UNIVERSITY OF MINDANAO – COLLEGE OF LAW

JD 121 - OBLIGATIONS AND CONTRACTS

ATTY. LILIBETH D. GABUTERO, CPA, MBA

LAWRENCE EDWARD S. SORIANO

CASE DIGEST

I. ARTICLE 1169

CASE #16: DBP vs. Guariña Agri. and Realty Dev’t Corp., GR No. 160758 January 15,2014

RELEVANT FACTS

In July 1976, Guariña Corp applied for a loan from DBP to finance the development of
its resort complex. The loan (in the amount of ₱3,387,000.00) was approved on August 5,
1976. Respondent executed a promissory note that would be due on November 3, 1988.

On October 5, 1976, Guariña Corp executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. A year after, the latter
executed a chattel mortgage over the personal properties existing at the resort complex and
those yet to be acquired out of the proceeds of the loan, also to secure the performance of the
obligation.

Petitioner bank required Guariña Corp to put up a cash equity (₱1,470,951.00) for the
construction of the buildings and other improvements on the resort complex. The loan was
released in several instalments, and Respondent used the proceeds to defray the cost of
additional improvements in the resort complex.

Guariña Corp demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of the latter over the latter's objection. DBP found
upon inspection of the resort project, its developments, and improvements that Guariña Corp
had not completed the construction works. Petitioner thus demanded that Respondent expedite
the completion of the project and warned that it would initiate foreclosure proceedings should
Guariña Corp not do so.

DBP initiated extrajudicial foreclosure proceedings after the unsatisfactory objection. A

notice of foreclosure sale was sent to Guariña Corp. The notice was eventually published,
leading the clients and patrons of Guariña Corp to think that its business operation had slowed
down, and that its resort had already closed.

Guariña Corp sued DBP in the RTC to demand specific performance of the latter's
obligations under the loan agreement, and to stop the foreclosure of the mortgages. However,
DBP moved for the dismissal of the complaint. Guariña Corp amended the complaint to seek the
nullification of the foreclosure proceedings and the cancellation of the certificate of sale.

ISSUE

Whether there is a delay in the part of the respondent in performing its obligation
making DBP’s action to foreclose the mortgage proper.

RULING

Speaking through Justice Bersamin, the Court ruled the negative.

The foreclosure of a mortgage prior to the mortgagor's default on the principal

obligation is premature and should be undone for being void and ineffectual. The mortgagee
who has been meanwhile given possession of the mortgaged property by virtue of a writ of
possession issued to it as the purchaser at the foreclosure sale may be required to restore the
possession of the property to the mortgagor and to pay reasonable rent for the use of the
property during the intervening period.
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The agreement between both parties was a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires
ownership thereof, on the condition that the same amount or quality shall be paid. Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
other the debtor.

The obligation of one party in a reciprocal obligation is dependent upon the obligation of
the other, and the performance should ideally be simultaneous. This means that in a loan,
the creditor should release the full loan amount and the debtor repays it when it
becomes due and demandable.

Citing the case of Areola vs CA, the loan agreement between the parties is a reciprocal
obligation. Appellant in the instant case bound itself to grant appellee the loan condition on
appellee's payment of the amount when it falls due. Furthermore, the loan was evidenced by
the promissory note which was secured by real estate mortgage over several properties and
additional chattel mortgage. Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other.

In Jaime Ong vs CA, the court manifested that both the obligee and obligor are to be
performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfilment of the other.

Citing Namarco vs. Federation of United Namarco Distributors, Inc., the promise of
appellee to pay the loan upon due date as well as to execute sufficient security for said loan by
way of mortgage gave rise to a reciprocal obligation on the part of appellant to release the
entire approved loan amount. Thus, appellees are entitled to receive the total loan amount as
agreed upon and not an incomplete amount.

Thus, DBP had no right yet to exact on Guariña Corp the latter’s compliance with its own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform
its obligation, the other party cannot be obliged to perform what is expected of it while the
other’s obligation remains unfulfilled.

In other words, the latter party does not incur delay.

The Court AFFIRMS the decision promulgated on March 26, 2003; and ORDERS the
petitioner to pay the costs of suit.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #17: Rodriguez vs. Porfirio Belgica & Emma Belgica, February 28, 1961

RELEVANT FACTS

This was originally a partition case, instituted in the Court of First Instance of Rizal,
Quezon City Branch. After a series of pleadings filed by the parties, and on one of the hearings
held, the defendants made a verbal offer to compromise. Pursuant to the said offer, the
plaintiffs, on August 27, 1955, filed a "Motion Re-Offer to Compromise."

The parties have discussed and considered the terms and conditions set forth in said
Offer of Compromise submitted by the attorney for the plaintiffs and as a result thereof they
have arrived at an amicable settlement, the terms of which were dictated in open court by the
attorneys of both parties in the presence of their clients.

The terms and conditions of said Compromise Agreement dictate that with regards to
the length of time given to the defendants to pay the plaintiffs of P35,000.00 is thirty (30) days,
the defendants requested that said period be seventy (70) days counted from today, August 30,
1955.

The plaintiffs agreed to grant authority to defendant Porfirio Belgica to negotiate the
sale or mortgage of the 36% which is proposed to be conveyed to him, for the purpose of
raising the P35,000.00 to be paid to the plaintiffs.

After the lapse of the seventy (70) day period stipulated in the compromise agreement,
and upon the failure of the defendants to pay, the plaintiffs presented a motion praying that the
defendants be ordered to deliver to the plaintiffs the Certificates of the Titles so that 14% of
the property pertaining to the defendant could be segregated.

An opposition was registered by the defendants, contending that the inability to meet
the obligation to pay the P35,000.00 was due to the deliberate refusal of the plaintiffs to grant
the authority to defendant Porfirio Belgica to negotiate the sale or mortgage of the 36%; and
that since the decision had created reciprocal obligations, the refusal or failure on the part of
one to comply did not make the other in default.

ISSUE

Whether the denial of the motion to compel the plaintiffs to grant the authority is proper
and legal.

RULING

On the plaintiffs-appellees was imposed the obligation of granting to defendants-

appellants the requisite authority to negotiate either the sale or mortgage of the 36% interest
in the property.

This is understandable, because on the face of the two certificates of the title covering
the properties, defendants owned only 14%, while plaintiffs owned 86%. Without such
authority executed by plaintiffs in favor of the defendants, it was difficult, not to say impossible
for the latter to affect a negotiation.

This the plaintiffs the fully knew, because in the compromise, they acknowledged that
the amount of P35,000.00 due to them would be paid within 70 days from the August 30, 1953,
with money to be delivered from the sale of mortgage of the property. It was, therefore,
incumbent upon the plaintiffs "to grant authority" to defendants to negotiate the
sale or mortgage of the 36% of the property.

Considering that the reciprocal obligation has been established by the compromise
agreement, the sequence in which the reciprocal obligations of the parties are to be performed,
is quite clear.

The giving of the authority to sell or mortgage precedes the obligation of the defendants
to pay P35,000.00 (Martinez vs. Cavives, 25 Phil. 581). Until this authority is granted by the
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

plaintiff, the 70 day period for payment will not commence to run. The plaintiffs insinuated that
defendant did not ask for the authority.

There was, however, the statement or allegation by the defendants to the effects that
they made verbal request for such authority, but plaintiffs refused to give, a statement or
allegation discredited by the lower court. But even without a request, from the very nature of
the obligation assumed by plaintiffs, demand by defendants that it be performed, was not
necessary.

The resolution of the lower Court is reversed, and another entered, to ordering the
plaintiffs-appellees to execute in favor of the defendants-appellants, the proper authority to sell
or Mortgage 36% of the properties in litigation within 30 days from notice of this decision and
further directing the defendants-appellants to pay unto the plaintiffs-appellees the sum of
P35,000.00 within 30 days from the date such authority is granted.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #18: Solar Harvest Inc., vs. Davao Corrugated Carton Corporation July 26, 2010

RELEVANT FACTS

Petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao
Corrugated Carton Corporation, for the purchase of corrugated carton boxes, 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 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. 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 P132,000.00 as storage fee.

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.

ISSUE

Whether or not the respondent is in default to deliver the boxes and thus make it liable
for breach of contract to Solar Harvest.

RULING

Through Justice Nachura, the Supreme Court ruled the negative.

Petitioner’s claim for reimbursement is one for rescission (or resolution) of contract
under Article 1191 of the Civil Code.

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
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

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 automatically incurs in delay.

But when different dates for performance of the obligations are fixed, the default for
each obligation must be determined by the rules given in the first paragraph of the present
article, that is, the other party would incur in delay only from the moment the other party
demands fulfillment of the former’s obligation.

Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is
fixed, demand upon the obligee is still necessary before the obligor can be considered in default
and before a cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the
boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent, which,
however, would not qualify as a demand for the fulfillment of the obligation. Petitioner’s witness
also testified that they made a follow-up of the boxes, but not a demand.

Note is taken of the fact that, with respect to their claim for reimbursement, the
Complaint alleged, and the witness testified that a demand letter was sent to respondent.
Without a previous demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not yet be considered in
breach of its contractual obligation.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

II. ARTICLE 1170

CASE #19: Sps Pajares vs. Remarkable Laundry and Dry Cleaning, Feb. 20, 2017

RELEVANT FACTS

On September 3, 2012, Respondent filed a Complaint denominated as "Breach of

Contract and Damages" against Petitioners.

Respondent alleged that it entered into a Remarkable Dealer Outlet Contract 7 with
petitioners whereby the latter, acting as a dealer outlet, shall accept and receive items or
materials for laundry which are then picked up and processed by the former in its main plant or
laundry outlet.

According to the Respondent, the Petitioners had violated Article IV (Standard Required
Quota & Penalties) of said contract, which required them to produce at least 200 kilos of
laundry items each week, when, on April 30, 2012, they ceased dealer outlet operations on
account of lack of personnel. Respondent, however, made written demands upon petitioners
for the payment of penalties imposed and provided for in the contract, but the latter failed to
pay.

The RTC dismissed the case for lack of jurisdiction. The CA rendered the assailed
Decision setting aside the Order of the RTC and remanding the case to the court a quo for
further proceedings.

ISSUE

Whether the Respondent's complaint denominated as one for "'Breach of Contract &
Damages" is neither an action for specific performance nor a complaint for rescission of
contract.

RULING

In ruling that respondent's Complaint is incapable of pecuniary estimation and that the
RTC has jurisdiction, the CA comported itself with the following ratiocination:

A case for breach of contract is a cause of action either for specific

performance or rescission of contracts. An action for rescission of contract, as
a counterpart of an action for specific performance, is incapable of pecuniary
estimation, and therefore falls under the jurisdiction of the RTC.
Respondent actually intended to initiate an action for specific performance or an action for
rescission of contract. Specific performance is ''the remedy of requiring exact performance of a
contract in the specific form in which it was made, or according to the precise terms agreed
upon. It is the actual accomplishment of a contract by a party bound to fulfill it." 

Rescission of contract under Article 1191 of the Civil Code, on the other hand, is a remedy
available to the obligee when the obligor cannot comply with what is incumbent upon him. It is
predicated on a breach of faith by the other party who violates the reciprocity between them.

Further, it may also refer to a remedy granted by law to the contracting parties and
sometimes even to third persons in order to secure reparation of damages caused them by a
valid contract; by means of restoration of things to their condition in which they were prior to
the celebration of the contract.

It should be recalled that the principal obligation of petitioners under the Remarkable
Laundry Dealership Contract is to act as respondent's dealer outlet. Respondent, however,
neither asked the RTC to compel petitioners to perfom1 such obligation as contemplated in said
contract nor sought the rescission thereof.
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III. ARTICLE 1172

CASE #20: Delgado Brothers Inc vs. CA L-15654, Dec. 29, 1960

RELEVANT FACTS

Delgado Brothers, Inc. were the official unloaders of the cargoes shipped on the
American President Lines. In its contract with the latter, a clause reads:

“We, the American President Lines, hereby assume full responsibility

and liability for damages to cargoes, ship, or otherwise arising from the use of
the unloading crane of the Delgado Brothers, Inc. and we will not hold said
Company liable or responsible in any way thereof.’’

One Richard Klepper shipped thru the American President Lines a lift van containing
certain personal effects. While the van was being unloaded by the gantry crane operated by the
Delgado Brothers, it fell on the pier, breaking the goods inside. The shipping company was
ordered to pay for the damages.

ISSUE

Whether the Delgado Bros., Inc. required to reimburse the carrier?

RULING

Negative.

Petitioner disclaims liability upon the ground that it has been expressly relieved
therefrom by its co-defendant shipping company under a contract entered into between them
relative to the gantry crane belonging to petitioner which was used by said shipping company in
unloading the goods in question.

 The Court cannot agree with the phrase “induce a conclusion that the American
President Lines, Ltd. assumed responsibility for the negligence of the crane operator who was
employed by the appellant, Delgado Brothers, Inc." and that for that Reason the latter should
be blamed for the consequence of the negligent act of its operator, because in our opinion the
phraseology thus employed conveys precisely that conclusion.

 It should be noted that the clause determinative of the responsibility for the use of the
crane contains two parts, namely: one wherein the shipping company assumes full
responsibility for the use of the crane, and the other where said company
agreed not to hold the Delgado Brothers, Inc. liable in any way.

Thus, while the debtor was negligent in paying for the cost of the fertilizer which he had
purchased on credit prior to the last war, still he should not be charged interest during the war
years, since he was in good faith, and since also the creditor was a British company and
therefore an enemy of the Japanese occupation forces.
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IV. ARTICLE 1174

CASE #21: Philippine Realty Holding Corp. vs. Ley Construction and Development Corp.
GR. Nos. 165548 & 16787 June 30, 2011

RELEVANT FACTS

Ley Construction and Development Corporation (LCDC) was the project contractor for
the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of
PRHC, while Joselito Santos (Santos) was its general manager and vice-president for
operations.

Sometime between April 1988 and October 1989, the two corporations entered into four
major construction projects, as evidenced by four duly notarized―construction agreements.
These were the four construction projects the parties entered into involving a Project 1, Project
2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building, to wit:

1. Construction Agreement dated 25 April 1988 - Alexandra-Cluster C -

involving the construction of two units of seven-storey buildings with
basement at a contract price of P 68,000,000 (Project 1);

2. Construction Agreement dated 25 July 1988 - Alexandra-Cluster B -

involving the construction of an eleven-storey twin-tower building with a
common basement at a contract price of P 140,500,000 (Project 2);

3. Construction Agreement dated 23 November 1988 - Alexandra-

Cluster E - involving the construction of an eleven-storey twin-tower building
with common basement at a contract price of P 140,500,000 (Project 3); and

4. Construction Agreement dated 10 October 1989 - Tektite Towers

Phase I - involving the construction of Tektite Tower Building I at Tektite Road
at a contract price of P 729,138,964 (Tektite Building).

LCDC committed itself to the construction of the buildings needed by PRHC, which in
turn committed itself to pay the contract price agreed upon.

In the course of the construction of the Tektite Building, it became evident to both
parties that LCDC would not be able to finish the project within the agreed period.  Thus,
through its president, LCDC met with Abcede to discuss the cause of the delay.

LCDC explained that the unanticipated delay in construction was due mainly to the
sudden, unexpected hike in the prices of cement and other construction materials. It claimed
that, without a corresponding increase in the fixed prices found in the agreements, it would be
impossible for it to finish the construction of the Tektite Building.

In their analysis of the project plans for the building and of all the external factors
affecting the completion of the project, the parties discovered that even if LCDC were able to
collect the entire balance from the contract, the collected amount would still be insufficient to
purchase all the materials needed to complete the construction of the building.

ISSUE

Whether the reasons submitted by LCDC fell under the definition of force majeure.

RULING

There is no question that LCDC was not able to fully construct the Tektite Building and
Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated
damages, because its rightful and reasonable requests for time extension were denied by PRHC.
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It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latter's requests for extension of time. It insists, however,
that in any event LCDC agreed to the limits of the time extensions it granted.

Article 1174 of the Civil Code provides:

Except in cases expressly specified by the law, or when it 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.
A perusal of the construction agreements shows that the parties never agreed to make
LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus,
in the occurrence of events that could not be foreseen, or though foreseen were inevitable,
neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of
an obligation due to an ―act of God or force majeure, 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 unforeseeable or unavoidable;

(c) the event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and

(d) the debtor must be free from any participation in, or aggravation of
the injury to the creditor.

The shortage in supplies and cement may be characterized as force majeure.

In the present case, hardware stores did not have enough cement available in their
supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power
failures and interruptions of water supply all clearly fall under force majeure.

Since LCDC could not possibly continue constructing the building under the
circumstances prevailing, it cannot be held liable for any delay that resulted from the causes
aforementioned.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #22: Jimmy Co vs. CA. GR. no. 124922 June 22, 1998

RELEVANT FACTS

Jimmy Co entrusted his pick-up car (Nissan) to private respondent for repair and the
former undertook to return the vehicle fully serviced and supplied in accordance with the job
contract.

The day of release came, the private respondent failed to provide the said vehicle as its
battery was weak and was not yet replaced. The petitioner bought a new battery and asked for
installation of the same. The delivery of the car was rescheduled three (3) days later. However,
when the petitioner sought to reclaim his car, he was told that it was carnapped while being on
the road, tested by the private respondent’s employee.

ISSUE

Whether a repair shop can be held liable for the loss of a customer’s vehicle while the
same is in its custody for repair or other job services.

RULING

The Court resolves the query in favor of the customer. First, on the technical aspect
involved.

It is a 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.

Even assuming arguendo that carnapping was duly established as a fortuitous event, still

private respondent cannot escape liability. Article 1165 of the New Civil Code makes an obligor
who is guilty of delay responsible even for a fortuitous event until he has affected the delivery.

In this case, private respondent was already in delay as it was supposed to deliver
petitioners car three (3) days before it was lost. Petitioners’ agreement to the rescheduled
delivery does not defeat his claim as private respondent had already breached its obligation.

Moreover, such accession cannot be construed as waiver of petitioners right to hold

private respondent liable because the car was unusable and thus, petitioner had no option but
to leave it.
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CASE #23: Phil Estate Property Incorporated vs. Sps Ronquillo, Jan. 13, 2014

RELEVANT FACTS

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-
square meter condominium unit at Central Park Place Tower in Mandaluyong City.

As agreed upon, respondents paid the full down payment and had been paying the
monthly amortizations until September 1998.

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 P2,198,949.96 representing the total

amortization payments, P200,000.00 as and by way of moral damages, attorney’s fees and
other litigation expenses.

                On 13 June 2002, the HLURB in favor of herein respondents. The Arbiter considered
petitioners’ failure to develop the condominium project as a substantial breach of their
obligation which entitles respondents to seek for rescission with payment of damages. The
Arbiter also stated that mere economic hardship is not an excuse for contractual
and legal delay.

ISSUE

Whether the Asian financial crisis constitutes a fortuitous event which would justify delay
by petitioners in the performance of their contractual obligation.

RULING

The Asian financial crisis in 1997 cannot be generalized as 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 every day, thus, not
an instance of caso fortuito. 

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; and third, petitioners are likewise obligated to pay attorney’s fees and the
administrative fine.

The non-performance of petitioners’ obligation entitles respondents to rescission under

Article 1191 of the New Civil Code which states: 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.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #24: De Lacson, et al., vs. Diaz, August 4, 1950

RELEVANT FACTS

The plaintiff, as attorney-in-fact of the other plaintiffs leased to the defendant, lots Nos.
429 and 1179 of the Talisay Cadastre, together with its sugar quota.

The term of the lease was for five crop years beginning with the crop year 1940-41;
with an option in favor of the defendant for another two years, after the expiration of the
original period.

The contract provided that the defendant was to pay to the plaintiffs an annual rental of
1,000 piculs of export sugar, of which 500 piculs were to be paid in the month of January of
every year and the rest at the end of every milling season.

The defendant also obligated himself to pay to the plaintiff 20% of whatever alcohol he
may receive from the Talisay-Silay Milling Co. Inc. corresponding to the haciendas above-
mentioned.

To guarantee the payment of the said annual rentals, the defendant loaned to the
plaintiffs the sum of P10,000 without interest, which was to be paid by plaintiffs with the
proceeds of the annual rentals in sugar provided, however, that the sum of P7,000 was to be
maintained as the permanent balance until the termination of the lease period, as security for
the payment by the defendant of said rentals.

A supplementary agreement entered into between the parties so as to include in the

lease contract the rights and interests also of the plaintiff in the haciendas in question.

The defendant took possession of the haciendas in question beginning with the crop
year 1940-41. In that year he paid to the plaintiffs the corresponding rental of 1,000 piculs of
sugar and their share in alcohol.

On December 8, 1941, the war broke out. The defendant claims that due to the
unsettled conditions which follows, he was unable to mill all his sugar canes so that during the
crop year 1941-42 he produced only from the two haciendas, of which went to him as his
planter’s share.

ISSUE

Whether there was fortuitous event which interfered with the exploitation of the leased
property in the form and manner the defendant had intended.

RULING

There was no fortuitous event.

The Court refer to the agricultural years 1945-46 and 1946-47. It should be observed
that the defendant was not bound to keep the lands during those years; it was entirely optional
on his part to put an end to the lease after the 1944-45 crop year.

When he decided to exercise the option he was fully aware that there were no sugar
mills in operation and he did not except to produce sugar. He must have had an object other
than to plant sugar cane when he chose to retain the lands for two years more. His purpose
was, beyond doubt, to plant other crops, which he did.

If those crops did not bring good return he can not, under any principle of law or equity,
shift the loss to the lessor. Performance is not excused by the fact that the contract turns out to
be hard and improvident, unprofitable or impracticable, ill-advised, or even foolish. 
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #25: Sicam vs. Jorge G.R. 159617 August 8, 2007

RELEVANT FACTS

 On different dates, Lulu Jorge pawned several pieces of jewelry with Agencia de R. C.
Sicam located in Parañaque to secure a loan.

On October 19, 1987, two armed men entered the pawnshop and took away whatever
cash and jewelry were found inside the pawnshop vault. On the same date, Sicam sent Lulu a
letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop.
Respondent Lulu then wrote back expressing disbelief, then requested Sicam to prepare the
pawned jewelry for withdrawal on November 6, but Sicam failed to return the jewelry.

Sicam sent respondent Lulu a letter informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. 

Respondent Lulu then wrote a letter 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. 

Lulu then requested Sicam to prepare the pawned jewelry for withdrawal but petitioner
Sicam failed to return the jewelry. 

Lulu, joined by her husband Cesar, filed a complaint against Sicam with the RTC of
Makati seeking indemnification for the loss of pawned jewelry.

The RTC rendered its Decision dismissing respondents’ complaint. 

It ruled that petitioner corporation could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of
jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is
a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria
v. Court of Appeals; and that the parties’ transaction was that of a pledgor and pledgee and
under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those
events which could not be foreseen. 

Respondents appealed the RTC Decision to the CA. In a Decision, the CA reversed the
RTC’s decision.

ISSUE

Whether Sicam and pawnshop are liable for the loss of the pawned articles in their
possession.

RULING

Affirmative.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are
not negligent at all. 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.

Citing Co vs CA:

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. 
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #26: Nacar vs. Gallery Express G.R. 189871 August 13, 2013

RELEVANT FACTS

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration
Branch of the National Labor Relations Commission (NLRC) against respondents Gallery Frames
(GF) and/or Felipe Bordey, Jr.

On October 15, 1998, the Labor Arbiter rendered a Decision in favor of petitioner and
found that he was dismissed from employment without a valid or just cause. Thus, petitioner
was awarded backwages and separation pay in lieu of reinstatement.

February 29, 2000, Respondents appealed to the NLRC but was dismissed. The Petition
for Review of the respondents at the CA was dismissed.

April 17, 2002, Respondents sought relief from the SC, but was likewise, denied. An
Entry of Judgment was later issued by the SC certifying that the resolution became final and
executory on May 27, 2002.

November the same year, Petitioner filed for a Motion for Correct Computation, praying
that the computation of his back wages be computed from his dismissal up to May 27, 2002.

December 2, 2002 The Labor Arbiter issued a Writ of Execution ordering respondent to
pay P471,320.31.

Upon appeal by respondents, the LA ruled that it is the October 15, 1998 Decision that
should be enforced considering that it was the one that became final and executory.

Aggrieved, the petitioner appealed at the CA, but his petition was denied.

ISSUE

Whether a re-computation in the course of execution of the labor arbiter's original

computation of the awards made legal and proper.

RULING

Affirmative.

The first is that part of the decision that cannot now be disputed because it has been
confirmed with finality.

The second part is the computation of the awards made. On its face, the computation
the labor arbiter made shows that it was time-bound as can be seen from the figures used in
the computation. This part, being merely a computation of what the first part of the decision
established and declared, can, by its nature, be re-computed.

Also, that the petitioner now posits should no longer be re-computed because the
computation is already in the labor arbiter's decision that the CA had affirmed.

In the case of Eastern Shipping Lines, Inc. v. Court of Appeals, the Court laid down the
guidelines regarding the manner of computing legal interest, to wit:

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 stipulated in writing.

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. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

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 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan contracts.
Thus, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the cited case.

When the obligation is breached, and it consists in the payment of a sum 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. 

When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #27: Juan F. Nakpil vs. CA GR. 47851 , Oct. 3, 1986

RELEVANT FACTS

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. 

It 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.

August 2, 1968 an unusually strong earthquake hit Manila and its environs and the
building in question sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously.

November the same year, 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.

The latter 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.

PBA commenced an action for the recovery of damages arising from the partial collapse of
the building against United. In turn, United filed a third-party complaint against the architects
(Nakpil) who prepared the plans and specifications.

Parties agreed to refer the technical issues involved in the case to a Commissioner Hizon.

The building was authorized to be demolished at the expense of the plaintiff, but not
another earthquake of high intensity on April 7, 1970 followed by other strong earthquakes on
April 9, and 12, 1970, caused further damage to the property.

Hizon submitted his report with the findings that while the damage sustained by the PBA
building was caused by the earthquake, they were also caused by the (1) defects in the plans
and specifications prepared by the architects, (2) deviations from said plans and specifications
by United and (3) failure of United to observe the requisite workmanship in construction of the
building and of the contractors and architects to exercise the requisite degree of supervision in
the construction of the said building.

ISSUE

Whether 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.

RULING

No, they are not exempted from liability.

These deficiencies are attributable to negligent men and not to a perfect God.

There is no dispute that the earthquake is a fortuitous event or an act of God. But, if
upon the happening of a fortuitous event or an act of God, here concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor of the obligation,
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
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

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.

United 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. And the Nakpins were found to have inadequacies
or defects in the plans and specifications prepared by them.

The deviations made by United caused indirectly the damage sustained and that those
deviations not only added but also aggravated the damage caused by the defects made by the
Nakpins.

Thus, one who negligently creates a dangerous condition cannot escape liability for the
natural and probably 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.

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
difference; gross negligence and evident bad faith, without which the damage would not have
occurred.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

V. ARTICLE 1175

CASE #28 Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board

RELEVANT FACTS

Petitioner and its President, Eduardo Olaguer claim that they are raising issues of
transcendental importance to the public and so they filed Petition for Certiorari under Rule 65
ROC seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB),
replacing the Central Bank Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no
authority to continue enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982,
which "suspended" the Usury Law of 1916 (Act No. 2655).

R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law.

In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular No.
905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods
or credits.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing
the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof.

ISSUE

 Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular No.
905.

RULING

Petitioners contend that, granting that the CB had power to "suspend" the Usury Law,
the new BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No.
7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did
not reenact a provision similar to Section 109 of R.A. No. 265.

Section 1 of CB Circular No. 905 provides that, "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended." It does not purport to
suspend the Usury Law only as it applies to banks, but to all lenders.

A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of
any money, goods or credits, including those for loans of low priority such as consumer loans,
as well as such loans made by pawnshops, finance companies and similar credit institutions.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

VI. ARTICLE 1176

CASE #29: Nunelon Marquez vs. Elisan Credit Corp GR. 194642

RELEVANT FACTS

Nunelon R. Marquez (petitioner) obtained a (first loan) from Elisan Credit Corporation
(respondent) payable in 180 days. The petitioner signed a promissory note which provided that
it is payable in weekly installments and subject to 26% annual interest.

In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on
the total amount unpaid and another 25% of such amount for attorney's fees exclusive of costs,
and judicial and extrajudicial expenses.

To further secure payment of the loan, the petitioner executed a chattel mortgage over
a motor vehicle. The petitioner obtained another loan (second loan). The respondent filed a
complaint for judicial foreclosure of the chattel mortgage because the petitioner allegedly failed
to settle the balance of the second loan despite demand.

Before the petitioner could file an answer, the respondent applied for the issuance of a
writ of replevin. The MTC issued the writ and by virtue of which, the motor vehicle covered by
the chattel mortgage was seized from the petitioner and delivered to the respondent.

ISSUE

Whether the chattel mortgage could cover the second loan.

RULING

No. The chattel mortgage could not validly cover the second loan. The order for
foreclosure was without legal and factual basis. the Chattel Mortgage Law requires the parties
to the contract to attach an affidavit of good faith and execute an oath that -" x x x (the)
mortgage is made for the purpose of securing the obligation specified in the conditions thereof,
and for no other purposes, and that the same is a just and valid obligation, and one not entered
into for the purposes of fraud."

It is obvious therefore that the debt referred in the law is a current, not an obligation
that is yet merely contemplated. The only obligation specified in the chattel mortgage contract
was the first loan which the petitioner later fully paid.

By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage terminated; the chattel mortgage had ceased to
exist upon full payment of the first loan. Being merely an accessory in nature, it cannot exist
independently of the principal obligation.

The parties did not execute a fresh chattel mortgage nor did they amend the chattel
mortgage to comply with the Chattel Mortgage Law which requires that the obligation must
be specified in the affidavit of good faith.

Simply put, there no longer was any chattel mortgage that could cover the second loan
upon full payment of the first loan. The order to foreclose the motor vehicle therefore had no
legal basis.
 UNIVERSITY OF MINDANAO – COLLEGE OF LAW

CASE #30: Estate of Hemady vs. Luzon Surety Co. L8437, Nov. 28, 1956

RELEVANT FACTS

Luzon Surety Co. filed a claim against the Estate based on 20 different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K.
H. Hemady, a surety solidary guarantor.

Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the 20
bonds it executed in consideration of the counterbonds, and asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12 % interest thereon. CFI
dismissed the claims of Luzon Surety Co., on failure to state the cause of action.

ISSUE

What obligations are transmissible upon the death of the decedent? Are contingent
claims chargeable against the estate?

RULING

Under the present Civil Code (Art. 1311), “Contracts take effect only as between the
parties, their assigns and heirs, except in the case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation or by provision of law.”

While in our successional system the responsibility of the heirs for the debts of their
decedent cannot exceed the value of the inheritance they receive from him, the principle
remains intact that these heirs succeed not only to the rights of the deceased but also to his
obligations. Articles 774 & 776, NCC, provides, thereby confirming Art. 1311.

The binding effect of contracts upon the heirs of the deceased party is not altered by
the provision in our Rules of Court that money debts of a deceased must be liquidated and paid
from his estate before the residue is distributed among said heirs (Rule 89). The reason is that
whatever payment is made from the estate is ultimately a payment by the heirs and
distributees since the amount of the paid claim in fact diminishes or reduces the shares that the
heirs would have been entitled to receive.

Creditor Luzon Surety Co. expects from Hemady when it accepted the latter as surety in
the counterbonds was the reimbursement of the moneys that the Luzon Surety Co. might have
to disburse on account of the obligations of the principal debtors. This reimbursement is a
payment of a sum of money, resulting from an obligation to give; and to the Luzon Surety Co.,
it was indifferent that the reimbursement should be made by Hemady himself or by some one
else in his behalf, so long as the money was paid to it.