier
care as common carriers should “carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.”
HELD
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on November 13, 2002; and
ORDER the petitioners to pay the costs of suit.
NO. The court held that the common carrier’s standard of care and vigilance as to the safety of the passengers is defined by law.
Given the nature of the business and for reasons of public policy, the common carrier is bound “to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of
each case.
xxx
To successfully fend off liability in an action upon the death or injury to a passenger, the common carrier must prove his or its
observance of that extraordinary diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand. No device, whether by stipulation, posting of notices, statements on tickets, or otherwise, may dispense with or lessen the
responsibility of the common carrier as defined under Article 1755 of the Civil Code.
xxx
As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent at the time of
the accident because death had occurred to their passenger. The presumption of negligence, being a presumption of
law, laid the burden of evidence on their shoulders to establish that they had not been negligent.
xxx
The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted beyond the scope of his authority
or even in violation of the orders of the common carrier. In this connection, the records showed their driver’s actual negligence.
There was a showing, to begin with, that their driver traversed the railroad tracks at a point at which the PNR did not permit
motorists going into the Makati area to cross the railroad tracks. Although that point had been used by motorists as a shortcut
into the Makati area, that fact alone did not excuse their driver into taking that route. On the other hand, with his familiarity
with that shortcut, their driver was fully aware of the risks to his passengers but he still disregarded the risks. Compounding his
lack of care was that loud music was playing inside the airconditioned van at the time of the accident. The loudness most probably
reduced his ability to hear the warning horns of the oncoming train to allow him to correctly appreciate the lurking dangers on
the railroad tracks. Also, he sought to overtake a passenger bus on the left side as both vehicles traversed the railroad tracks. In
so doing, he lost his view of the train that was then coming from the opposite side of the passenger bus, leading him to
miscalculate his chances of beating the bus in their race, and of getting clear of the train. As a result, the bus avoided a collision
with the train but the van got slammed at its rear, causing the fatality. Lastly, he did not slow down or go to a full stop before
traversing the railroad tracks despite knowing that his slackening of speed and going to a full stop were in observance of the right
of way at railroad tracks as defined by the traffic laws and regulations. He thereby violated a specific traffic regulation on right
of way, by virtue of which he was immediately presumed to be negligent.
Modes of Breach – Negligence
16. Reyes & Puyat-Reyes v. Court of Appeals and Far East Bank
The degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. The same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with their depositors.
FACTS
Petitioners Gregorio Reyes and his wife, Consuelo Puyat-Reyes were among the delegates sent by the Philippine Racing Club, Inc.
(PRCI) to attend the 20th Asian Racing Conference in Sydney. One Godofredo Reyes was sent to Far East Bank (FEB) to apply for a
demand draft payable to the Secretariat of said conference.
Mr. Yasis, the bank’s cashier, initially denied the application because FEB has no Australian dollar account in any bank in Sydney.
However, Mr. Yasis informed him that there is another way to effect the requested remittance. FEB would draw a demand draft
against Westpac Bank in Sydney and have the latter reimburse itself from its US dollar account in Westpac New York. Subsequently,
FEB approved PRCI’s application and issued a foreign exchange demand draft payable to the Secretariat and addressed to Westpac
Sydney as drawee bank.
Upon presentation of said demand draft by PRCI, the same was dishonored stating that FEB has no account held with Westpac
Sydney. Meanwhile, Westpac New York debited FEB’s dollar account. PRCI complained about the dishonor, so FEB informed
Westpac Sydney that a demand draft was issued against it and that it will be reimbursed from FEB’s dollar account with Westpac
New York. FEB likewise informed Westpac New York requesting it to honor the reimbursement claim of Westpac Sydney. The said
demand draft was dishonored once again for the same reason that FEB has no dollar account with Westpac Sydney.
Reyes arrived at the conference but the Secretariat informed him that he could not register because the demand draft had been
dishonored for the 2nd time. Feeling terribly embarrassed and humiliated, Reyes just promised that he would pay in cash.
Subsequently, Puyat-Reyes arrived and the same thing happened to her. Thus, they filed a complaint with RTC Manila. The trial
court and CA dismissed the petition holding that FEB exerted every effort for the demand draft to be honored. Hence, the petition.
The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the bank
should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as
in the case at bar.
Whether the standard diligence of an “ordinary Art. 1173(2). If the law/contract does not state the diligence which is to be observed
prudent person” or a higher degree of diligence is in the performance, that which is expected of a good father of a family shall be
required.
required upon Banks
HELD
The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their
depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in
regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of
petitioners’ deposit, if any, with the bank. Instead, the relationship involved was that of a buyer and seller, that is, between the
Far East bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian
Racing Conference Secretariat in Sydney, Australia as the payee thereof. The evidence shows that FEB did everything within its
power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-
Sydney by an employee of the latter could not have been foreseen by the bank. Being unaware that its employee erroneously read
the said cable message, Westpac Sydney merely stated that the bank has no deposit account with it to cover for the amount indicated
in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had not yet made
available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar
account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-
New York to debit its deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover
the amount of the said demand draft.
Modes of Breach – Contravention of Tenor
17. Chaves V Gonzales
Yes, It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not
repair the typewriter but returned it “in shambles”, according to the appealed decision.
For such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code, jam quot, for the cost of
executing the obligation in a proper manner. The cost of the execution of the obligation in this case should be the cost of
the labor or service expended in the repair of the typewriter, which is in the amount of P58.75. because the obligation or contract
was to repair it.
FACTS
Chaves delivered to Gonzales, who is a typewriter repairer, a portable typewriter for routine cleaning and servicing. Gonzales was
not able to finish the job after some time despite repeated reminders made by Chaves. Gonzales merely gave assurances, but
failed to comply with the same.
In October, 1963, the Gonzalest asked from the plaintiff the sum of P6.00 for the purchase of spare parts. After getting
exasperated with the delay of the repair of the typewriter, the Chaves went to the house of the Gonzales and asked for the return
of the typewriter. Chaves delivered the typewriter in a wrapped package.
On reaching home, the Gonzales examined the typewriter returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing.
Chaves sent a letter to Gonzales formally demanding the return of the missing parts, the interior cover and the sum of P6.00. The
following day, the defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
Later on the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of P89.85,
including labor and materials
Chaves filed an action before the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees.
The court ordered Gonzales to pay the sum of P31.10 and the cost of suit. Thus, Gonzales filed the present petition.
WON there is contravention of tenor in this case. Art. 1167. (1)

If a person obliged to do something fails to do it, the same shall be executed
at his cost.
Art. 1170 Those who in 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
HELD
Yes, It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not
repair the typewriter but returned it “in shambles”, according to the appealed decision. For such contravention, as
appellant contends, he is liable under Article 1167 of the Civil Code, jam quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the repair of
the typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in the
amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.
Effect of concurrent fault
18. Juan Nakpil & Sons vs CA
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.
Having made substantial deviations from plans and specifications, having failed to observe requisite workmanship in
construction, and the architect made plans that contain defects and inadequacies, both contractor and architect cannot escape
liability for damages sustained by the building that collapsed in the wake of an earthquake on Aug. 2, 1968. One who creates a
dangerous condition cannot escape liability although an act of God may have intervened.
FACTS
1. Private respondents – Philippine Bar Association (PBA) – a non-profit organization formed under the corporation law
decided to put up a building in Intramuros, Manila. Hired to plan the specifications of the building were Juan Nakpil &
Sons, while United Construction was hired to construct it. The building was completed in 1966.
2. 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.
3. PBA filed a suit for damages against United Construction, but United Construction subsequently filed a suit against Nakpil
and Sons, alleging defects in the plans and specifications.
Whether or not an act of God (fortuitous event), in this case, Art. 1723 dictates that the engineer/architect and contractor are
exempts the petitioners from liability parties who would liable for damages should the building collapse within 15 years
otherwise be due to negligence? from completion.
Art. 1174 of the NCC.
HELD
NO. In the case at bar, although the damage was ultimately caused by the earthquake which was an act of God, the defects in the
construction, as well as the deviations in the specifications and plans aggravated the damage, and lessened the preventive
measures that the building would otherwise have had.
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. As correctly assessed by both courts, the defects in the construction and in the
plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August
2, 1968. For this reason the defendant and third-party defendants cannot claim exemption from liability. The fact that all other
buildings withstood the earthquake, except the one at bar, cannot be ignored
One who creates a dangerous condition cannot escape liability although an act of God may have intervened. As already discussed,
the destruction was not purely an act of God. 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.
Breach Due to Fortuitous Events
19. National Power Corporation vs. Court of Appeals
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 the loss or damage may have been occasioned.
FACTS
● On August 4, 1964, plaintiff Engineering Construction, Inc. (ECI), being a successful bidder, executed a contract in Manila
with the National Waterworks and Sewerage Authority (NAWASA) to construct the proposed 2nd Ipo-Bicti Tunnel, Intake
and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan.
● On November 4, 1967, typhoon 'Welming' hit Central Luzon, passing through defendant's Angat Hydro-electric Project and
Dam at Ipo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell.
● Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising. To prevent an overflow of water from
the dam, since the water level had reached the danger height, the defendant corporation caused the opening of the spillway
gates.
● Since spillway gates of the Angat Dam were opened, an extraordinary large volume of water rushed out of the gates, and
hit the installations and construction works of ECI at the Ipo site with terrific impact, as a result of which the latter's
stockpile of materials and supplies, camp facilities and permanent structures and accessories were either washed away, lost
or destroyed.
● NPC assails the destruction and loss of the ECI's equipment and facilities were due to force majeure. It argues that the rapid
rise of the water level in the reservoir of its Angat Dam due to heavy rains brought about by the typhoon was an
extraordinary occurrence that could not have been foreseen, and thus, the subsequent release of water through the spillway
gates and its resultant effect, if any, on ECI's equipment and facilities may rightly be attributed to force majeure.
WON NPC is liable for damages. ARTICLE 1174. Except in cases expressly specified by the 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, though foreseen, were inevitable.
HELD
Yes.
It is clear from the appellate court's decision that based on its findings of fact and that of the trial court's, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" when it
knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the
coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call
force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage.
As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:
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 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 was, and removed from the rules
applicable to the acts of God.
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 the loss or damage may have been occasioned.
Effect of Concurrent Fault
20. Republic v Luzon Stevedoring Corporation
Caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability) by definition are
extra-ordinary events not foreseeable or avoidable, “events that could not be foreseen, or which, though foreseen, were
inevitable”
FACTS
1. In the early afternoon of August 17, 1960, barge L1892, owned by the Luzon Stevedoring Corporation was being towed
down 1 the Pasig river by tugboats “Bangus” and “Barbero” also belonging to the same corporation, when the barge
rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list.
2. The river, at the time, was swollen and the current swift, on account of the heavy downpour of Manila and the surrounding
provinces on August 15 and 16, 1960.
3. Sued by the Republic of the Philippines for actual and consequential damage caused by its employees, amounting to
P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation disclaimed liability therefor,
on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the damages to
the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an
obstruction to navigation.
4. RTC ruled against the respondents
5. Directly went to SC
Whether or not the collision of appellant's barge with the Art. 1174 Except in cases specified by the law, or when it is
supports or piers of the Nagtahan bridge was in law caused otherwise declared by stipulation, or when the nature of the
by fortuitous event or force majeure obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable
HELD
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed.
NO. The court held that for caso fortuito or force majeure (which in law are identical in so far as 2 they exempt an obligor from
liability) by definition, are extraordinary events not foreseeable or avoidable, “events that could not be foreseen, or which,
though foreseen, were inevitable” (Art. 1174, Civ. Code of the Philippines). 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: “un hecho no constituye caso fortuito
por la sola eircunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor” (Peirano
Facio, Responsabilidad Extra-contractual, p. 465; Mazeaud, Trait de la Responsabilite Civil, Vol. 2, see. 1569), The very
measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not
caso fortuito. Otherwise stated, the appellant, Luzon Stevedoring Corporation, 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. Hence, the lower
Court committed no error in holding it negligent in not suspending operations and in holding it liable for the damages caused.
It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these
circumstances would merely emphasize the need of even higher degree of care on appellant’s part in the situation involved in
the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not safely ignore the
danger posed by these allegedly improper constructions that had been erected and, in place, for years.
Breach Due to Fortuitous Event
21. Philcomsat vs. Globe Telecom
Art. 1174 exempts an obligor from liability not only to events that are unforeseeable, but also to those which are foreseeable, but
inevitable. A fortuitous event under Art. 1174 may either be an “act of God,” or natural occurrences such as floods or typhoons, or
an “act of man,” such as riots, strikes or wars.
In order that Globe may be exempt from non- compliance with its obligation to pay rentals under Section 8, the concurrence of the
following elements must be established:
1. The event must be independent of the human will
2. The occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner
3. The obligor must be free of participation in, or aggravation of, the injury to the creditor
FACTS
Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide earth station
within Cubi Point for the exclusive use of US Defense Communications Agency (USDCA). Globe, in turn, promised to pay onthly
rentals for each leased circuit involved. The contract’s term was 5 years. Both parties knew that RP-US Military Bases Agreement
was to expire and that under the Constitution, foreign troops shall not be allowed in the Philippines unless a new treaty is duly
concurred in by the Senate. Afterwards, Philcomsat installed and established the earth station at Cubi Point and the USDCA made
use of the same.
Consequently, Senate passed a resolution expressing its decision not to concur in the ratification of the Treaty of Friendship that
was supposed to extend the term of the use by the US of Subic Naval Base. In view of this, Globe notified Philcomsat of its intention
to discontinue the use of the earth station invoking Sec 8 of their Agreement. However, Philcomsat sent a reply informing Globe
that it was still expected to pay the rentals invoking Sec 7. Because Globe refused to heed Philcomsat’s demand, the latter filed a
complaint with RTC Makati.
Globe insisted that the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation constituted force majeure under the Agreement, thus exempting it from paying rentals for the
remaining period. Philcomsat, on the other hand, argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable.
RTC and CA found that the non-ratification by the Senate are acts of the government which constitute force majeure.
Whether the termination of the RP-US Military Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
Bases Agreement, the non-ratification of the shall be responsible for those events which, could not be foreseen, or which, though
Treaty of Friendship, Cooperation and Security, foreseen were inevitable.
and the consequent withdrawal of US military
Sec 7. DISCONTINUANCE OF SERVICE
forces and personnel from Cubi Point constitute Should Globe decide to discontinue with the use of the earth station after it has been put
force majeure which would exempt Globe from into operation, a written notice shall be served to PHILCOMSAT at least 60 days prior to
complying with its obligation to pay rentals under the expected date of termination. Notwithstanding the non-use of the earth station, Globe
shall continue to pay PHILCOMSAT xxxxxx
its Agreement with Philcomsat
Sec 8. DEFAULT – Neither party shall be held liable or deemed to be in default for any
failure to perform its obligation under this Agreement if such failure results
directly/indirectly from force majeure/fortuitous event. xxxx. For the purpose of this
paragraph, force majeure shall mean circumstances beyond the control of the party
involved including, but not limited to, any law, order, regulation, direction or request of
the Government of the Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophes or acts of God.
HELD
YES. (See doctrine for requisites of exemption from non-compliance due to fortuitous event)
Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same
expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties
have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992. It would
be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding
obligation under the Agreement.
Modes of Breach – Fortuitous Event
22. Yobido V. CA
A fortuitous event is possessed of the following characteristics:

1. the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of 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 must be free from any participation in the aggravation of the injury resulting to the creditor.
FACTS
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy,
Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front
tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in
the death of 28- year-old Tito Tumboy and physical injuries to other passengers.
a complaint for breach of contract of carriage, damages and attorney’s fees was filed by Leny and her children against Alberta
Yobido, theowner of the bus, and Cresencio Yobido, its driver, beforethe Regional Trial Court of Davao City.
When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito.
The lower court rendered a decision dismissing the action for lack of merit. On the issue of whether or not the tire blowout was a
caso fortuito, As such, the court added, the tire blowout was “a caso fortuito which is completely an extraordinary circumstance
independent of the will” of the defendants who should be relieved of “whatever liability the plaintiffs may have suffered by reason
of the explosion pursuant to Article 1174, of the Civil Code.”
CA reversed the decision of the lower court
WON the tire blow out which caused the accident Art. 1174. Except in cases expressly specified by the law, or when it is
was a caso fortuito. 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 though foreseen, were
inevitable.
HELD
In view of the foregoing, petitioners’ contention that they should be exempt from liability because the tire blowout was no more
than a fortuitous event that could not have been foreseen, must fail.
A fortuitous event is possessed of the following characteristics:

5. the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must
be independent of human will;
6. 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;
7. the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and
8. the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.
As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which, though
foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.
Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human
factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects
or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand
name noted for quality, resulting in the conclusion that it could not explode within five days’ use. Be that as it may, it is settled
that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for damages.
Effect of concurrent faul
23. Bacolod-Murcia Milling Co., Inc. vs. Court of Appeals
Caso Fortuito, Requirements of; The closure of the railroad does not constitute force majeure that will exempt petitioner
from liability for breach of its obligation
FACTS
1. Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar central in Bacolod. Alonso Gatuslao
(Gatuslao) is a registered plantor of the Bacolod-Muria Mill District.
2. BMMC and Gatuslao executed an “Extension and Modification of Milling Contract.
3. From crop year 1957-1958 up to crop year 1967-1968, Gatuslao has been milling all the sugarcane grown and
produced with the Mill of BMMC. From crop year 1920-21 to crop year 1967-68, the canes of planters adhered to the
mill of BMMC were transported from the plantation to the mill by means of cane cars and through railway system
operated by BMMC.
4. BMMC has been hauling planter Gatuslao’s sugar cane to its mill or factory continuously until crop year 1967 – 1968.
5. The milling contract between BMMC and owners of the hacienda Helvetica expired at the end of the 1964-1965 crop
year. The portion of the railway traversing the hacienda Helvetica was closed as per decision of the court.
6. The use of the railroad tracks (traversing hacienda Helvetica) was temporarily allowed due to the intervention of the
President of the Philippines, which is until 1967-1978 milling season only.
7. BMMC had not been able to use its cane cars and railway system for the cargo crop year 1968-1989.
8. Planter Alonso Gatuslao on various dates requested transportation facilities of BMMC to be sent to his loading
stations or switches for purposes of hauling and milling his sugarcane crops of crop year 1968-1969
Whether or not the termination of petitioner’s right of way Article 1174. Act of God Doctrine
over the hacienda Helvetica caused by the expiration of its
amended milling contracts with the landowners of the land
in question is fortuitous event or force majeure which will
exempt petitioner BMMC from fulfillment of its contractual
obligation.
HELD
It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the closure of its railroad lines constitute force
majeure, citing Article 1174 of the Civil Code, exempting a person from liability for events which could not be foreseen or
which though foreseen were inevitable. This Court has consistently ruled that when an obligor is exempted from liability
under the aforecited provision of the Civil Code for a breach of an obligation due to an act of God, the following elements
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; (d) the debtor must be free from any participation in, or aggravation of the injury to the
creditor.
Applying the criteria to the instant case, there can be no other conclusion than that the closure of the railroad tracks does
not constitute force majeure. The terms of the milling contracts were clear and undoubtedly there was no reason for BMMC
to expect otherwise. The closure of any portion of the railroad track, not necessarily in the hacienda Helvetia but in any of
the properties whose owners decided not to renew their milling contracts with the Central upon their expiration, was
forseeable and inevitable. Despite its awareness that the conventional contract of lease would expire in crop year 1964-
1965 and that refusal on the part of any one of the landowners to renew their milling contracts and the corresponding use of
the right of way on their lands would render impossible compliance of its commitments, BMMC took a calculated risk that
all the landowners would renew their contracts.
The closure of the railway lines was not an act of God nor it constitute force majeure. It was due to the termination of the
contractual relationships of the parties, for which BMMC is charged with knowledge. Owners of the hacienda Helvetica
notified BMMC as far back as August 1965 of its intention not to allow the passage of the railway system thru its land after
the aforesaid crop year. Adequate measures should have been adopted by BMMC to forestall such paralyzations but the
records show none.
24. Austria vs. Court of Appeals
It may be noted therefrom that the emphasis of the provision (Article 1174) is on the events, not on the agents or factors
responsible for them. 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. To require in the present action for recovery the prior conviction of the culprits in the
criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a
civil case.
FACTS
● On 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.
● 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 for recovery of the pendant or of its value, and damages.
Whether in a contract of agency (consignment of goods for ARTICLE 1174. Except in cases expressly specified by the law,
sale) it is necessary that there be prior conviction for robbery or when it is otherwise declared by stipulation, or when the
before the loss of the article shall exempt the consignee from nature of the obligation requires the assumption of risk, no
liability for such loss. person shall be responsible for those events which, could not be
foreseen or which, though foreseen, were inevitable.
HELD
No. The Court declared respondents not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them
from liability for damages to the owner.
It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant,
which she was obliged either to sell on commission or to return to petitioner, were taken during the robbery, then the
occurrence of that fortuitous event would have extinguished her liability.
It is recognized in this jurisdiction that to constitute a caso fortuito 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:
It may be noted therefrom that the emphasis of the provision (Article 1174) is on the events, not on the agents or factors
responsible for them. 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. To require in the present action for recovery the prior conviction of the culprits in the
criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a
civil case.
Remedies of Parties for Breach/ Enforcement of Right (Subsidiary Remedies)
25. Khe Hong Cheng v CA
• 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.
• To count the four-year period to rescind an allegedly fraudulent contract from the date of registration of the conveyance
with the Register of Deeds would run counter to Article 1383 of the Civil Code as well as settled jurisprudence.
• An accion pauliana presupposes the following—1) a judgment; 2) the issuance by the trial court of a writ
of execution for the satisfaction of the judgment; and 3) the failure of the sheriff to enforce and satisfy the
judgment of the court.
• Where the judgment creditor filed its complaint for accion pauliana barely a month from its discovery that the defendant
had no other property to satisfy the judgment award against him, its action for rescission of the deeds of donation clearly
had not yet prescribed.
FACTS
1. Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that on or about October 4,
1985, the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte.
2. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance Company
(respondent Philam’s assured).
3. M/V PRINCE ERIC, however, sank somewhere between Negros Island and Northeastern Mindanao, resulting in the total
loss of the shipment. Because of the loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the
copra) to the consignee.
4. Having been subrogated into the rights of the consignee, American Home instituted Civil Case No. 13357 in the Regional
Trial Court (RTC) of Makati, Branch 147 to recover the money paid to the consignee, based on breach of contract of
carriage. While the case was still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land
with an area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T3816 was donated to Ray Steven.
Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land located in Butuan City, covered
by TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was
issued in favor of Ray Steven and TCT No. RT12838 was cancelled and in lieu thereof, TCT No. RT21054 was issued in the
name of Sandra Joy.
5. RTC ruled against Khe Hong Cheng
6. CA affirmed
WON the four (4) year prescriptive period as provided for in Subsidiary Remedies
Article 1389 of the Civil Code for respondent Philam to file Art. 1177, 1381 paragraph 3 – Accion Pauliana
its action for rescission of the subject deeds of donation
commenced to run
HELD
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
NO. The court held that 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 concur:
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 person; 4) That the act being impugned is fraudulent; 5) That the third person who received the
property conveyed, if by 8 onerous title, has been an accomplice in the fraud.
xxx
Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the deeds of
donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still
pending before the trial court. Respondent Philam had no inkling, at the time, that the trial court’s judgment would be in its
favor and further, that such judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong
Cheng during the pendency of the case. Had respondent Philam filed his complaint on December 27, 1989, such complaint
would have been dismissed for being premature, Not only were all other legal remedies for the enforcement of respondent
Philam’s claims not yet exhausted at the time the deeds of donation were executed and registered. Respondent Philam would
also not have been able to prove then that petitioner Khe Hong Cheng had no more property other than those covered by the
subject deeds to satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he had reserved to himself
property sufficient to answer for his debts contracted prior to this date.
As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng.
There they found that he no longer had any properties in his name. It was only then that respondent Philam’s action for
rescission of the deeds of donation accrued because then it could be said that respondent Philam had exhausted all legal means
to satisfy the trial court’s judgment in its favor. Since respondent Philam filed its complaint for accion pauliana against
petitioners on February 25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng had no other property to
satisfy the judgment award against him, its action for rescission of the subject deeds clearly had not yet prescribed.
Subsidiary Remedies
26. Siguan v. Lim
The action to rescind contracts in fraud of creditors is known as accion pauliana with the following requisites:
1. The plaintiff asking for rescission has a credit prior to the alienation, although demandable later
2. The debtor has made a subsequent contract conveying a patrimonial benefit to a third person
3. The creditor has no other legal remedy to satisfy his claim
4. The act being impugned is fraudulent
5. The third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.
While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of
the judgment enforcing it is immaterial—even if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted.
The term “subsidiary remedy” has been defined as “the exhaustion of all remedies by the prejudiced creditor to collect claims due
him before rescission is resorted to. It is, therefore, essential that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim.
FACTS
1. On 25 and 26 August 1990, Rosa Lim (respondent, LIM) issued two Metrobank checks to satisfy her debts to Maria
Antonia Siguan (petitioner, SIGUAN). However, upon presentment by SIGUAN with the drawee bank, the checks were
dishonored for the reason that the account was closed. As a consequence, a criminal case for violation of BP 22 was filed by
SIGUAN against LIM. RTC convicted LIM as charged. The case is pending before this Court for review.
2. On August 10, 1989, LIM executed a Deed of Donation in favor of her children, and the same was registered with the
Office of the Register of Deeds on July 2, 1991.
3. SIGUAN filed an accion pauliana against LIM and her children, to rescind the questioned Deed of Donation and to declare
as null and void the new transfer certificates of title. According to SIGUAN, LIM fraudulently transferred all her real
property to her children in bad faith and in fault of creditors because at the time of the conveyance, she left no sufficient
properties to pay her obligations.
4. RTC ordered the rescission of the deed of donation. On appeal, CA reversed the decision saying that two requisites for filing
an accion pauliana were absent (1) a credit existing prior to the contract (2) fraud or at least intent to commit fraud.
According to the appellate court, LIM’s indebtedness was incurred in Aug 1990 or a year after execution of the donation.
May the Deed of Donation executed by Rosa Lim Art. 1171. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for
in favor of her children be rescinded for being in the same purpose, save those which are inherent in his person; they may also impugn the
fraud of her alleged creditor, Maria Antoni Siguan acts which the debtor may have done to defraud them.
Art. 1381 (1) The following contracts are rescissible – Those which are entered into by
guardians whenever the wards whom they represent suffer lesion by more than 1/4 th of
the value of the things which are the object thereof
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
HELD
NO. (See doctrine for requisites of accion pauliana) The rescission required the existence of creditors at the time of alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. Without
prior existing debt, there can neither be injury nor fraud. The date of the judgment enforcing it is immaterial.
Since LIMs indebtedness to SIGUAN was incurred in August 1990, or a year after the execution of the Deed of Donation, the 1st
requisite of accion pauliana was not met. Even assuming arguendo that SIGUAN became a creditor of LIM prior to the celebration
of the contract of donation, still her action for rescission would not fare well because the 3rd requisite was not met. It is essential
that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. SIGUAN
neither alleged nor proved that she did so. On his score, her action for rescission of the questioned deed is not maintainable even if
the fraud charged actually did exist. The 4th requisite is not present either. It was not sufficiently established that the properties
left behind by LIM were not sufficient to cover her debts existing before the donation was made.
Usurious Transactions
27. Eastern Shipping Lines V. CA
*See Ratio
FACTS
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel ‘SS EASTERN
COMET’ owned by defendant Eastern Shipping Lines, Inc. under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured
under plaintiff’s Marine Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port
Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one
drum opened and without seal.
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee’s
warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per
‘Bad Order Waybill’ No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due
to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same
The trial court ordered the defendants to pay the plaintiff the damages with legal interest of 12% per annum from the date of filing
of the complaint. CA affirmed in toto.
Eastern Shipping lines contends that only 6% should be the interest computed from the decision of the trial court.
WON CA is correct in ordering that the legal Art. 1175. Usurious transactions shall be governed by special laws.
interest is 12% per annum computed from the
filing of the complaint.
HELD
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 decision, dated 03 February 1988, of
the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof.
The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The “first group” would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus
Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the “second group” would be
Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express
International v. Intermediate Appellate Court (1988).
In the “first group,” the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central
Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central
Bank Circular imposing the 12% interest per annum applies only to loans or forbearance of money, goods or credits, as well as to
judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs
when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e.,
from the time the complaint is filed until the adjudged amount is fully paid.
The“second group,” did not alter the pronounced rule on the application of the 6% or 12% interest per annum, depending on
whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand.
Unlike, however, the “first group” which remained consistent in holding that the running of the legal interest should be from the
time of the filing of the complaint until fully paid, the “second group” varied on the commencement of the running of the legal
interest.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by
the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future
guidance.
1. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in
determining the measure of recoverable damages.
2. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
a) When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
b) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
c) When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
of credit.
Usurious transactions
28. DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY
Termination of Employment; Illegal Dismissals; By the nature of an illegal dismissal case, the reliefs continue to add up
until full satisfaction, as expressed under Article 279 of the Labor Code.
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that
it ran when it continued to seek recourses against the Labor Arbiter’s decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu
of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to that point.
In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent
(12%) per annum but will now be six percent (6%) per annum effective July 1, 2013.
FACTS
1. Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National
Labor Relations Commission (NLRC) against respondents Gallery Frames.
2. On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu
of reinstatement in the amount of P158,919.92.
3. [February 29, 2000] Respondents appealed to the NLRC, but was dismissed.
4. [August 24, 2000] The Petition for Review of the respondents at the CA was dismissed.
5. [April 17, 2002] Respondents sought relief from the SC, but was likewise, denied.
6. An Entry of Judgment was later issued by the SC certifying that the resolution became final and executory on May
27, 2002.
7. [November 5, 2002] Petitioner filed for a Motion for Correct Computation, praying that the computation of his
backwages be computed from his dismissal up to May 27, 2002.
8. [December 2, 2002] The Labor Arbiter issued a Writ of Execution ordering respondent to pay P471,320.31.
9. Upon appeal by respondents, the LA ruled that it is the October 15, 1998 Decision that should be enforced considering
that it was the one that became final and executory.
10. Aggrieved, the petitioner appealed at the CA, but his petition was denied.
11. a final computation, and in lieu of the Monetary Board Resolution No. 796 that took effect on July 1, 2013, the
computation of awards provided to Nacar were as follows: Interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013
until their full satisfaction
1. Whether or not a subsequent correction of the Art. 1175. Usurious transactions shall be governed by special
damages awarded during the final judgment of the laws
Supreme Court violates the rule on immutability of
judgments.
2. Whether or not the re-computation made by the
Labor Arbiter is correct.
3. Whether or not appropriate interests may be
claimed by the petitioner.
HELD
1. No. The Supreme Court ruled that a correction in the computation of the damages does not violate the rule on
immutability of judgments. The final decision made by the Supreme Court to award the petitioner with damages with
regards to the dismissal without justifiable cause can be divided into two important parts. One is the finding that an
illegal dismissal was indeed made. And the other is the computation of damages. According to a previous case of
Session Delights Ice Cream and Fast Foods v. Court of Appeals, the Supreme Court held that the second part of the
decision - being merely a computation of what the first part of the decision established and declared - can, by its
nature, be re-computed. The re-computation of the consequences of illegal dismissal upon execution of the decision
does not constitute an alteration or amendment of the final decision being implemented. The illegal dismissal ruling
stands; only the computation of monetary consequences of this dismissal is affected, and this is not a violation of the
principle of immutability of final judgments.
2. YES, the amount of 471,320.31 as damages is correct. According to Article 279 of the Labor Code, reliefs in case of
illegal dismissal continue to add up until its full satisfaction. The original computation clearly includes damages only
up to the finality of the labor arbiter's decision. Therefore, the Supreme Court approves the decision confirming that
a re-computation is necessary. The labor arbiter re-computed the award to include the separation pay and the back
wages due up to the finality of the decision that fully terminated the case on the merits.
3. The Supreme Court ruled that the petitioner shall be entitled to interest. In the case of Eastern Shipping Lines, Inc.
v. Court of Appeals, among the guidelines laid down by the Supreme Court regarding the manner of computing legal
interest is - when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest shall be 12% per annum from such finality until its satisfaction. In addition to this, the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013 declared that the rate of interest
for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per annum. Consequently, the twelve percent
(12%) per annum legal interest shall apply until June 30, 2013. Afterwards, the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when applicable.
The respondent was ordered to pay interest of twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
29. Sps. Andal vs. Philippine National Bank, et al.
It is clear from the contract of loan between petitioners-spouses and respondent bank that petitioners-spouses, as borrowers,
agreed to the payment of interest on their loan obligation. That the rate of interest was subsequently declared illegal
and unconscionable does not entitle petitioners-spouses to stop payment of interest. It should be emphasized that
only the rate of interest was declared void. The stipulation requiring petitioners-spouses to pay interest on their loan
remains valid and binding. They are, therefore, liable to pay interest from the time they defaulted in payment
until their loan is fully paid.
FACTS
● On September 7, 1995, [petitioners-spouses] obtained a loan from [respondent bank] in the amount of P21,805,000.00,
for which they executed twelve (12) promissory notes . . . [undertaking] to pay [respondent bank] the principal loan with
varying interest rates of 17.5% to 27% per interest period.
● It was agreed upon by the parties that the rate of interest may be increased or decreased for the subsequent interest periods,
with prior notice to [petitioners-spouses], in the event of changes in interest rates prescribed by law or the Monetary Board
. . ., or in the bank's overall cost of funds.
● To secure the payment of the said loan, [petitioners-spouses] executed in favor of [respondent bank] a real estate mortgage
using as collateral five (5) parcels of land including all improvements therein.
● Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan obligation, otherwise the former will
declare the latter's loan due and demandable. On July 17, 2001, [petitioners-spouses] paid P14,800,000.00 to [respondent
bank] to avoid foreclosure of the properties subject of the real estate mortgage.
● However, despite payment . . ., [respondent bank] proceeded to foreclose the real estate mortgage, particularly with respect
to the three (3) parcels of land.
● In their amended complaint, [petitioners-spouses] alleged that they tried to religiously pay their loan obligation to
[respondent bank], but the exorbitant rate of interest unilaterally determined and imposed by the latter prevented the
former from paying their obligation. [Petitioners-spouses] also alleged that they signed the promissory notes in blank,
relying on the representation of [respondent bank] that they were merely proforma [sic] bank requirements. Further,
[petitioners-spouses] alleged that the unilateral increase of interest rates and exorbitant penalty charges are akin to unjust
enrichment at their expense, giving [respondent bank] no right to foreclose their mortgaged properties. . . . .
WON the interest rate imposed is excessive and arbitrary. ARTICLE 1175. Usurious transactions shall be governed by
special laws.
HELD
Yes. The Court held that 12% interest per annum shall be applied from the date of default until 30 June 2013 only, after which
date and until fully paid, the outstanding obligation of petitioners-spouses shall earn interest at 6% per annum.
It is clear from the contract of loan between petitioners-spouses and respondent bank that petitioners-spouses, as borrowers,
agreed to the payment of interest on their loan obligation. That the rate of interest was subsequently declared illegal
and unconscionable does not entitle petitioners-spouses to stop payment of interest. It should be emphasized that
only the rate of interest was declared void. The stipulation requiring petitioners-spouses to pay interest on their loan
remains valid and binding. They are, therefore, liable to pay interest from the time they defaulted in payment
until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that "[petitioners-spouses] cannot be considered in default
for their inability to pay the arbitrary, illegal and unconscionable interest rates and penalty charges unilaterally imposed by
[respondent] bank." This is precisely the reason why the foreclosure proceedings involving petitioners-spouses' properties were
invalidated. As pointed out by the CA, "since the interest rates are null and void, [respondent] bank has no right to foreclose
[petitioners-spouses'] properties and any foreclosure thereof is illegal. . . . . Since there was no default yet, it is premature for
[respondent] bank to foreclose the properties subject of the real estate mortgage contract."
Pursuant to Circular No. 799, series of 2013, issued by the Office of the Governor of the Bangko Sentral ng Pilipinas on 21 June
2013, and in accordance with the ruling of the Supreme Court in the recent case of Dario Nacar v. Gallery Frames and/or Felipe
Bordey, Jr., 703 SCRA 439 (2013), effective 1 July 2013, the rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate
of interest, shall be six percent (6%) per annum. Accordingly, the rate of interest of 12% per annum on
petitioners-spouses’ obligation shall apply from 20 May 2011 — the date of default — until 30 June 2013 only.
From 1 July 2013 until fully paid, the legal rate of 6% per annum shall be applied to petitioners-spouses’ unpaid
obligation.
Usurious Transactions
30. Advocates for Truth in Lending v Bangko Sentral Monetary Board
• Usury Law; Central Bank (CB) Circular No. 905; Central Bank (CB) Circular No. 905 did not repeal nor in anyway amend
the Usury Law but simply suspended the latter’s effectivity; that a Central Bank (CB) Circular cannot repeal a law, for only
a law can repeal another law; that by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective; and
Usury Law has been legally nonexistent in our jurisdiction.
• Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as
amended, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forebearance of any money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit
institutions
• Usury Law; Interest Rates; Stipulations authorizing iniquitous or unconscionable interests have been invariably struck
down for being contrary to morals, if not against the law; In a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. The debt
due is considered as without the stipulated excessive interest, and the legal interest of 12% per annum will be added in
place of the excessive interest formerly imposed.
FACTS
Petitioner “Advocates for Truth in Lending, Inc.” (AFTIL) is a nonprofit, non-stock corporation organized to engage in pro
bono concerns and activities relating to money lending issues. It was incorporated on July 9, 2010, 2 and a month later, it filed
this petition, joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-MB to, among
others, set the maximum interest rates which banks may charge for all types of loans and other credit operations, within limits
prescribed by the Usury Law
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CBMB authority to
prescribe different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any
money, goods or credits, provided that the changes are effected gradually and announced in advance
In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular No. 905, Series of 1982, effective on
January 1, 1983. Section 1 of the Circular, under its General Provisions, removed the ceilings on interest rates on loans or
forbearance of any money, goods or credits
the Circular then went on to amend Books I to IV of the CB’s “Manual of Regulations for Banks and Other Financial
Intermediaries” (Manual of Regulations) by removing the applicable ceilings on specific interest rates. Thus, Sections 5, 9 and
10 of CB Circular No. 905 amended Book I, Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the
ceilings for interest and other charges, commissions, premiums, and fees applicable to commercial banks; Sections 12 and 17
removed the interest ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21 removed the ceilings
applicable to rural banks (Book III, Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank
financial intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas (BSP)
to replace the CB.
WON Usury Law

1) CB has the power to Suspend the Usury Law
2) CB may impose interest per Usury Law
3) CB grants lenders carte blanche authority
HELD
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
1) Yes. The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and
upheld in many cases. As the Court explained in the landmark case of Medel v. CA, 299 SCRA 481 (1998), citing several
cases, CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s
effectivity”; that “a [CB] Circular cannot repeal a law, [for] only a law can repeal another law”; that “by virtue of CB
Circular No. 905, the Usury Law has been rendered ineffective”; and “Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon.”
2) Yes. A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section
1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits
and deposit substitutes, or loans of financial intermediaries. Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by banks and other financial
institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
terms.
3) No. It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets. As held in Castro v. Tan, 605 SCRA 231
(2009): The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed,
is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to
the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any
reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of
public or private morals. Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down
for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their illegality as a
defense be waived. Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right to
recover the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt
due. The debt due is considered as without the stipulated excessive interest, and a legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed.

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Concept of Breach

1. Spouses Guanio vs. Makati Shangri-la

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Saturnino Cortez and Abelardo Velasco – Passenger truck (Liable)

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● Zenaida disclaimed having received any telegram.

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ARTICLE 1170. Those who in the performance of their

ARTICLE 2176. Whoever by act or omission causes damage to

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*Francisco died, so heirs became the petitioners

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● A complaint for damages was filed by herein private respondent.

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WON there is contravention of tenor in this case. Art. 1167. (1)

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Art. 1174 of the NCC.

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As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:

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A fortuitous event is possessed of the following characteristics:

CA reversed the decision of the lower court

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A fortuitous event is possessed of the following characteristics:

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