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EXCUSES FOR NON-PERFORMANCE
EXCUSES FOR NON-PERFORMANCE
G.R. No. L-12191             October 14, 1918
JOSE CANGCO vs. MANILA RAILROAD CO
Jose Cangco, was in the employment of Manila Railroad Company in the capacity of clerk. He lived in
the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the defendant
railroad company; and in coming daily by train to the company's office in the city of Manila where he
worked, he used a pass, supplied by the company, which entitled him to ride upon the company's
trains free of charge.
On January 20, 1915, plaintiff arose from his seat in the car where he was riding and, making, his exit
through the door, took his position upon the steps of the coach, seizing the upright guardrail with his
right hand for support.
On the side of the train where passengers alight at the San Mateo station there is a cement platform
which begins to rise with a moderate gradient some distance away from the company's office and
extends along in front of said office for a distance sufficient to cover the length of several coaches. As
the train slowed down another passenger, named Emilio Zuñiga, also an employee of the railroad
company, got off the same car, alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off
also, but one or both of his feet came in contact with a sack of watermelons with the result that his feet
slipped from under him and he fell violently on the platform. His body at once rolled from the platform
and was drawn under the moving car, where his right arm was badly crushed and lacerated. It appears
that after the plaintiff alighted from the train the car moved forward possibly six meters before it came
to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted
dimly by a single light located some distance away, objects on the platform where the accident occurred
were difficult to discern especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found
in the fact that it was the customary season for harvesting these melons and a large lot had been
brought to the station for the shipment to the market. They were contained in numerous sacks which
has been piled on the platform in a row one upon another. The testimony shows that this row of sacks
was so placed of melons and the edge of platform; and it is clear that the fall of the plaintiff was due to
the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform.
His statement that he failed to see these objects in the darkness is readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain hospital
in the city of Manila where an examination was made and his arm was amputated. The result of this
operation was unsatisfactory, and the plaintiff was then carried to another hospital where a second
operation was performed and the member was again amputated higher up near the shoulder. It
appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and surgical
fees and for other expenses in connection with the process of his curation.
Thus, he instituted this proceeding in the Court of First Instance of the city of Manila to recover
damages of the defendant company, founding his action upon the negligence of the servants and
employees of the defendant in placing the sacks of melons upon the platform and leaving them so
placed as to be a menace to the security of passenger alighting from the company's trains.
It can not be doubted that the employees of the railroad company were guilty of negligence in piling
these sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall
as he alighted from the train; and that they therefore constituted an effective legal cause of the injuries
sustained by the plaintiff. It necessarily follows that the defendant company is liable for the damage
thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. In resolving
this problem it is necessary that each of these conceptions of liability, to-wit, the primary responsibility
of the defendant company and the contributory negligence of the plaintiff should be separately
examined.
It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all,
from the breach of that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint
from that presumptive responsibility for the negligence of its servants, imposed by article 1903 of the
Civil Code, which can be rebutted by proof of the exercise of due care in their selection and supervision.
Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-
contractual obligations — or to use the technical form of expression, that article relates only
to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly
points out this distinction, which was also recognized by this Court in its decision in the case of
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa
clearly points out the difference between "culpa, substantive and independent, which of itself
constitutes the source of an obligation between persons not formerly connected by any legal tie"
and culpa considered as an accident in the performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that
article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a
contract. Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one another.
But where relations already formed give rise to duties, whether springing from contract or
quasi-contract, then breaches of those duties are subject to article 1101, 1103, and 1104 of
the same code.
This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain
cases imposed upon employers with respect to damages occasioned by the negligence of their
employees to persons to whom they are not bound by contract, is not based, as in the English Common
Law, upon the principle of respondeat superior — if it were, the master would be liable in every case
and unconditionally — but upon the principle announced in article 1902 of the Civil Code, which
imposes upon all persons who by their fault or negligence, do injury to another, the obligation of
making good the damage caused. One who places a powerful automobile in the hands of a servant
whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of an act of
negligence which makes him liable for all the consequences of his imprudence. The obligation to make
good the damage arises at the very instant that the unskillful servant, while acting within the scope of
his employment causes the injury. The liability of the master is personal and direct. But, if the master
has not been guilty of any negligence whatever in the selection and direction of the servant, he is not
liable for the acts of the latter, whatever done within the scope of his employment or not, if the damage
done by the servant does not amount to a breach of the contract between the master and the person
injured.

EXCUSES FOR NON-PERFORMANCE
It is not accurate to say that proof of diligence and care in the selection and control of the servant
relieves the master from liability for the latter's acts — on the contrary, that proof shows that the
responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-
contractual culpa is always based upon a voluntary act or omission which, without willful intent, but
by mere negligence or inattention, has caused damage to another. A master who exercises all possible
care in the selection of his servant, taking into consideration the qualifications they should possess for
the discharge of the duties which it is his purpose to confide to them, and directs them with equal
diligence, thereby performs his duty to third persons to whom he is bound by no contractual ties, and
he incurs no liability whatever if, by reason of the negligence of his servants, even within the scope of
their employment, such third person suffer damage. True it is that under article 1903 of the Civil Code
the law creates a presumption that he has been negligent in the selection or direction of his servant, but
the presumption is rebuttable and yield to proof of due care and diligence in this respect.
This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-contractual
liability of the defendant to respond for the damage caused by the carelessness of his employee while
acting within the scope of his employment. The Court, after citing the last paragraph of article 1903 of
the Civil Code, said:
From this article two things are apparent: (1) That when an injury is caused by the negligence
of a servant or employee there instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the servant or employee, or in
supervision over him after the selection, or both; and (2) that that presumption is juris
tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that
if the employer shows to the satisfaction of the court that in selection and supervision he has
exercised the care and diligence of a good father of a family, the presumption is overcome and
he is relieved from liability.
This theory bases the responsibility of the master ultimately on his own negligence and not
on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in relations with strangers, the
negligence of the servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based
upon negligence, it is necessary that there shall have been some fault attributable to the defendant
personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption, is
in complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the
liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special
relations of authority or superiority existing between the person called upon to repair the damage and
the one who, by his act or omission, was the cause of it.
On the other hand, the liability of masters and employers for the negligent acts or omissions of their
servants or agents, when such acts or omissions cause damages which amount to the breach of a
contact, is not based upon a mere presumption of the master's negligence in their selection or control,
and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his
liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of each
member of society constitute the measure of the corresponding legal duties, mainly negative in
character, which the existence of those rights imposes upon all other members of society. The breach of
these general duties whether due to willful intent or to mere inattention, if productive of injury, give rise
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to an obligation to indemnify the injured party. The fundamental distinction between obligations of this
character and those which arise from contract, rests upon the fact that in cases of non-contractual
obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris, whereas
in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed
by the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect — and our Legislature has so elected — whom such an obligation
is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include responsibility for the negligence of those
person who acts or mission are imputable, by a legal fiction, to others who are in a position to exercise
an absolute or limited control over them. The legislature which adopted our Civil Code has elected to
limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility may consist
in having failed to exercise due care in the selection and control of one's agents or servants, or in the
control of persons who, by reason of their status, occupy a position of dependency with respect to the
person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation
upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests
upon plaintiff to prove the negligence — if he does not his action fails. But when the facts averred show
a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has
failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadings
whether the breach of the contract is due to willful fault or to negligence on the part of the defendant,
or of his servants or agents. Proof of the contract and of its nonperformance is sufficient  prima facie to
warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor
should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a
contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach
was due to the negligent conduct of defendant or of his servants, even though such be in fact the actual
cause of the breach, it is obvious that proof on the part of defendant that the negligence or omission of
his servants or agents caused the breach of the contract would not constitute a defense to the action. If
the negligence of servants or agents could be invoked as a means of discharging the liability arising
from contract, the anomalous result would be that person acting through the medium of agents or
servants in the performance of their contracts, would be in a better position than those acting in
person.
If one delivers a valuable watch to watchmaker who contract to repair it, and the bailee, by a personal
negligent act causes its destruction, he is unquestionably liable. Would it be logical to free him from his
liability for the breach of his contract, which involves the duty to exercise due care in the preservation
of the watch, if he shows that it was his servant whose negligence caused the injury? If such a theory
could be accepted, juridical persons would enjoy practically complete immunity from damages arising
from the breach of their contracts if caused by negligent acts as such juridical persons can of necessity
only act through agents or servants, and it would no doubt be true in most instances that reasonable
care had been taken in selection and direction of such servants.
If one delivers securities to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and reasonable to permit the bank to

EXCUSES FOR NON-PERFORMANCE
relieve itself of liability for the breach of its contract to return the collateral upon the payment of the
debt by proving that due care had been exercised in the selection and direction of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a
mere incident to the performance of a contract has frequently been recognized by the supreme court of
Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In the decisions of
November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that defendant sought to
avail himself of the provisions of article 1902 of the Civil Code as a defense. The Spanish Supreme
Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages
caused by the defendant's failure to carry out the undertakings imposed by the contracts . . . .
A brief review of the earlier decision of this court involving the liability of employers for damage done by
the negligent acts of their servants will show that in no case has the court ever decided that the
negligence of the defendant's servants has been held to constitute a defense to an action for damages
for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not
liable for the damages caused by the negligence of his driver. In that case the court commented on the
fact that no evidence had been adduced in the trial court that the defendant had been negligent in the
employment of the driver, or that he had any knowledge of his lack of skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff
sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed
to get adrift by the negligence of defendant's servants in the course of the performance of a contract of
towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew
out of a contract made between it and the plaintiff . . . we do not think that the provisions of articles
1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for the personal injuries caused by the negligence of defendant's chauffeur while driving
defendant's automobile in which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that the master was not liable,
although he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. . .
. The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it
is true that the court rested its conclusion as to the liability of the defendant upon article 1903,
although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to
him arising out of the contract of transportation. The express ground of the decision in this case was
that article 1903, in dealing with the liability of a master for the negligent acts of his servants "makes
the distinction between private individuals and public enterprise;" that as to the latter the law creates a
rebuttable presumption of negligence in the selection or direction of servants; and that in the particular
case the presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though
founded in tort rather than as based upon the breach of the contract of carriage, and an examination of
the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory.
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Viewed from the standpoint of the defendant the practical result must have been the same in any event.
The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his
negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that defendant
had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant.
Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were
to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp.
29 and 69) whether negligence occurs an incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual undertaking obligation, its essential
characteristics are identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently, when the court holds that a
defendant is liable in damages for having failed to exercise due care, either directly, or in failing to
exercise proper care in the selection and direction of his servants, the practical result is identical in
either case. Therefore, it follows that it is not to be inferred, because the court held in the Yamada case
that defendant was liable for the damages negligently caused by its servants to a person to whom it was
bound by contract, and made reference to the fact that the defendant was negligent in the selection and
control of its servants, that in such a case the court would have held that it would have been a good
defense to the action, if presented squarely upon the theory of the breach of the contract, for defendant
to have proved that it did in fact exercise care in the selection and control of the servant.
The true explanation of such cases is to be found by directing the attention to the relative spheres of
contractual and extra-contractual obligations. The field of non- contractual obligation is much more
broader than that of contractual obligations, comprising, as it does, the whole extent of juridical human
relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person
is bound to another by contract does not relieve him from extra-contractual liability to such person.
When such a contractual relation exists the obligor may break the contract under such conditions that
the same act which constitutes the source of an extra-contractual obligation had no contract existed
between the parties.
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in
safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That duty,
being contractual, was direct and immediate, and its non-performance could not be excused by proof
that the fault was morally imputable to defendant's servants.
ISSUE:
WHETHER OR NOT CANGCO IS GUILTY OF CONTRIBUTORY NEGLIGENCE. NO
RULING:
The railroad company's defense involves the assumption that even granting that the negligent conduct
of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to
maintain safe means of approaching and leaving its trains, the direct and proximate cause of the injury
suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a
complete stop before alighting. Under the doctrine of comparative negligence announced in the Rakes
case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed upon
defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should
be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the
particular injury suffered by him could not have occurred. Defendant contends, and cites many
authorities in support of the contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the
opinion that this proposition is too badly stated and is at variance with the experience of every-day life.
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EXCUSES FOR NON-PERFORMANCE

In this particular instance, that the train was barely moving when plaintiff alighted is shown platform where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to
conclusively by the fact that it came to stop within six meters from the place where he stepped from it. alight while the train was yet slightly under way was not characterized by imprudence and that
Thousands of person alight from trains under these conditions every day of the year, and sustain no therefore he was not guilty of contributory negligence.
injury where the company has kept its platform free from dangerous obstructions. There is no reason to
believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for
defendant's negligent failure to perform its duty to provide a safe alighting place.
G.R. No. 73867 February 29, 1988
We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's
work on Negligence (vol. 3, sec. 3010) as follows:
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC. vs. IGNACIO CASTRO, SR., SOFIA C.
The test by which to determine whether the passenger has been guilty of negligence in CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO,
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO
be considered whether an ordinarily prudent person, of the age, sex and condition of the CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT
passenger, would have acted as the passenger acted under the circumstances disclosed by the
evidence. This care has been defined to be, not the care which may or should be used by the
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the
prudent man generally, but the care which a man of ordinary prudence would use under
other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch,
similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec.
who was then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685
3010.)
Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram was
accepted by the defendant in its Dagupan office, for transmission, after payment of the required fees or
Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep.,
charges. However, the telegram never reached its addressee. Consolacion was interred with only her
809), we may say that the test is this; Was there anything in the circumstances surrounding the
daughter Sofia in attendance. Neither the husband nor any of the other children of the deceased, then
plaintiff at the time he alighted from the train which would have admonished a person of average
all residing in the United States, returned for the burial.
prudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff
should have desisted from alighting; and his failure so to desist was contributory negligence.
When Sofia returned to the United States, she discovered that the wire she had caused the defendant to
As the case now before us presents itself, the only fact from which a conclusion can be drawn to the send, had not been received. She and the other plaintiffs thereupon brought action for damages arising
effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being from defendant's breach of contract.
able to discern clearly the condition of the platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be overlooked that the plaintiff was, as we find,
The only defense of the defendant was that it was unable to transmit the telegram because of "technical
ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform
and atmospheric factors beyond its control." No evidence appears on record that defendant ever made
existed; and as the defendant was bound by reason of its duty as a public carrier to afford to its
any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram.
passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of
some circumstance to warn him to the contrary, that the platform was clear. The place, as we have
already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part of the The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the
defendant in the performance of a duty owing by it to the plaintiff; for if it were by any possibility plaintiffs (now private respondents) damages
concede that it had right to pile these sacks in the path of alighting passengers, the placing of them
adequately so that their presence would be revealed. Petitioner appeals from the judgment of the appellate court, contending that the award of moral
damages should be eliminated as defendant's negligent act was not motivated by "fraud, malice or
As pertinent to the question of contributory negligence on the part of the plaintiff in this case the recklessness."
following circumstances are to be noted: The company's platform was constructed upon a level higher
than that of the roadbed and the surrounding ground. The distance from the steps of the car to the
spot where the alighting passenger would place his feet on the platform was thus reduced, thereby
decreasing the risk incident to stepping off. The nature of the platform, constructed as it was of cement
material, also assured to the passenger a stable and even surface on which to alight. Furthermore, the WHETHER OR NOT PETITIONER IS GUILTY OF BREACH OF CONTRACT. YES. (CONTRAVENTION
plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for OF THE TERMS OF THE CONTRACT) (DAMAGES DUE TO GROSS NEGLIGENCE)
him to get off while the train was yet moving as the same act would have been in an aged or feeble
person. In determining the question of contributory negligence in performing such act — that is to say,
whether the passenger acted prudently or recklessly — the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the passenger, and should be
considered. Women, it has been observed, as a general rule are less capable than men of alighting with Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of
safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for
limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it was his daily damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there
custom to get on and of the train at this station. There could, therefore, be no uncertainty in his mind being fault or negligence, is obliged to pay for the damage done."
with regard either to the length of the step which he was required to take or the character of the

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In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby,
for a fee, petitioner undertook to send said private respondent's message overseas by telegram. This,
petitioner did not do, despite performance by said private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in
this regard would result in an inequitous situation where petitioner will only be held liable for the
actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate results of the defendant's wrongful act or omission."
(Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the
suffering private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas
children must have suffered upon learning of the death of their mother after she had already
been interred, without being given the opportunity to even make a choice on whether they
wanted to pay her their last respects? There is no doubt that these emotional sufferings were
proximately caused by appellant's omission and substantive law provides for the justification
for the award of moral damages.
The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the
amount of P1,000.00 for each of the private respondents, as a warning to all telegram companies to
observe due diligence in transmitting the messages of their customers.
G.R. No. 158911               March 4, 2008
MANILA ELECTRIC COMPANY vs. MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY,
ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO
The National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against
several persons allegedly illegally occupying its properties. Among the defendants in the ejectment case
was Leoncio Ramoy, one of the plaintiffs in the case at bar.
After the defendants failed to file an answer in spite of summons duly served, the MTC rendered
judgment for the [MERALCO] "ordering the defendants to demolish or remove the building and
structures they built on the land of the plaintiff and to vacate the premises."
Page 5 of 27
In the case of Leoncio Ramoy, the Court found that he was occupying a portion of Lot No. 72-B-2-B
with the exact location of his apartments indicated and encircled in the location map as No. 7. A copy
of the decision was furnished Leoncio Ramoy.
NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all
residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon
City. Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and
Matilde Ramoy, as well as a copy of the court decision. After deliberating on NPC's letter, Meralco
decided to comply with NPC's request and thereupon issued notices of disconnection to all
establishments affected including plaintiffs Leoncio Ramoy, Matilde Ramoy/Matilde Macabagdal,
Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado.
In a letter dated Meralco requested NPC for a joint survey to determine all the establishments which are
considered under NPC property in view of the fact that "the houses in the area are very close to each
other". Shortly thereafter, a joint survey was conducted and the NPC personnel pointed out the electric
meters to be disconnected.
In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected.
Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by
TCT No. 326346, a portion of which was occupied by plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose
Valiza and Cyrene S. Panado as lessees. When the Meralco employees were disconnecting plaintiffs'
power connection, Leoncio Ramoy objected by informing the Meralco foreman that his property was
outside the NPC property and pointing out the monuments showing the boundaries of his property.
However, he was threatened and told not to interfere by the armed men who accompanied the Meralco
employees. After the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees left the
premises.
During the ocular inspection ordered by the Court and attended by the parties, it was found out that
the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property.
This was confirmed by defendant's witness R.P. Monsale III on cross-examination. Monsale also
admitted that he did not inform his supervisor about this fact nor did he recommend re-connection of
plaintiffs' power supply.
The record also shows that at the request of NPC, defendant Meralco re-connected the electric service of
four customers previously disconnected none of whom was any of the plaintiffs.
Respondents then appealed to the CA.
The CA faulted MERALCO for not requiring from NPC a writ of execution or demolition and in not
coordinating with the court sheriff or other proper officer before complying with the NPC's request.
Thus, the CA held MERALCO liable for moral and exemplary damages and attorney's fees. MERALCO's
motion for reconsideration of the Decision was denied.
MERALCO admits6 that respondents are its customers under a Service Contract whereby it is obliged to
supply respondents with electricity. Nevertheless, upon request of the NPC, MERALCO disconnected its
power supply to respondents on the ground that they were illegally occupying the NPC's right of way.
Under the Service Contract, "[a] customer of electric service must show his right or proper interest over
the property in order that he will be provided with and assured a continuous electric

EXCUSES FOR NON-PERFORMANCE
service."7 MERALCO argues that since there is a Decision of the Metropolitan Trial Court (MTC) of
Quezon City ruling that herein respondents were among the illegal occupants of the NPC's right of way,
MERALCO was justified in cutting off service to respondents.
ISSUE:
WHETHER OR NOT MERALCO IS GUILTY OF BREACHING ITS CONTRACT. YES (NEGLIGENCE)
(DAMAGES DUE TO BAD FAITH)
Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or breach of
contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code
which provides:
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.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded on the nature
of culpa contractual, thus:
"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.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. The Court emphasized in Ridjo Tape & Chemical Corporation
v. Court of Appeals10 that "as a public utility, MERALCO has the obligation to discharge its functions
with utmost care and diligence."11
Page 6 of 27
The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to
exercise the utmost degree of care and diligence required of it. To repeat, it was not enough for
MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final
and executory. Verily, only upon finality of said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the subject property, thus, are not entitled to the
services of MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it never showed any
documentary evidence to support this allegation. Moreover, if it were true that the decision was final
and executory, the most prudent thing for MERALCO to have done was to coordinate with the proper
court officials in determining which structures are covered by said court order. Likewise, there is no
evidence on record to show that this was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its
part, and failure to exercise the diligence required means that MERALCO was at fault and negligent in
the performance of its obligation. In Ridjo Tape,12 the Court explained:
[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain
obligations towards its customers and any omission on its part to perform such duties would
be prejudicial to its interest. For in the final analysis, the bottom line is that those who do not
exercise such prudence in the discharge of their duties shall be made to bear the
consequences of such oversight.13
This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.
The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which they were entitled under the Service Contract. This is
contrary to public policy because, as discussed above, MERALCO, being a vital public utility, is
expected to exercise utmost care and diligence in the performance of its obligation. It was incumbent
upon MERALCO to do everything within its power to ensure that the improvements built by
respondents are within the NPC’s right of way before disconnecting their power supply. The Court
emphasized in Samar II Electric Cooperative, Inc. v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is imbued with public
interest, and its provider is a public utility subject to strict regulation by the State in the
exercise of police power. Failure to comply with these regulations will give rise to the
presumption of bad faith or abuse of right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the performance of its
obligation to Leoncio Ramoy, its customer, is tantamount to bad faith. Leoncio Ramoy testified that he
suffered wounded feelings because of MERALCO's actions. 16 Furthermore, due to the lack of power
 Page 7 of 27
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supply, the lessees of his four apartments on subject lot left the premises. 17 Clearly, therefore, Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA.
It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez,
Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint
that he suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed
to prove them during the trial. Indeed, respondent should have taken the witness stand
and should have testified on the mental anguish, serious anxiety, wounded feelings and
other emotional and mental suffering he purportedly suffered to sustain his claim for moral
damages. Mere allegations do not suffice; they must be substantiated by clear and convincing
proof. No other person could have proven such damages except the respondent himself
as they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages may be awarded,
the amount of indemnity being left to the discretion of the court, it is nevertheless essential
that the claimant should satisfactorily show the existence of the factual basis of damages and
its causal connection to defendant’s acts. This is so because moral damages, though incapable
of pecuniary estimation, are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer. In  Francisco vs. GSIS,
the Court held that there must be clear testimony on the anguish and other forms of
mental suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his/her
social humiliation, wounded feelings and anxiety, moral damages cannot be awarded.
In Cocoland Development Corporation vs. National Labor Relations Commission, the Court held
that "additional facts must be pleaded and proven to warrant the grant of moral damages
under the Civil Code, these being, x x x social humiliation, wounded feelings, grave anxiety,
etc. that resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing that respondent
actually experienced mental anguish, besmirched reputation, sleepless nights, wounded
feelings or similar injury. There was no better witness to this experience than respondent
himself. Since respondent failed to testify on the witness stand, the trial court did not
have any factual basis to award moral damages to him.19 (Emphasis supplied)
of the subject area, to verify which electric meters should be disconnected although these measures are
not sufficient, considering the degree of diligence required of it. Thus, in this case, exemplary damages
should not be awarded.
Since the Court does not deem it proper to award exemplary damages in this case, then the CA's award
for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the
absence of stipulation, attorney's fees cannot be recovered except in cases provided for in said
Article
G.R. No. 162467               May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. vs. PHOENIX ASSURANCE COMPANY OF
NEW YORK/MCGEE & CO., INC.
Del Monte Philippines, Inc. (Del Monte) contracted Mindanao Terminal and Brokerage Service, Inc.
(Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh
green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce
International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V Mistrau. The vessel was
docked at the port of Davao City and the goods were to be transported by it to the port of Inchon, Korea
in favor of consignee Taegu Industries, Inc.
Del Monte Produce insured the shipment under an "open cargo policy" with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance company, and private respondent
McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix. 4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the
port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that
some of the cargo was in bad condition.
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s
Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in the amount
of $210,266.43 be made. A check for the recommended amount was sent to Del Monte Produce; the
latter then issued a subrogation receipt6 to Phoenix and McGee.

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded moral Phoenix and McGee instituted an action for damages 7 against Mindanao Terminal
damages.20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and quasi-
contracts, the court may award exemplary damages if the defendant, in this case MERALCO, acted in a
WHETHER PHOENIX AND MCGEE HAS A CAUSE OF ACTION AGAINST MINDANAO TERMINAL
wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the same Code
UNDER ARTICLE 2176 OF THE CIVIL CODE ON QUASI-DELICT. YES (TORT)
provides that such damages cannot be recovered as a matter of right and the adjudication of the
same is within the discretion of the court.

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions
cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that The present action is based on quasi-delict, arising from the negligent and careless loading and stowing
MERALCO did take some measures, i.e., coordinating with NPC officials and conducting a joint survey of the cargoes belonging to Del Monte Produce.
 Page 8 of 27
EXCUSES FOR NON-PERFORMANCE

In fine, a liability for tort may arise even under a contract, where tort is that which breaches the Whether or not City of Manila should be jointly and severally liable with Asiatic Integrated
contract. In the present case, Phoenix and McGee are not suing for damages for injuries arising from Corporation for the injuries petitioner suffered.
the breach of the contract of service but from the alleged negligent manner by which Mindanao
Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the (CITY OF MANILA LIABLE FOR NEGLIGENCE)
part of the defendant should be sufficient to establish a cause of action arising from quasi-delict. 19
Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the
petitioner because under the Management and Operating Contract, Asiatic Integrated Corporation
assumed all responsibility for damages which may be suffered by third persons for any cause
attributable to it.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected of a
good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of
company which was charged with the loading and stowing the cargoes of Del Monte Produce Republic Act No. 409 as amended (Revised Charter of Manila) which provides:
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific
provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring The City shall not be liable or held for damages or injuries to persons or property arising
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged nor from the failure of the Mayor, the Municipal Board, or any other City Officer, to enforce the
proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
provisions of this chapter, or any other law or ordinance, or from negligence of said Mayor,
observe a higher degree of diligence than that required of a good father of a family. We therefore
Municipal Board, or any other officers while enforcing or attempting to enforce said
conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence
provisions.
only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.

This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968])
where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general rule
regulating the liability of the City of Manila for "damages or injury to persons or property arising
G.R. No. 71049 May 29, 1987
from the failure of city officers" to enforce the provisions of said Act, "or any other law or ordinance
or from negligence" of the City "Mayor, Municipal Board, or other officers while enforcing or
BERNARDINO JIMENEZ vs. CITY OF MANILA and INTERMEDIATE APPELLATE COURT attempting to enforce said provisions."

In the morning of August 15, 1974 Bernardino Jimenez, together with his neighbors, went to Sta. Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:
Ana public market to buy "bagoong" at the time when the public market was flooded with ankle
deep rainwater. After purchasing the "bagoong" he turned around to return home but he stepped on
Provinces, cities and municipalities shall be liable for damages for the death of, or injuries
an uncovered opening which could not be seen because of the dirty rainwater, causing a dirty and
suffered by any person by reason of defective conditions of roads, streets, bridges, public
rusty four- inch nail, stuck inside the uncovered opening, to pierce the left leg of plaintiff-petitioner
buildings and other public works under their control or supervision.
penetrating to a depth of about one and a half inches. After administering first aid treatment at a
nearby drugstore, his companions helped him hobble home. He felt ill and developed fever and he
had to be carried to Dr. Juanita Mascardo. Despite the medicine administered to him by the latter, constitutes a particular prescription making "provinces, cities and municipalities ... liable for
his left leg swelled with great pain. He was then rushed to the Veterans Memorial Hospital where he damages for the death of, or injury suffered by any person by reason" — specifically — "of the
had to be confined for twenty (20) days due to high fever and severe pain. defective condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from
negligence, in general, regardless of the object, thereof, while Article 2189 of the Civil Code governs
Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His
liability due to "defective streets, public buildings and other public works" in particular and is
injury prevented him from attending to the school buses he is operating. As a result, he had to
therefore decisive on this specific case.
engage the services of one Bienvenido Valdez to supervise his business for an aggregate
compensation of nine hundred pesos (P900.00).
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is
not necessary for the liability therein established to attach, that the defective public works belong to
Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose
the province, city or municipality from which responsibility is exacted. What said article requires is
administration the Sta. Ana Public Market had been placed by virtue of a Management and
that the province, city or municipality has either "control or supervision" over the public building in
Operating Contract (Rollo, p. 47).
question.
 Page 9 of 27
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In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management It is believed that there is nothing incongruous in the exercise of these powers vis-a-vis the
and Operating Contract between respondent City and Asiatic Integrated Corporation remained under existence of the contract, inasmuch as the City retains the power of supervision and control
the control of the former. over its public markets and talipapas under the terms of the contract.

For one thing, said contract is explicit in this regard, when it provides: In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary
duty is to take direct supervision and control of that particular market, more specifically, to check
the safety of the place for the public.
II

Finally, Section 30 (g) of the Local Tax Code as amended, provides:

That immediately after the execution of this contract, the SECOND PARTY shall start the
painting, cleaning, sanitizing and repair of the public markets and talipapas and within
ninety (90) days thereof, the SECOND PARTY shall submit a program of improvement, The treasurer shall exercise direct and immediate supervision administration and control
development, rehabilitation and reconstruction of the city public markets and talipapas over public markets and the personnel thereof, including those whose duties concern the
subject to prior approval of the FIRST PARTY. (Rollo, p. 44) maintenance and upkeep of the market and ordinances and other pertinent rules and
regulations. (Emphasis supplied.) (Rollo, p. 76)
xxx xxx xxx
The contention of respondent City of Manila that petitioner should not have ventured to go to Sta.
Ana Public Market during a stormy weather is indeed untenable. As observed by respondent Court of
VI
Appeals, it is an error for the trial court to attribute the negligence to herein petitioner. More
specifically stated, the findings of appellate court are as follows:
That all present personnel of the City public markets and talipapas shall be retained by the
SECOND PARTY as long as their services remain satisfactory and they shall be extended
... The trial court even chastised the plaintiff for going to market on a rainy day just to buy
the same rights and privileges as heretofore enjoyed by them. Provided, however, that the
bagoong. A customer in a store has the right to assume that the owner will comply with his
SECOND PARTY shall have the right, subject to prior approval of the FIRST PARTY to
duty to keep the premises safe for customers. If he ventures to the store on the basis of
discharge any of the present employees for cause.
such assumption and is injured because the owner did not comply with his duty, no
negligence can be imputed to the customer.
VII
As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of
That the SECOND PARTY may from time to time be required by the FIRST PARTY, or his a good father of a family. (Art. 1173 of the Civil Code).
duly authorized representative or representatives, to report, on the activities and operation
of the City public markets and talipapas and the facilities and conveniences installed
There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the
therein, particularly as to their cost of construction, operation and maintenance in
public market reasonably safe for people frequenting the place for their marketing needs.
connection with the stipulations contained in this Contract. (lbid)

While it may be conceded that the fulfillment of such duties is extremely difficult during storms and
The fact of supervision and control of the City over subject public market was admitted by Mayor
floods, it must however, be admitted that ordinary precautions could have been taken during good
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:
weather to minimize the dangers to life and limb under those difficult circumstances.

These cases arose from the controversy over the Management and Operating Contract
For instance, the drainage hole could have been placed under the stalls instead of on the passage
entered into on December 28, 1972 by and between the City of Manila and the Asiatic
ways. Even more important is the fact, that the City should have seen to it that the openings were
Integrated Corporation, whereby in consideration of a fixed service fee, the City hired the
covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was
services of the said corporation to undertake the physical management, maintenance,
already uncovered, and five (5) months after the incident happened, the opening was still
rehabilitation and development of the City's public markets and' Talipapas' subject to the
uncovered. Moreover, while there are findings that during floods the vendors remove the iron grills
control and supervision of the City.
to hasten the flow of water, there is no showing that such practice has ever been prohibited, much
less penalized by the City of Manila. Neither was it shown that any sign had been placed
xxx xxx xxx thereabouts to warn passersby of the impending danger.

EXCUSES FOR NON-PERFORMANCE
To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article
2189 of the Civil Code, respondent City having retained control and supervision over the Sta. Ana
Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of the passageways
and if any, that they were adequately covered. Had the opening been covered, petitioner could not
have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury
suffered, the City is therefore liable for the injury suffered by the petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL vs. THE COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located at the
comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by
the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation. The proposal was approved by plaintiff's board
of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The
plans and specifications for the building were prepared by the other third-party defendants Juan F.
Nakpil & Sons. The building was completed
An unusually strong earthquake hit Manila and its environs and the building in question sustained
major damage. The front columns of the building buckled, causing the building to tilt forward
dangerously. The tenants vacated the building in view of its precarious condition. As a temporary
remedial measure, the building was shored up by United Construction, Inc. at the cost of
P13,661.28.
The plaintiff commenced this action for the recovery of damages arising from the partial collapse of
the building against United Construction, Inc. and its President and General Manager Juan J. Carlos
as defendants. Plaintiff alleges that the collapse of the building was accused by defects in the
construction, the failure of the contractors to follow plans and specifications and violations by the
defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the building was due to the defects in the said
plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was
included as a third-party defendant for damages for having included Juan J. Carlos, President of the
United Construction Co., Inc. as party defendant.
Page 10 of 27
The Commissioner found that while the damage sustained by the PBA building was caused directly
by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by
the defects in the plans and specifications prepared by the third-party defendants' architects,
deviations from said plans and specifications by the defendant contractors and failure of the latter to
observe the requisite workmanship in the construction of the building and of the contractors,
architects and even the owners to exercise the requisite degree of supervision in the construction of
subject building.
Whether or not an act of God-an unusually strong earthquake-which caused the failure of the
building, exempts from liability, parties who are otherwise liable because of their negligence.
(GROSS NEGLIGENCE)
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New
Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a building
is liable for damages if within fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and specifications, or due to the
defects in the ground. The contractor is likewise responsible for the damage if the edifice
fags within the same period on account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to any violation of the terms of the
contract. If the engineer or architect supervises the construction, he shall be solidarily
liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the causes of
action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
On the other hand, the general rule is that no person shall be responsible for events which could not
be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural causes
without human intervention, which by no amount of foresight, pains or care, reasonably to have
been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either unforseeable
or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his

EXCUSES FOR NON-PERFORMANCE
obligation in a normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with an act of God in producing
a loss, such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which that loss or damage may have been
occasioned.
RULING:
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.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of
Appeals that "while it is not possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that several buildings in the same area
withstood the earthquake to which the building of the plaintiff was similarly subjected," cannot be
ignored.
There should be no question that the NAKPILS and UNITED are liable for the damage resulting from
the partial and eventual collapse of the PBA building as a result of the earthquakes.
Page 11 of 27
As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner should have
specified the defects found by him to be "meritorious"; that the Commissioner failed to indicate the
number of cases where the spirals and ties were not carried from the floor level to the bottom
reinforcement of the deeper beam, or where the spacing of the spirals and ties in the columns were
greater than that called for in the specifications; that the hollow in column A4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals, and the cut in the
spirals in column A5, ground floor, did not aggravate or contribute to the damage suffered by the
building; that the defects in the construction were within the tolerable margin of safety; and that
the cutting of the spirals in column A5, ground floor, was done by the plumber or his men, and not
by the defendants.
Answering the said objections, the Commissioner stated that, since many of the defects were minor
only the totality of the defects was considered. As regards the objection as to failure to state the
number of cases where the spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first one without
spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom.
The Commissioner likewise specified the first storey columns where the spacings were greater than
that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The
objection to the failure of the Commissioner to specify the number of columns where there was lack
of proper length of splicing of spirals, the Commissioner mentioned groundfloor columns B-6 and B-
5 where all the splices were less than 1-1/2 turns and were not welded, resulting in some loss of
strength which could be critical near the ends of the columns. He answered the supposition of the
defendants that the spirals and the ties must have been looted, by calling attention to the fact that
the missing spirals and ties were only in two out of the 25 columns, which rendered said supposition
to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim that
the eccentricity could be absorbed within the factor of safety, the Commissioner answered that,
while the same may be true, it also contributed to or aggravated the damage suffered by the
building.
The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the
Commissioner by reiterating the observation in his report that irrespective of who did the cutting of
the spirals, the defendants should be held liable for the same as the general contractor of the
building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic
deflections of the supposed lattice work defeated the purpose of the spiral containment in the
column and resulted in the loss of strength, as evidenced by the actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any
sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused indirectly the damage sustained
and that those deviations not only added but also aggravated the damage caused by the defects in
the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs, specifications, and construction of the PBA
building and We hold such negligence as equivalent to bad faith in the performance of their
respective tasks.
 Page 12 of 27
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Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which
may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural
and probable consequences thereof, although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate the loss.
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint 6 against respondent
UCPB General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond,
plus interests and expenses.
(DELAY)

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient
buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
THE COURT’S RULING
difference; gross negligence and evident bad faith, without which the damage would not have
occurred.
Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in
the payment of the latter’s obligation, provided that the delay is inexcusable.

G.R. No. 189563               April 7, 2014
GILAT SATELLITE NETWORKS, LTD. vs. UNITED COCONUT PLANTERS BANK GENERAL
INSURANCE CO., INC.
On September 15, 1999, One Virtual placed with GILAT a purchase order for various
telecommunications equipment (sic), accessories, spares, services and software, at a total purchase
price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars
(US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay
a portion thereof totalling US$1.2 Million in accordance with the payment schedule dated 22
November 1999. To ensure the prompt payment of this amount, it obtained defendant UCPB
General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to
One Virtual the purchased products and equipment, as evidenced by airway bills/Bill of Lading. All of
the equipment (including the software components for which payment was secured by the surety
bond, was shipped by GILAT and duly received by One Virtual. Under an endorsement dated
December 23, 1999, the surety issued, with One Virtual’s conformity, an amendment to the surety
bond, Annex "A" thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.
Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per
annum from the time of its first demand on respondent on 5 June 2000 or at most, from the second
demand on 24 January 2001 because of the latter’s delay in discharging its monetary
obligation.47 Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from
the time it demanded the fulfilment of respondent’s obligation under the suretyship contract.
Significantly, respondent does not contest this point, but instead argues that it is only liable for legal
interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001.
In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or
the refusal of a party to pay is without any justifiable cause. 48 In this case, respondent’s failure to
heed the demand was due to the advice of One Virtual that petitioner allegedly breached its
undertakings as stated in the Purchase Agreement.49 The CA, however, made no pronouncement on
this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money,
and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the
One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on
performance of the obligation, and the latter fails to comply. 50 Delay, as used in Article 1169, is
the due date of May 30, 2000 in accordance with the payment schedule attached as Annex "A" to
synonymous with default or mora, which means delay in the fulfilment of obligations. 51 It is the
the surety bond, prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand
nonfulfillment of an obligation with respect to time. 52 In order for the debtor (in this case, the
letter (Exhibit "G") for payment of the said amount of US$400,000.00. No part of the amount set
surety) to be in default, it is necessary that the following requisites be present: (1) that the
forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3)
likewise failed to pay on the succeeding payment instalment date of 30 November 2000 as set out
that the creditor requires the performance judicially or extrajudicially. 53
in Annex "A" of the surety bond, prompting GILAT to send a second demand letter dated January
24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety
bond, plus interests and expenses (Exhibits "H") and which letter was received by the defendant Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus
surety on January 25, 2001. However, defendant UCPB failed to settle the amount of paying, its liability becomes more than the principal obligation. 54 The increased liability is not
US$1,200,000.00 or a part thereof, hence, the instant complaint." 5(Emphases in the original) because of the contract, but because of the default and the necessity of judicial collection. 55
 Page 13 of 27
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However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri- stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
la Hotel,56 citing RCPI v. Verchez,57 we held thus: time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6%
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.
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 xxxx
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
3. When the judgment of the court awarding a sum of money becomes final and executory,
which may have been lost or suffered. The remedy serves to preserve the interests of the
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
promissee that may include his "expectation interest," which is his interest in having the
shall be 6% per annum from such finality until its satisfaction, this interim period being
benefit of his bargain by being put in as good a position as he would have been in had the
deemed to be by then an equivalent to a forbearance of credit.
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 Applying the above-discussed concepts and in the absence of an agreement as to interests, we are
is his interest in having restored to him any benefit that he has conferred on the other hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000,
party. Indeed, agreements can accomplish little, either for their makers or for society, its first date of extra judicial demand, until the satisfaction of the debt in accordance with the
unless they are made the basis for action. The effect of every infraction is to create a new revised guidelines enunciated in Nacar.
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. (Emphasis ours)

We agree with petitioner that records are bereft of proof to show that respondent’s delay was G.R. No. 184458               January 14, 2015
indeed justified by the circumstances – that is, One Virtual’s advice regarding petitioner’s alleged
breach of obligations. The lower court’s Decision itself belied this contention when it said that
"plaintiff is not disputing that it did not complete commissioning work on one of the two systems RODRIGO RIVERA vs SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA
because One Virtual at that time is already in default and has not paid GILAT." 58Assuming arguendo
that the commissioning work was not completed, respondent has no one to blame but its principal, The parties were friends of long standing having known each other since 1973: Rivera and Salvador
One Virtual; if only it had paid its obligation on time, petitioner would not have been forced to stop are kumpadres, the former is the godfather of the Spouses Chua’s son.
operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated
that petitioner had delivered all equipment, including the licensed software; and that the equipment
Rivera obtained a loan from the Spouses Chua which was evidenced by a promissory note with a
had been installed and in fact, gone into operation. 59 Notwithstanding these compliances,
stipulation of 5% interest monthly.
respondent still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from
the time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the
provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an
extra-judicial demand before an action for performance was filed, interest on the amount due begins
to run, not from the date of the filing of the complaint, but from the date of that extra-judicial
demand.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance
with the Purchase Agreement, and that the extrajudicial demand of petitioner was sent on 5 June
2000,61 we agree with the latter that interest must start to run from the time petitioner sent its first
demand letter (5 June 2000), because the obligation was already due and demandable at that time.
For partial payments, Rivera issued 2 checks to Spouses Chua. Upon presentment for payment,
however, the two checks were dishonored for the reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at ₱366,000.00 covering the
principal of ₱120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May
1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames, 62 which Rivera points out that the Spouses Chua "never demanded payment for the loan nor interest thereof
modified the guidelines established in Eastern Shipping Lines v. CA 63 in relation to Bangko Sentral- (sic) from [Rivera] for almost four (4) years from the time of the alleged default in payment [i.e.,
Monetary Board Circular No. 799 (Series of 2013), to wit: after December 31, 1995]."13

1. 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

EXCUSES FOR NON-PERFORMANCE
The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when
he failed to pay the amount of ₱120,000.00 due to the Spouses Chua on 31 December 1995 under
the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
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 declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Emphasis supplied)
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.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (₱120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the "date of
default" until the entire obligation is fully paid for. The parties evidently agreed that the maturity of
the obligation at a date certain, 31 December 1995, will give rise to the obligation to pay interest.
The Promissory Note expressly provided that after 31 December 1995, default commences and the
stipulation on payment of interest starts.
Page 14 of 27
The date of default under the Promissory Note is 1 January 1996, the day following 31 December
1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount of
₱120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses
Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 1170 24 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for
damages when the obligor incurs in delay:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31 December
1995; and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera
which is the payment of a 5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause although
Rivera, as obligor, assumed to pay additional 5% monthly interest on the principal amount of
₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there isno stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty
or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.
The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause must be specifically set forth in the
obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a
penal clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera
defaulted in the payment of the amount of ₱120,000.00. The measure of damages for the Rivera’s
delay is limited to the interest stipulated in the Promissory Note. In apt instances, in default of
stipulation, the interest is that provided by law. 26
 Page 15 of 27
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In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of
5% a month or 60% per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of
payment to be 31 December 1995. Given this circumstance, demand by the creditor is no
longer necessary in order that delay may exist since the contract itself already expressly so
declares. The mere failure of [Spouses Chua] to immediately demand or collect payment of
the value of the note does not exonerate [Rivera] from his liability therefrom. Verily, the
trial court committed no reversible error when it imposed interest from 1 January 1996 on
the ratiocination that [Spouses Chua] were relieved from making demand under Article
1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the Court
is allowed to temper interest rates when necessary. Since the interest rate agreed upon is
void, the parties are considered to have no stipulation regarding the interest rate, thus, the
rate of interest should be 12% per annum computed from the date of judicial or
extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal
interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous and unconscionable.
Significantly, the issue on payment of interest has been squarely disposed of in G.R. No. 184472
denying the petition of the Spouses Chua for failure to sufficiently showany reversible error in the
ruling of the appellate court, specifically the reduction of the interest rate imposed on Rivera’s
indebtedness under the Promissory Note. Ultimately, the denial of the petition in G.R. No. 184472 is
res judicata in its concept of "bar by prior judgment" on whether the Court of Appeals correctly
reduced the interest rate stipulated in the Promissory Note.
As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date
when this Decision becomes final and executory, such is likewise divided into two periods: (1) 12%
per annum from 11 June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum
from 1 July 2013 to date when this Decision becomes final and executor. 31 We base this imposition
of interest on interest due earning legal interest on 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."
G.R. No. 176868               July 26, 2010
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, 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.
II. 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:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or for bearance 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 6% per annum to be computed from
default, i.e., from judicial or extra judicial demand under and subject to the
provisions ofArticle 1169 of the Civil Code.
2. 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.1âwphi1 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. 3. 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 6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a for bearance of credit. And,
in addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein. (Emphasis supplied)

From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses
SOLAR HARVEST, INC vs. DAVAO CORRUGATED CARTON CORPORATION
Chua could already be determined with reasonable certainty given the wording of the Promissory
Note.32
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes,
We cite our recent ruling in Nacar v. Gallery Frames:33
specifically designed for petitioner’s business of exporting fresh bananas, at US$1.10 each. The
agreement was not reduced into writing. To get the production underway, petitioner deposited, on

EXCUSES FOR NON-PERFORMANCE
March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement of the amount paid. 3 On February 19, 2001,
respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner
failed to pick them up from the former’s 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 ₱132,000.00 as storage fee.
On 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.
It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of the
ordered boxes, but every time, defendant [would] only show samples of boxes and ma[k]e
repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d]
to cancel the same and demand payment and/or refund from the defendant but the latter
refused to pay and/or refund the US$40,150.00 payment made by the former for the
ordered boxes.41avvphi1
In its Answer with Counterclaim, 5 respondent insisted that, as early as April 3, 1998, it had already
completed production of the 36,500 boxes, contrary to petitioner’s allegation. According to
respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had
been completed without waiting for petitioner’s payment. Respondent stated that petitioner was to
pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred
that, on October 8, 1998, petitioner’s representative, Bobby Que (Que), went to the factory and saw
that the boxes were ready for pick up. On February 20, 1999, Que visited the factory again and
supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000
boxes, because petitioner’s transaction to ship bananas to China did not materialize. Respondent
claimed that the boxes were occupying warehouse space and that petitioner should be made to pay
storage fee at ₱60.00 per square meter for every month from April 1998. As counterclaim,
respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest,
moral and exemplary damages, attorney’s fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and 14,000 boxes out of the second order. It maintained
that respondent only manufactured a sample of the ordered boxes and that respondent could not
have produced 14,000 boxes without the required pre-payments. 6
Page 16 of 27
In this petition, petitioner insists that respondent did not completely manufacture the boxes and
that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this petition.
Petitioner’s claim for reimbursement is actually one for rescission (or resolution) of contract under
Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art.
1169 of the same law, which provides:
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
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
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
 Page 17 of 27
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automatically incurs in delay. But when different dates for performance of the obligations are fixed, Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the
the default for each obligation must be determined by the rules given in the first paragraph of the boxes within 30 days from payment, as alleged in the Complaint.
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.
Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes
within its premises.
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 In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
not qualify as a demand for the fulfillment of the obligation. evidence having shown that respondent did not commit any breach of its contractual obligation. As
previously stated, the subject boxes are still within respondent’s premises. To put a rest to this
dispute, we therefore relieve respondent from the burden of having to keep the boxes within its
Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of
premises and, consequently, give it the right to dispose of them, after petitioner is given a period of
action for rescission against respondent as the latter would not yet be considered in breach of its
time within which to remove them from the premises.
contractual obligation.

Even assuming that a demand had been previously made before filing the present case, petitioner’s
claim for reimbursement would still fail, as the circumstances would show that respondent was not
guilty of breach of contract.

G.R. No. L-30056 August 30, 1988

The existence of a breach of contract is a factual matter not usually reviewed in a petition for review
under Rule 45.20 The Court, in petitions for review, limits its inquiry only to questions of law. After
all, it is not a trier of facts, and findings of fact made by the trial court, especially when reiterated MARCELO AGCAOILI vs. GOVERNMENT SERVICE INSURANCE SYSTEM
by the CA, must be given great respect if not considered as final. 21 In dealing with this petition, we
will not veer away from this doctrine and will thus sustain the factual findings of the CA, which we Approval of Agcaoili's aforementioned application for purchase 1 was contained in a
find to be adequately supported by the evidence on record. letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the
Chairman-General Manager, reading as follows:
As correctly observed by the CA, aside from the pictures of the finished boxes and the production
report thereof, there is ample showing that the boxes had already been manufactured by Please be informed that your application to purchase a house and lot in our GSIS Housing
respondent. There is the testimony of Estanislao who accompanied Que to the factory, attesting Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No.
that, during their first visit to the company, they saw the pile of petitioner’s boxes and Que took (48) 2, together with the housing unit constructed thereon, has been allocated to you.
samples thereof. Que, petitioner’s witness, himself confirmed this incident. He testified that Tan
pointed the boxes to him and that he got a sample and saw that it was blank. Que’s absolute
assertion that the boxes were not manufactured is, therefore, implausible and suspicious. You are, therefore, advised to occupy the said house immediately.

In fact, we note that respondent’s counsel manifested in court, during trial, that his client was
willing to shoulder expenses for a representative of the court to visit the plant and see the
boxes.22 Had it been true that the boxes were not yet completed, respondent would not have been
so bold as to challenge the court to conduct an ocular inspection of their warehouse. Even in its
Comment to this petition, respondent prays that petitioner be ordered to remove the boxes from its
factory site,23 which could only mean that the boxes are, up to the present, still in respondent’s
premises.
We also believe that the agreement between the parties was for petitioner to pick up the boxes from
respondent’s warehouse, contrary to petitioner’s allegation. Thus, it was due to petitioner’s fault
that the boxes were not delivered to TADECO.
If you fail to occupy the same within three (3) days from receipt of this notice, your
application shall be considered automatically disapproved and the said house and lot will be
awarded to another applicant.
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the
very next day, because the house was nothing more than a shell, in such a state of incompleteness
that civilized occupation was not possible: ceiling, stairs, double walling, lighting facilities, water
connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did however ask a
homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending
completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first
monthly installment and the incidental fees, 3 but refused to make further payments until and unless

EXCUSES FOR NON-PERFORMANCE
the GSIS completed the housing unit. What the GSIS did was to cancel the award and require
Agcaoili to vacate the premises.  its literal terms, as this would result in inequity. The prevailing rule is that in decreeing specific
Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance
and damages.  ... not only that the contract be just and equitable in its provisions, but that the
There was then a perfected contract of sale between the parties; there had been a meeting of the
minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at
Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from
that moment the parties acquired the right to reciprocally demand performance.  13 It was, to be
sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purpose contemplated , 14 in other words, to deliver the house
subject of the contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of
the sale. Under the circumstances there can hardly be any doubt that the house contemplated was
one that could be occupied for purposes of residence in reasonable comfort and convenience. There
would be no sense to require the awardee to immediately occupy and live in a shell of a house, a
structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does,
that this was what was intended by the parties, since the contract did not clearly impose upon it the
obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair
situation. By any objective interpretation of its terms, the contract can only be understood as
imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return
for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not
willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of
amortizations as cause to cancel the contract between them. It is axiomatic that "(i)n 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." 15
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the
latter had not complied with the condition of occupying the house within three (3) days. The record
shows that Agcaoili did try to fulfill the condition; he did try to occupy the house but found it to be
so uninhabitable that he had to leave it the following day. He did however leave a friend in the
structure, who being homeless and hence willing to accept shelter even of the most rudimentary
sort, agreed to stay therein and look after it. Thus the argument that Agcaoili breached the
agreement by failing to occupy the house, and by allowing another person to stay in it without the
consent of the GSIS, must be rejected as devoid of merit.
It will not do, however, to dispose of the controversy by simply declaring that the contract between
the parties had not been validly cancelled and was therefore still in force, and that Agcaoili could not
be compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract
until and unless it had first completed construction of the house.
Page 18 of 27
In this case, the Court can not require specific performance of the contract in question according to
performance equity requires 17 —
consequences of specific performance likewise be equitable and just. The general rule is
that this equitable relief will not be granted if, under the circumstances of the case, the
result of the specific enforcement of the contract would be harsh, inequitable, oppressive,
or result in an unconscionable advantage to the plaintiff . .
G.R. No. L-15645             January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA vs. NATIONAL RICE AND CORN CORPORATION
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the
supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest,
she was awarded the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P.
Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of
which the former obligated herself to deliver to the latter 20,000 metric tons of Burmess Rice at
$203.00 per metric ton, CIF Manila. In turn, the defendant corporation committed itself to pay for
the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately." Despite the
commitment to pay immediately "by means of an irrevocable, confirmed and assignable Letter of
Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract,
that the defendant corporation, thru its general manager, took the first to open a letter of credit by
forwarding to the Philippine National Bank its Application for Commercial Letter Credit.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant corporation
of the extreme necessity for the immediate opening of the letter credit since she had by then made
a tender to her supplier in Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at
$180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the
required letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its
application, "for a letter of credit for $3,614,000.00 in favor of Thiri Setkya has been approved by
the Board of Directors with the condition that marginal cash deposit be paid and that drafts are to
be paid upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the
Bank represented that it "will hold your application in abeyance pending compliance with the above
stated requirement."
As it turned out, however, the appellant corporation not in any financial position to meet the
condition. As matter of fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the
appellee its dilemma: "In this connection, please be advised that our application for opening of the
letter of credit has been presented to the bank since July 30th but the latter requires that we first
 Page 19 of 27
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deposit 50% of the value of the letter amounting to aproximately $3,614,000.00 which we are not
in a position to meet."
In relation to the aforequoted observation of the trial court, We would like to make reference also to
Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Article 11 of the Civil Code which provides:
Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two
months from the execution of the contract) the party named by the appellee as beneficiary of the
Those who in the performance of their obligation are guilty of fraud, negligence, or delay,
letter of credit.
and those who in any manner contravene the tenor thereof, are liable in damages.

As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5%
Under this provision, not only debtors guilty of fraud, negligence or default in the performance of
deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this
obligations a decreed liable; in general, every debtor who fails in performance of his obligations is
connection, it must be made of record that although the Burmese authorities had set August 4,
bound to indemnify for the losses and damages caused thereby. The phrase "any manner
1952, as the deadline for the remittance of the required letter of credit, the cancellation of the
contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful
allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a full
fulfillment of the obligation or every kind or defective performance.
half month after the expiration of the deadline. And yet, even with the 15-day grace, appellant
corporation was unable to make good its commitment to open the disputed letter of credit.
We have carefully examined and studied the oral and documentary evidence presented in this case
and upon which the lower court based its award. Under the contract, the NARIC bound itself to buy
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the
20,000 metric tons of Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped weight,
futility of reinstating the same became apparent, she offered to substitute Thailand rice instead to
and all in U.S. currency, C.I.F. Manila ..." On the other hand, documentary and other evidence
the defendant NARIC, communicating at the same time that the offer was "a solution which should
establish with equal certainty that the plaintiff-appellee was able to secure the contracted
be beneficial to the NARIC and to us at the same time." This offer for substitution, however, was
commodity at the cost price of $180.70 per metric ton from her supplier in Burma. Considering
rejected by the appellant in a resolution dated November 15, 1952.
freights, insurance and charges incident to its shipment here and the forfeiture of the 5% deposit,
the award granted by the lower court is fair and equitable.

whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach
of the contract of July 1, 1952 for which it may be held liable in damages. G.R. No. 159617             August 8, 2007

Secondly, from the correspondence and communications which form part of the record of this case,
it is clear that what singularly delayed the opening of the stipulated letter of credit and which, in
turn, caused the cancellation of the allocation in Burma, was the inability of the appellant
corporation to meet the condition importation by the Bank for granting the same. We do not think
the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash
deposit demanded by the bank, then the letter of credit would have been approved, opened and
released as early as August 4, 1952. The letter of the Philippine National Bank to the NARIC was
plain and explicit that as of the said date, appellant's "application for a letter of credit ...  has been
approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and
that drafts are to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy the
requirements of the bank. Its culpability arises from its willful and deliberate assumption of
contractual obligations even as it was well aware of its financial incapacity to undertake the
prestation. We base this judgment upon the letter which accompanied the application filed by the
appellant with the bank, a part of which letter was quoted earlier in this decision. In the said
accompanying correspondence, appellant admitted and owned that it did "not have sufficient deposit
with your institution (the PNB) with which to cover the amount required to be deposited as a
condition for the opening of letters of credit. ... .
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. vs. LULU V. JORGE and CESAR
JORGE
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu)
pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF
Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and
jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the
Southern Police District, Parañaque Police Station
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of
her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu
then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had
been the practice that before they could withdraw, advance notice must be given to the pawnshop
so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to
return the jewelry.

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On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint
against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss
of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees.
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the
pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R.
C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The
receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam,"
thus inevitably misleading, or at the very least, creating the wrong impression to respondents and
the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a
corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987 addressed
to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop
notwithstanding the alleged incorporation in April 1987.
The next question is whether petitioners are liable for the loss of the pawned articles in their
possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not
negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 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.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore,
not enough that the event should not have been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is
not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the
obligor must be free from any participation in the aggravation of the injury or loss. 23
Page 20 of 27
The burden of proving that the loss was due to a fortuitous event rests on him who invokes
it.24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one has
committed no negligence or misconduct that may have occasioned the loss. 25
It has been held that 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. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the
robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of
opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner
Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of
the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping.
Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the event was an act
of God or was done solely by third parties and that neither the claimant nor the
person alleged to be negligent has any participation. In accordance with the Rules
of Evidence, the burden of proving that the loss was due to a fortuitous event
rests on him who invokes it — which in this case is the private
respondent. However, other than the police report of the alleged carnapping incident, no
other evidence was presented by private respondent to the effect that the incident was not
due to its fault. A police report of an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping. Neither does it prove that there was no
fault on the part of private respondent notwithstanding the parties' agreement at the pre-
trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or
negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the
robbery committed based on the report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at fault.

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On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners
are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to
wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments
which are engaged in making loans secured by pledges, the special laws and regulations concerning
them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall
take care of the thing pledged with the diligence of a good father of a family. This means that
petitioners must take care of the pawns the way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
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 time and of the place. When negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
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.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and reasonable man would not do. 31 It
is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution
that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of
negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you
there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Page 21 of 27
Q. I am asking you how were the robbers able to enter despite the fact that there was a
security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon
and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque
they pretended to pawn an article in the pawnshop, so one of my employees allowed him
to come in and it was only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the
robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation of the
pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect
the pawnshop from unlawful intrusion. There was no clear showing that there was any security
guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further,
there is no showing that the alleged security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In
fact, it is even doubtful that there was a security guard, since it is quite impossible that he would
not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly
poked at the employees.33 Significantly, the alleged security guard was not presented at all to
corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the
robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly
a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances
justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was
already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday
afternoon and the area in BF Homes Parañaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries.
Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for
the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to
insure themselves against loss of the pawned jewelries.

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Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which
took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and
the pawns pledged to it must be insured against fire and against burglary as well as for
the latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on
October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of
a pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank
considered it not feasible to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment,
there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was
error for the CA to consider it as a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence
required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies
with the nature of the situation in which he is placed and the importance of the act which he is to
perform.34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery
were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on
commission basis, but which Abad failed to subsequently return because of a robbery committed
upon her in 1961. The incident became the subject of a criminal case filed against several persons.
Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC
ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad
was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of
robbery was duly established and declared the Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of
returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the
unforeseen event, the robbery, took place without any concurrent fault on the debtor’s part, and
this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous
event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault
or negligence.38
We found in Austria that under the circumstances prevailing at the time the Decision was
promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against
persons and property that rendered travel after nightfall a matter to be sedulously avoided without
Page 22 of 27
suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in
the evening carrying jewelry of considerable value would have been negligence per se and would
not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for
negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not
reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank
for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found
petitioners negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach
Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to
Manila to encash two checks covering the wages of the employees and the operating expenses of
the project. However for some reason, the processing of the check was delayed and was completed
at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to wait until July 5,
the earliest time, when the main office would open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose
the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep
bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and
the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission
on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to
his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds.
We held that Hernandez was not negligent in deciding to encash the check and bringing it home to
Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons:
(1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the
following day, a Saturday, a non-working, because to encash the check on July 5, the next working
day after July 1, would have caused discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the
comparative hazards in the trips to the two places, said decision seemed logical at that time. We
further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on
a busy highway and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took
place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen
the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion.
Petitioners had failed to exercise precautionary measures in ensuring that the robbers were
prevented from entering the pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the contents were stolen by an unidentified person.
Among those stolen were her wallet and the government-issued cellular phone. She then reported
the incident to the police authorities; however, the thief was not located, and the cellphone was not

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recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she
be freed from accountability for the cellphone. The Resident Auditor denied her request on the
ground that she lacked the diligence required in the custody of government property and was
ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient
justification to grant the request for relief from accountability. We reversed the ruling and found
that riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of
transit was influenced by time and money considerations; that she boarded the LRT to be able to
arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar
circumstance can reasonably be expected to do the same; that possession of a cellphone should not
hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or
bus, the risk of theft would have also been present; that because of her relatively low position and
pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board
the LRT; that the records did not show any specific act of negligence on her part and negligence can
never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly demanded of a pawnshop.
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION vs. HONORABLE COURT OF APPEALS and ENGINEERING
CONSTRUCTION, INC.
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder, executed a
contract in Manila with the National Waterworks and Sewerage Authority (NAWASA), whereby the
former undertook to furnish all tools, labor, equipment, and materials (not furnished by Owner), and
to construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant
Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within
eight hundred (800) calendar days from the date the Contractor receives the formal notice to
proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising, the tunnel work covering a
distance of seven (7) kilometers, passing through the mountain, from the Ipo river, a part of
Norzagaray, Bulacan, where the Ipo Dam of the defendant National Power Corporation is located, to
Bicti; the other phase consisting of the outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the first major phase of the
work, namely, the tunnel excavation work. Some portions of the outworks at the Bicti site were still
under construction. As soon as the plaintiff corporation had finished the tunnel excavation work at
the Bicti site, all the equipment no longer needed there were transferred to the Ipo site where some
projects were yet to be completed.
Page 23 of 27
The record shows that on November 4,1967, typhoon 'Welming' hit Central Luzon, passing through
defendant's Angat Hydro-electric Project and Dam at lpo, 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 perilously at the rate of sixty (60) centimeters per hour. To
prevent an overflow of water from the dam, since the water level had reached the danger height of
212 meters above sea level, the defendant corporation caused the opening of the spillway gates."
The appellate court sustained the findings of the trial court that the evidence preponlderantly
established the fact that due to the negligent manner with which the 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 lpo site with terrific impact, as a result of which
the latter's stockpile of materials and supplies, camp facilities and permanent structures and
accessories either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the appellant exercised
extraordinary care in the opening of the spillway gates of the Angat Dam. Maintainers of
the dam knew very well that it was far more safe to open them gradually. But the spillway
gates were opened only when typhoon Welming was already at its height, in a vain effort
to race against time and prevent the overflow of water from the dam as it 'was rising
dangerously at the rate of sixty centimeters per hour. 'Action could have been taken as
early as November 3, 1967, when the water in the reservoir was still low. At that time, the
gates of the dam could have been opened in a regulated manner. Let it be stressed that
the appellant knew of the coming of the typhoon four days before it actually hit the project
area.
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.
G.R. No. 185798               January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC. vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower
while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium
unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE

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MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00). On 29 August 1997,
respondents executed and signed a Reservation Application Agreement wherein they deposited
₱200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of
₱1,552,200.00 and had been paying the ₱63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners, respondents
through two (2) successive letters, demanded a full refund of their payment with interest. When
their demands went unheeded, respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total amortization payments, ₱200,000.00
as and by way of moral damages, attorney’s fees and other litigation expenses.
Petitioners insist that the complaint states no cause of action because they allegedly have not
committed any act of misrepresentation amounting to bad faith which could entitle respondents to a
refund. Petitioners claim that there was a mere delay in the completion of the project and that they
only resorted to "suspension and reformatting as a testament to their commitment to their buyers."
Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate industry.
Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for
a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas Bank v.
Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.
Whether or not the Asian financial crisis constitute a fortuitous event which would justify delay by
petitioners in the performance of their contractual obligation
The rulings were consistent that first, the Asian financial crisis is not a fortuitous event that would
excuse petitioners from performing their contractual obligation; second, as a result of the breach
committed by petitioners, respondents are entitled to rescind the contract and to be refunded the
amount of amortizations paid including interest and damages;
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under
Article 1191 of the New Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
Page 24 of 27
The injured party may choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the owner
or developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be reimbursed
the total amount paid including amortization interests but excluding delinquency interests,
with interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v.
Spouses Go13promulgated on 17 August 2007, where the Court stated that the Asian financial crisis
is not an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R. No.
165164 involves the same company, Fil-Estate, albeit about a different condominium property. The
company likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate advanced the
same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of
the construction project.
The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and
beyond the control of a business corporation. It is unfortunate that petitioner apparently
met with considerable difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is concededly a master
in projections on commodities and currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an
instance of caso fortuito.16
G.R. No. 194121 July 11, 2016
 Page 25 of 27
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TORRES-MADRID BROKERAGE, INC. vs. FEB MITSUI MARINE INSURANCE CO., INC. and
BENJAMIN P. MANALAST AS, doing business under the name of BMT TRUCKING SERVICES
On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at
the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the shipment from the port to its
warehouse in Biñan, Laguna.2
At the trial, it was revealed that BMT and TMBI have been doing business with each other since the
early 80’s. It also came out that there had been a previous hijacking incident involving Sony’s cargo
in 1997, but neither Sony nor its insurer filed a complaint against BMT or TMBI. 13
TMBI denied that it was a common carrier required to exercise extraordinary diligence. It maintains
that it exercised the diligence of a good father of a family and should be absolved of liability
because the truck was "hijacked" and this was a fortuitous event.

TMBI – who did not own any delivery trucks – subcontracted the services of Benjamin Manalastas’ BMT claimed that it had exercised extraordinary diligence over the lost shipment, and argued as well
company, BMT Trucking Services (BMT), to transport the shipment from the port to the Biñan that the loss resulted from a fortuitous event.
warehouse.3 Incidentally, TMBI notified Sony who had no objections to the arrangement. 4

Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October 7, 2000.
However, BMT could not immediately undertake the delivery because of the truck ban and because
The Court’s Ruling
the following day was a Sunday. Thus, BMT scheduled the delivery on October 9, 2000.

TMBI and BMT are not solidarily liable

In the early morning of October 9, 2000, the four trucks left BMT’s garage for Laguna. 5 However,
to Mitsui
only three trucks arrived at Sony’s Biñan warehouse.

We disagree with the lower courts’ ruling that TMBI and BMT are solidarily liable to Mitsui for the
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found
loss as joint tortfeasors. The ruling was based on Article 2194 of the Civil Code:
abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. 6 Both the driver and the
shipment were missing.
Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is
solidary.
Later that evening, BMT’s Operations Manager Melchor Manalastas informed Victor Torres, TMBI’s
General Manager, of the development. 7 They went to Muntinlupa together to inspect the truck and
to report the matter to the police.8 Notably, TMBI’s liability to Mitsui does not stem from a quasi-delict ( culpa aquiliana) but from its
breach of contract (culpa contractual). The tie that binds TMBI with Mitsui is contractual, albeit one
that passed on to Mitsui as a result of TMBI’s contract of carriage with Sony to which Mitsui had
Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura
been subrogated as an insurer who had paid Sony’s insurance claim. The legal reality that results
for "hijacking."9The complaint resulted in a recommendation by the NBI to the Manila City
from this contractual tie precludes the application of quasi-delict based Article 2194.
Prosecutor’s Office to prosecute Lapesura for qualified theft.10

A third party may recover from a

TMBI notified Sony of the loss through a letter dated October 10, 2000. 11 It also sent BMT a letter
common carrier for quasi-delict but must
dated March 29, 2001, demanding payment for the lost shipment. BMT refused to pay, insisting that
prove actual negligence
the goods were "hijacked."

We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the loss of the
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After
cargo. While it is undisputed that the cargo was lost under the actual custody of BMT (whose
evaluating the merits of the claim, Mitsui paid Sony PHP7,293,386.23 corresponding to the value
employee is the primary suspect in the hijacking or robbery of the shipment), no direct contractual
of the lost goods.12
relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui’s cause of action against
BMT could only arise from quasi-delict, as a third party suffering damage from the action of another
After being subrogated to Sony’s rights, Mitsui sent TMBI a demand letter dated August 30, 2001 due to the latter’s fault or negligence, pursuant to Article 2176 of the Civil Code. 51
for payment of the lost goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui filed a
complaint against TMBI on November 6, 2001,
We have repeatedly distinguished between an action for breach of contract (culpa contractual) and
an action for quasi-delict (culpa aquiliana).
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant.
TMBI alleged that BMT’s driver, Lapesura, was responsible for the theft/hijacking of the lost cargo
In culpa contractual, the plaintiff only needs to establish the existence of the contract and the
and claimed BMT’s negligence as the proximate cause of the loss. TMBI prayed that in the event it is
obligor’s failure to perform his obligation. It is not necessary for the plaintiff to prove or even allege
held liable to Mitsui for the loss, it should be reimbursed by BMT.

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that the obligor’s non-compliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can only free itself from liability
by proving that it observed extraordinary diligence. It cannot discharge this liability by shifting the
blame on its agents or servants.52
On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant’s fault or
negligence because this is the very basis of the action. 53 Moreover, if the injury to the plaintiff
resulted from the act or omission of the defendant’s employee or servant, the defendant may
absolve himself by proving that he observed the diligence of a good father of a family to prevent the
damage.54
In the present case, Mitsui’s action is solely premised on TMBI’s breach of contract. Mitsui did not
even sue BMT, much less prove any negligence on its part. If BMT has entered the picture at all, it is
because TMBI sued it for reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold BMT liable to Mitsui for
quasi-delict.
BMT is liable to TMBI for breach of their
contract of carriage
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT,
TMBI entered into its own contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT' s custody based on its contract of carriage with TMBI.
Following Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that it
observed extraordinary diligence in the performance of its obligation to TMBI, it is liable to TMBI for
breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage.
In tum, TMBI is entitled to reimbursement from BMT due to the latter's own breach of its contract of
carriage with TMBI. The proverbial buck stops with BMT who may either: (a) absorb the loss, or (b)
proceed after its missing driver, the suspected culprit, pursuant to Article 2181.
G.R. No. 209969, September 27, 2017
JOSE SANICO AND VICENTE CASTRO v. WERHERLINA P. COLIPANO
Colipano filed a complaint on January 7, 1997 for breach of contract of carriage and damages
against Sanico and Castro.4 In her complaint, Colipano claimed that at 4:00 P.M. more or less of
December 25, 1993, Christmas Day, she and her daughter were; paying passengers in the
jeepney operated by Sanico, which was driven by Castro. 5 Colipano claimed she was made to sit on
an empty beer case at the edge of the rear entrance/exit of the jeepney with her sleeping child on
her lap.6 And, at an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney slid
Page 26 of 27
backwards because it did not have the power to reach the top. 7 Colipano pushed both her feet
against the step board to prevent herself and her child from being thrown out of the exit, but
because the step board was wet, her left foot slipped and got crushed between the step board and a
coconut tree which the jeepney bumped, causing the jeepney to stop its backward
movement.8 Colipano's leg was badly injured and was eventually amputated.
Whether or not Sanico and Castro breached the contract of carriage with Colipano
Only Sanico breached the contract of carriage.
Here, it is beyond dispute that Colipano was injured while she was a passenger in the jeepney
owned and operated by Sanico that was being driven by Castro. Both the CA and RTC found Sanico
and Castro jointly and severally liable. This, however, is erroneous because only Sanico was the
party to the contract of carriage with Colipano.
Since the cause of action is based on a breach of a contract of carriage, the liability of Sanico is
direct as the contract is between him and Colipano. Castro, being merely the driver of Sanico's
jeepney, cannot be made liable as he is not a party to the contract of carriage.
In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for breach of a contract of
carriage is dismissible as against the employee who was driving the bus because the parties to the
contract of carriage are only the passenger, the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was not a party to the
contract; he was a mere employee of the BAL. The parties to that contract are Juana
Soberano, the passenger, and the MRR and its subsidiary, the BAL, the bus owner and
operator, respectively; and consequent to the inability of the defendant companies to carry
Juana Soberano and her baggage arid personal effects securely and safely to her
destination as imposed by law (art. 1733, in relation to arts. 1736 and 1755, N.C.C.), their
liability to her becomes direct and immediate. 19
Since Castro was not a party to the contract of carriage, Colipano had no cause of action against
him and the pomplaint against him should be dismissed. Although he was driving the jeepney, he
was a mere employee of Sanico, who was the operator and owner of the jeepney. The obligation to
carry Colipano safely to her destination was with Sanico. In fact, the elements of a contract of
carriage existeid between Colipano and Sanico: consent, as shown when Castro, as employee of
Sanico, accepted Colipano as a passenger when he allowed Colipano to board the jeepney, and as to
Colipano, when she boarded the jeepney; cause or consideration, when Colipano, for her part, paid
her fare; and, object, the transportation of Colipano from the place of departure to the place of
destination.
Having established that the contract of carriage was only between Sanico and Colipano and that
therefore Colipano had no cause of action against Castro, the Court next determines whether Sanico
breached his obligations to Colipano under the contract.
Sanico is liable as operator and owner of a common carrier.

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Specific to a contract of carriage, the Civil Code requires common carriers to observe extraordinary
diligence in safely transporting their passengers. Article 1733 of the Civil Code states:
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.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734,
1735 and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers
is further set forth in Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code, means that common carriers
have the obligation to carry passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the circumstances.
In case of death of or injury to their passengers, Article 1756 of the Civil Code provides that
common carriers are presumed to have been at fault or negligent, and this presumption can be
overcome only by proof of the extraordinary diligence exercised to ensure the safety of the
passengers.21
Being an operator and owner of a common carrier, Sanico was required to observe extraordinary
diligence in safely transporting Colipano. When Colipano's leg was injured while she was a
passenger in Sanico's jeepney, the presumption of fault or negligence on Sanico's part arose and he
had the burden to prove that he exercised the extraordinary diligence required of him. He failed to
do this.
In Calalas v. Court of Appeals,22 the Court found that allowing the respondent in that case to be
seated in an extension seat, which was a wooden stool at the rear of the jeepney, "placed [the
respondent] in a peril greater than that to which the other passengers were exposed." 23The Court
further ruled that the petitioner in Calalas was not only "unable to overcome the presumption of
negligence imposed on him for the injury sustained by [the respondent], but also, the evidence
shows he was actually negligent in transporting passengers."
Calalas squarely applies here. Sanico failed to rebut the presumption of fault or negligence under
the Civil Code. More than this, the evidence indubitably established Sanico's negligence when Castro
made Colipano sit on an empty beer case at the edge of the rear entrance/exit of the jeepney with
her sleeping child on her lap, which put her and her child in greater peril than the other passengers.
As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty case of beer
clearly indicates lack of prudence. Permitting Werherlina to occupy an improvised seat in
the rear portion of the jeepney, with a child on her lap to boot, exposed her and her child
in a peril greater than that to which the other passengers were exposed. The use of an
improvised seat extension is undeniable, in view of the testimony of plaintiffs witness,
which is consistent with Werherlina's testimonial assertion. Werherlina and her witness's
testimony were accorded belief by the RTC. Factual findings of the trial court are entitled to
great weight on appeal and should not be disturbed except for strong and valid reasons,
because the trial court ip in a better position to examine the demeanor of the witnesses
while testifying.25
Page 27 of 27
The CA also correctly held that the!defense of engine failure, instead of exonerating Sanico, only
aggravated his already precarious position. 26 The engine failure "hinted lack of regular check and
maintenance to ensure that the engine is at its best, considering that the jeepney regularly passes
through a mountainous area." 27 This failure to ensure that the jeepney can safely transport
passengers through its route which required navigation through a mountainous area is proof of fault
on Sanico's part. In the face of such evidence, there is no question as to Sanico's fault or
negligence.
Further, common carriers may also be liable for damages when they contravene the tenor of their
obligations. Article 1170 of the Civil Code states:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner contravene the tenor' of the
obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the
obligation and every kind of defective performance." 29 There is no question here that making
Colipano sit on the empty beer case was a clear showing of how Sanico contravened the tenor of his
obligation to safely transport Colipano from the place of departure to the place of destination as far
as human care and foresight can provide, using the utmost diligence of very cautious persons, and
with due regard for all the circumstances.
Sanico's attempt to evade liability by arguing that he exercised extraordinary diligence when he
hired; Castro, who was allegedly an experienced and time-tested driver, whom he had even
accompanied on a test-drive and in whom he was personally convinced of the driving skills, 30are not
enough to exonerate him from liability - because the liability of common carriers does not cease
upon proof that they exercised all the diligence of a good father of a family in the selection. and
supervision of their employees. This is the express mandate of Article 1759 of the Civil Code:
ART. 1759. Common carriers are liable for the death of or injuries 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.
This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.
The only defenses available to common carriers are (1) proof that they observed extraordinary
diligence as prescribed in Article 1756, 31 and (2) following Article 1174 of the Civil Code, proof that
the injury or death was brought about by an event which "could not be foreseen, or which, though
foreseen, were inevitable," or a fortuitous event.
The Court finds that neither of these defenses obtain. Thus, Sanico is liable for damages to Colipano
because of the injury that Colipano suffered as a passenger of Sanico's jeepney.