Orient Freight vs Everett

Facts: Everett and Matsushita entered into a trucking service agreement. Everett subcontracted Orient
Freight. One day, Matsushita called Everett regarding a tabloid which states that a stolen truck which
has items belonging to Matsushita was intercepted by the police.

Everett then contacted Orient Freight and the latter told them that it was just a misinformation because
the truck was only towed. So Everett told Orient Freight to investigate on the matter. However, when
the shipment was delivered to Matsushita, some items were missing which resulted to the termination
of the agreement between Everett and Matsushita.

Now, Everett filed an action against Orient Freight for damages and loss of profit due to the termination
of Everett and Matsushita’s agreement contending that it was because of the fault and negligence of
Orient Freight in failing to investigate properly and refusal to make a proper report regarding the
pilferage that occurred. (Because in this case, Orient Freight reported that the truck was only towed
when in fact it was stolen)

The RTC and CA ruled in favor of Everett and awarded the damages based on quasi-delict. Hence, the
present petition questioning the award of damages. Orient Freight contends that since there is pre-
existing contractual relations between them, damages may not be awarded based on tort. Furthermore,
there is nowhere in the agreement that they need to report their investigation to Everett.

Issue: Whether or not the award of damages based on tort was proper?

Held: NO. As a general rule, an act that breached a contract may also be a tort. Provided, that such act,
regardless of the existence of the contract would still give rise to an action for quasi-delict. In other
words, if such act would not give rise to an action for quasi-delict independent of the contract, then the
provisions on tort would not apply.

In this case, if there was no contract between Orient Freight and Everett, an action cannot be brought
due to the negligent act of Orient Freight in not properly investigating and reporting to Everett the
factual matters regarding the stolen truck. Hence, an action for damages based on quasi-delict is not
proper.

It is not to be said that damages should not be awarded. Here, when Everett told Orient Freight to
investigate the matter, there existed an obligation between them incidental to their contract which is for
Orient Freight to investigate and report honestly to Everett. From the foregoing account, it is evident
that Orient Freight not only had knowledge of the foiled hijacking of the truck but also withheld such
information from Everett. Therefore, it should be held liable for damages.
NOTE: Differences between Culpa Aquiliana and Culpa Contractual

Culpa aquiliana Culpa Contractual

Negligence is direct and independent
Negligence is not presumed. The onus probandi is
on the part of the plaintiff.
The defense of “good father of the family” is a
proper defense
Negligence is incidental to the performance of
contractual obligation
Negligence is presumed as long as “breach” is
proven. It is on the part of the defendant to prove
that there was no negligence in the performance
of the contract.
Not a proper defense

Philcomsat vs Globe

Facts:US Defense Communications Agency (USDCA) entered into a contract with Globe for the latter to
provide communications services and facilities to the former in its naval bases in Clark and Subic.

To provide for such services, in May 1991, Globe and Philcomsat entered into an agreement wherein
Philcomsat agreed to provide for communication facilities also called “earth station” to USDCA for a
term of 5 years. In turn, Globe agreed to pay for monthly rentals. At that time, they were both fully
aware that the occupation of the US is subject to the Military Bases Agreement between Philippines and
US, and such agreement was about to expire in a year unless extended by the Senate.

Subsequently, the Military Bases Agreement was not extended by the Senate so it will expire in
December 1992. Globe sent a letter to Philcomsat informing the latter that it would discontinue the use
of the earth station by November 1992, and that its discontinuance is subject to a provision in their
agreement wherein it provides that no liability shall attach to globe in cases of force majeure or
fortuitous event such as “a) any law, order, regulation, direction or request of the Government of the
Philippines”. Still, Philcomsat claims from globe the payment of rentals for the remaining term of their
agreement.

The RTC ruled that the reason of the discontinuance is considered as force majeure so Globe is not liable
to pay for the entire term but only until December 1992. The CA affirmed. Hence, the present petition
filed by Philcomsat contending that the termination of the Military Bases Agreement is not a force
majeure nor a fortuitous event because it is foreseeable. Moreover, their stipulation providing for an
event such as “any law, order, regulation, direction or request of the Government of the Philippines”
runs counter to Art. 1174 of the Civil Code.

Issue: Whether or not the termination of the Military Bases Agreement by the Senate constitutes as
force majeure and may exempt Globe from liability?

Held: YES. Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but
inevitable.
The elements in order for a party to be exempt by reason of force majeure or fortuitous event are as
follows: (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; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. All of the following are present in the case
at bar.

In this case, the non-extension of the Military Bases Agreement even though foreseeable by Globe, was
inevitable. It is independent of Globe’s will. Termination of such agreement also renders the obligation
of globe to fulfill its obligation. Also, Globe has nothing to do with the non-extension.

Lastly, the stipulation of the parties adding several events to Art. 1174 such as “a) any law, order,
regulation, direction or request of the Government of the Philippines” being not contrary to law, moral,
good custom and public policy has the force and effect of the law between the parties.

Rivera vs Chua

Doctrine:Compounded Interests; Article 2212 of the Civil Code provides that “interest due shall earn
legal interest from the time it is judicially demanded, although the obligation may be silent on this
point.

Facts: Rivera obtained a loan from Sps. Chua in the amount of 120k to be paid on Dec. 31, 1995 and with
5% interest per month in case of non-payment/default from the date of the due date as evidenced by a
promissory note executed by Rivera.

After 3 years or in 1998, Rivera executed several checks which were dishonored upon presentment.
Because of this, Sps. Chua were constrained to file a case on June 11, 1999 for collection of sum of
money and interest with damages before the MeTC. In his defense, he contends that the promissory
note was forged and really inexistent. Moreover, assuming that it was legitimate, there was no demand
from Sps. Chua until the filing of the instant case.

The MeTC ruled in favor of Sps. Chua and held that the promissory note is legitimate and that demand is
unnecessary. However, it ruled that 5% interest per month or 60% per annum as stipulated is exorbitant
so the legal interest rate should be applied. The CA affirmed. Hence, the present petition.

Issue:

1. Whether or not demand is necessary in the case at bar before delay sets in?

2. Explain the rules in computing interest.

Held: 1. No. Art. 1170. Provides that “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. Furthermore, delay sets in from the time there is judicial or extra-judicial demand. But, Art.
1169 of the NCC provides that there are four instances when demand is not necessary to constitute the
debtor in default:
(1) when there is an express stipulation to that effect;

(2) where the law so provides;

(3) when the period is the controlling motive or the principal inducement for the creation of the
obligation; and

(4) where demand would be useless.

In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it
must further state expressly that after the period lapses, default will commence.

In this case, the promissory note expressly provided that after December 31, 1995, default commences.
Therefore, on January 1 1996, since there is delay, the debtor is liable to pay for damages in the form of
stipulated interest. However, in this case the interest of 5% per month or 60% per annum is exorbitant
so legal interest shall apply which is 12% per annum until June 30 2013, when it was reduced to 6% by
BSP Circular 799. (In short, after June 30, 2103 the legal interest rate that would apply is 6% per annum).

Aside from the stipulated interest, there is also a need for imposition of a legal interest from the time of
“Judicial demand” which is called “interest due earning legal interest”as provided under Article 2212 of
the Civil Code which provides that “interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.”

Therefore the computations of interests are as follows:

1. Stipulated interest which was converted to legal interest due to it being exorbitant:

a) 12% of the principal amount, PHP120k from January 1, 1996 to June 30, 2013

b) 6% of 120k from July 1, 2013 until the decision becomes final and executory.

2. Legal interest of the interest due

a) 12% of the total amount of 1a) and 1b) from June 11, 1999 (date of judicial demand), to June 30,
2013.

b) 6& of the total amount of 1a) and 1b) from July 1, 2013 up to the date this decision becomes final and
executory.

Here are the important dates:

1) January 1, 1996 – The time when delay sets in because the due date of the obligation is Dec. 30, 1995.

2) June 11, 1999 – Date of judicial demand/Filing an action in court

3) July 1, 2013 – Date when BSP Circular 799 lowering the 12% legal interest rate to 6% became
effective.
 Song fo vs Hawaiian

Facts: Song Fo is suing Hawaiian Philippine Co, on account of its rescission of their contract wherein
Hawaiian agreed to deliver 300k gallons of molasses, without sufficient cause.

In its defense, Hawaiian contends that it is entitled to rescind the contract because despite delivery of
some portion of molasses, Song Fo failed to pay the amount of molasses on the time they agreed upon.

Issue: Whether or not Hawaiian may rescind the contract on the ground of non-payment of contract
price on the date agreed upon?

Held: NO. The terms of payment fixed by the parties are controlling. The time of payment stipulated for
in the contract should be treated as of the essence of the contract. Theoretically, agreeable to certain
conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to
rescind the contract because of the breach of Song Fo& Company. But actually, there is here present no
outstanding fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine
Co.

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are sosubstantial and fundamental as to defeat the object of the parties in
making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not
such a violation of an essential condition of the contract as warrants rescission for non-performance .

Victoria’s planters vs Victoria’s Milling

Facts: The petitioners in this case are sugar planters wherein they agreed with the respondent that the
latter will mill the sugars that they will produce. Such agreement will expire after 30 years.

However, the contract was suspended for 4 years due to Japanese occupation and another 2 years for
the rebuilt of the mill so a total of 6 years. Now, the respondent is asking the petitioners to make up for
the sugars that they failed to deliver for 6 years, even after the expiration of the 30yr contract. Because
according to them, as stated in their agreement, the 30 yr contract pertains to “milling year” and not in
calendar years. So during the suspension of the contract for 6yrs, it should not be counted from the
computation of 30 milling years.

Issue: Whether or not the petitioners could be compelled to deliver sugar cane to the respondent
central for six more years after the expiration of the 30-year period, to make up for what they failed to
deliver during the six years?

Held: No. Fortuitous event relieves the obligor from fulfilling a contractual obligation (Article 1105, old
Civil Code; Article 1174, new Civil Code). The stipulation in the contract that in the event of force
majeure the contract shall be deemed suspended during said period does not mean that the happening
of any of those events stops the running of the period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that time.
To require the petitioners to deliver the sugar cane which they failed to deliver during the six years is
to demand from them the fulfillment of an obligation which was impossible of performance at the
time it became due.

The performance of what the law has written off cannot be demanded and required. The prayer that the
petitioners be compelled to deliver sugar cane for six more years to make up for what they failed to
deliver, the fulfillment of which was impossible, if granted, would in effect be an extension of the terms
of the contracts entered into by and between the parties.

PSBA vs CA

Facts: Carlitos Bautista, a student of PSBA was killed while inside the campus by a person who is not a
student nor in any way related to PSBA. Now, the parents of Carlitos filed a case against PSBA and its
officers for its negligence such as lack of security which resulted to Carlitos’ death.

The trial court and the CA ruled in favor of the parents of Carlitos basing its ruling in Art. 2176 and
Art.2180, the provisions on quasi–delict.Hence, the present petition.

Issue: Whether or not PSBA may be held liable based on quasi-delict?

Held: No. In all such cases, it had been stressed that the law (Article 2180) plainly provides that the
damage should have been caused or inflicted by pupils or students of the educational institution sought
to be held liable for the acts of its pupils or students while in its custody. Such is not the case here
because the assailant is not a student of PSBA.

The liability however, of PSBA may still be claimed on the basis of culpa contractual. When an academic
institution accepts students for enrollment, there is an establishedcontract between them, resulting in
bilateral obligations which both parties are bound to comply with. The school has the obligation to
provide the student with education and safe environment while the student has the obligation to
comply with the school’s requirements and policies.

Even though it has been held that the presence of contractual relations does not bar a claim based on
quasi-delict, such must be subjected to a test. The test is whether “even in the absence of the contract,
a cause of action for quasi-delict still subsists”. One example would be in the performance of the
contract, there is bad faith on the part of the obligor and there is a violation of Art. 21 of the NCC.

In this case, the contractual relation of the parties is a condition sine qua non in order for the claim of
negligence of the plaintiff may prosper. Such condition has not yet been proven in the trial court.
Wherefore, this case must be remanded to the trial court to determine the presence of negligence on
the part of PSBA in its contractual obligations. (This case just reiterated the ruling in Orient freight that
the presence of contractual relations does not bar a claim for damages based on quasi-delict as long as a
cause of action based on quasi-delict may be made despite the absence of contractual relations.)
 Air France vs Carrascoso

Facts: Plaintiff in this case bought a plane ticket of Air France thru its agent PAL, specifically indicating
therein that what he bought was a “first class” ticket from Manila to Rome. From Manila to Bangkok, he
travelled in first class but from Bangkok, the manager of Air France told him to transfer to the “tourist
class” because a white man has a better right to such seat.

Because of such incident, he now filed a case for damages against Air France based on breach of
contract. In its defense, Air France contends that even though an individual bought a “first class” ticket,
it does not guarantee that he will be able to travel in such seat. The trial court and CA ruled in favor of
the Plaintiff. Hence, the present petition wherein Air France contends that since the basis of the claim
for damages is breach of contract, then there must be an allegation of fraud or bad faith and here, there
was none.

Issue: Whether or not the award of damages is based on culpa contractual or culpa aquiliana?

Held: Here, the court granted the award not only based on culpa contractual but also based on culpa
aquiliana. The presence of pre-existing contractual relation does not negate the presence of culpa
aquiliana. Especially when the act that breaks the contract constitutes tort. Such as when there is a
violation of Art. 21 of the NCC which states that: "ART. 21. Any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public policy shall compensate the
latter for the damage."

Here, the act of the manager in giving preference to a white man despite the plaintiff proof of a first
class ticket, and the former’s act of embarrassing him in front of other passangers constitutes a violation
of Art. 21 of the NCC. Hence, an award for damages may be based on culpa aquiliana.

SBTC vs CA

Facts:Ysmael Ferrer was contracted by SBTC to construct its building in Davao for the amount of 1.7M
and to be finished within 200 working days. Ferrer was able to finish within the time allotted but due to
a drastic increase in the cost of construction, he was compelled to incur an additional expense of 300k
on top of the original agreement. He then showed the receipts invoices and other documents evidencing
such expense.

The officers of SBTC verified the amount but suggested that the amount should only be 200k. However,
SBTC did not authorize any payment. According to them, there was a provision in their contract that in
case of increase of cost in raw materials, it shall be borne first by the contractor and later they shall
make “appropriate adjustments” based on the mutual agreement of the parties. They contend that
since there is no yet mutual agreement regarding the additional amount, then their liability never
materialized.

So now, Ferrer filed an action against SBTC for collection of sum of money with damages. The trial court
and CA ruled in his favor. Hence, the present petition.
Issue: Whether or not the contention of SBTC is tenable?

Held: NO. Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment
depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of
which petitioner bank relies upon to support its non-liability for the increased construction cost, is in
effect a condition dependent on petitioner bank’s sole will, since private respondent would naturally
and logically give consent to such an agreement which would allow him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed
the construction even at an increased cost.

Art. 22 of the NCC provides: “Art. 22. Every person who through an act of performance by another, or
any other means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him.”

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of
private respondent.