ii.
mora accipiendi
 default on the part of the creditor.
 the delay on the part of the creditor without
justifiable reason to accept the performance of the
obligation.
• Delay in the performance based on the omission
by the creditor of the necessary cooperation,
especially acceptance on his part.
• Generally, debtor can perform at any time after
the obligation has been created, even before the
date of maturity.
• It is necessary however that it be lawful for the
debtor to perform, and that he can perform (e.g.
when the period is established for the benefit of
the creditor or both of the parties).
REQUISITES OF MORA ACCIPIENDI:
1. Offer of performance by the debtor who has the
required capacity
2. Offer must be to comply with the prestation as it
should be performed
3. Creditor refuses the performance without just
cause
∗ See, also Art 1268
ART. 1268
When the debt of a thing certain and
determinate proceeds from a criminal
offense the debtor shall not be exempted
from the payment of its price, whatever may
be the cause for the loss UNLESS the thing
having been offered by him to the person
who should receive it, the latter refused
without justification to accept it.
iii. compensation morae
 the delay of the obligors in reciprocal
obligations (like in sale), i.e., the delay of the
obligor cancels the delay of the obligee, and vice
versa.
 parties in a bilateral contract can regulate the
order in which they shall comply with their
reciprocal prestations. Otherwise, the fulfillment
must be SIMULTANEOUS and RECIPROCAL. If
there is mutual default, the parties cannot ask for
damages.
GENERAL RULE: Fulfillment of parties should be
simultaneous
EXCEPTION: Contrary stipulation (e.g. installment
plans)
CASE
CENTRAL BANK VS. CA
139SCRA 46 (1985)
FACTS:
• [April 28, 1965] Island Savings Bank approved a
loan of P80,000 in favor of Sulpicio Tolentino. And
as security for the loan, the latter mortgaged his
100-hectare property.
• [May 22, 1965] P17,000 was released to
Tolentino. Tolentino likewise issued a promissory
note in favor of the bank with 12 interest per
annum.
• An advanced interest of P4,800 was deducted
from the P17,000 given to Tolentino.
• Despite repeated demands, the ISB was not able
to issue the remaining P63,000 loan.
• [August 13, 1965] The Central Bank, after
finding that the ISB was suffering liquidity
problems, issued a resolution which prohibits the
bank from issuing new loans and investments.
• [August 1, 1968] Island Savings Bank filed for an
extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of
Tolentino.
• [January 20, 1969] Tolentino filed a petition with
the CFI for specific performance of ISB to provide
the remaining P63,000 plus 12 per annum interest.
And if the said balance cannot be delivered, that
the mortgage be rescinded.
• The Trial Court issued a TRO enjoining the ISB
from proceeding with the foreclosure. Likewise, it
asked Tolentino to pay the P17,000 plus legal
interest towards ISB.
• The CA dismissed the ruling of the trial court and
ruled in favor of Tolentino.
ISSUE:
Whether or not Tolentino is entitled to the specific
performance of ordering the Bank to deliver the
remaining amount of P63,000. (NO)
Ruling:
When Island Savings Bank and Sulpicio M.
Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the
obligation or promise of each party is the
consideration for that of the other; and when one
par ty has performed or is ready and willing to
perform his part of the con trac t, the other party
who has not performed or is not ready and willing
to perform incurs in delay (Art. 1169 of the Civil
Code).
The promise of Sulpicio M. Tolentino to pay was
the consideration for the obligation of Island
Savings Bank to furnish the 80,000.00 loan. When
Sulpicio M. Tolentino executed a real estate
mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such
date, the obligation of Island Savings Bank to
furnish the P80,000.00 loan accrued.
Thus, the Bank's delay in furnishing the entre
loans tar ted on April 28, 1965, and las ted for
a period of 3 years or when the Monetary Board
of the Central Bank issued a resolution,
which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the
P63,000.00 balance of theP80,000.00 loan. The
prohibition on the bank to make new loans is
irrelevant because it did not prohibit the bank from
releasing the balance of loans previously
contracted. Insolvency of deb tor is not an excuse
for non-fulfillment of obligation.
iv. mora creditories or accipiendi
 a form of breach of contract by a creditor. It
occurs in cases where a creditor is obliged to lend
his or her cooperation, and culpably fails to do so
timeously.
Requirements:
•The debtor must be under an obligation to make
the performance to the creditor (the performance
need not be enforceable or due, however).
•Cooperation of the creditor must be necessary for
the performance by the debtor of his obligation.
•The debtor must tender performance to the
creditor.
•The creditor must delay in accepting performance.
•The delay must be due to the fault of the creditor.
C. EFFECTS OF DELAY (MORA)
MORA SOLVENDI:
1. When it has for its object a determinate thing,
the delay places the risk of the thing on the debtor
2. Debtor becomes liable for damages of the delay
3. Debtor is liable even for a fortuitous event when
the obligation is to deliver a determinate thing.
MORA ACCIPIENDI:
1. Responsibility of the debtor for the thing i
reduced and limited to fraud and gross negligence
2. Debtor is exempted from the risks of loss of
thing, which automatically pass to the creditor
3. All expenses incurred by the debtor for the
preservation of the thing after the mora shall be
chargeable to the creditor
4. If the obligation bears interest, the debtor does
not have to pay it from the moment of the mora
5. The creditor becomes liable for damages
6. The debtor may relieve himself of the obligation
by the consignation of the thing
COMPENSATION MORAE:
• Exceptio non adempleti contractus – one is not
compelled to perform his prestation when the other
contracting party is not yet prepared to perform his
prestation; default of one compensates the default
of the other
CESSATION OF EFFECTS OF MORA:
1. Renunciation by the creditor
a. Express
b. Implied: when after delay has been incurred,
the creditor grants, an, extension, of, time to the
debtor or agrees to a novation of the obligation
2. Prescription
5. CONTRAVENTION OF THE TENOR
Contravention of the terms of the obligation
 Many illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind of
defective performance
• Malicious or negligent violation, of, the, terms,
and, conditions, stipulated in the obligation
• Must not be due to fortuitous even or force
majeure, otherwise there would be no liability RULING:
• Immaterial whether or not the actor is in bad, YES.
faith, or, negligent, what is required is that it is his
fault or the act done contravenes their agreement Article 1167 of the Civil Code states: If a person
obliged to do something fails to do it, the same
shall be executed at his cost .This same rule shall
be observed if he does it in contravention of the
CASES
tenor of the obligation.
CHAVEZ V. GONZALES
The inferences derivable from these findings of
G.R. L-27454
fact are that the Chavez and the Gonzalez had a
perfected contract for cleaning and servicing a
FACTS:
typewriter, intended to be completed at some
future time although such time was not specified,
The plaintiff delivered to the defendant, who is a
that such time had passed, and that the typewriter
typewriter repairer, a portable typewriter for
was returned cannibalized and unrepaired, which
routine cleaning and servicing. The defendant was
in itself is a breach of his obligation. The time for
not able to finish the job after some time despite
compliance had evidently expired and there being
repeated reminders made by the plaintiff. In
a breach of contract by non-performance. It is
October, 1963, the defendant asked from the
clear that the Gonzales-appellee contravened the
plaintiff the sum of P6.00 for the purchase of
tenor of his obligation.
spare parts, which amount the plaintiff gave to the
defendant.
The cost of the execution of the obligation in this
case should be the cost of the labor or service
After getting exasperated with the delay of the
expended in the repair of the typewriter, which is
repair of the typewriter, the plaintiff went to the
in the amount of P58.75 because the obligation or
house of the defendant and asked for the return of
contract was to repair it.
the typewriter.

In addition, Gonzales is likewise liable under Article

The plaintiff found out that the typewriter was in
1170 of the Code for the cost of the missing parts
shambles with some parts missing. Chaves
for in his obligation to repair the typewriter he was
demanded the return of the missing parts and the
bound, but failed or neglected, to return it in the
sum of P6.00, which Gonzales returned.
same condition it was when he received it.
Later on, the plaintiff had his typewriter repaired
The appealed judgment is modified. Gonzales to
by Freixas Business Machines, and the repair job
pay Chavez the sum of P89.85 with interest.
cost him a total of P89.85, including labor and
materials.
Chavez then commenced this an action before the
City Court of Manila, demanding from the Gonzales
TELEFAST V. CASTRO
the payment of P90.00 as actual and
G.R. NO. 73867 FEBRUARY 29, 1988
compensatory damages.

The RTC granted the petition and ordered that the
defendant pay the plaintiff the amount of P31.10
which is the total value of the missing parts.
Chavez contended that he should be awarded the
whole cost of labor and materials as provided for
in Article 1167 of the Civil Code. Thus, this
petition.
ISSUE:
Whether or not Chavez is entitled to the whole
cost of labor and materials that went into the
repair of the typewriter.
FACTS:
1. The petitioner is a company engaged in
transmitting telegrams. The plaintiffs are the
children and spouse of Consolacion Castro
who died in the Philippines. One of the
plaintiffs, Sofia sent a telegram thru Telefast to
her father and other siblings in the USA to
inform about the death of their mother.
Unfortunately, the deceased had already been
interred but not one from the relatives abroad
was able to pay their last respects. Sofia found
out upon her return in the US that the
telegram was never received. Hence the suit
for damages on the ground of breach of
 contract. The defendant-petitioner argues that serious anxiety, besmirched reputation, wounded
it should only pay the actual amount paid to it. feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary
2. The lower court ruled in favor of the plaintiffs
computation, moral damages may be recovered if
and awarded compensatory, moral, exemplary,
they are the proximate results of the defendant's
damages to each of the plaintiffs with 6
wrongful act or omission."
interest p.a. plus attorney’s fees. The Court of
Appeals affirmed this ruling but modified and
Then, the award of P16,000.00 as compensatory
eliminated the compensatory damages to Sofia
damages to Sofia C. Crouch representing the
and exemplary damages to each plaintiff, it
expenses she incurred when she came to the
also reduced the moral damages for each. The
Philippines from the United States to testify before
petitioner appealed contending that, it can
the trial court. Had petitioner not been remiss in
only be held liable for P 31.92, the fee or
performing its obligation, there would have been
charges paid by Sofia C. Crouch for the
no need for this suit or for Mrs. Crouch's
telegram that was never sent to the
testimony.
addressee, and that the moral damages should
be removed since defendant's negligent act
The award of exemplary damages by the trial
was not motivated by "fraud, malice or
court is likewise justified for each of the private
recklessness.
respondents, as a warning to all telegram
companies to observe due diligence in transmitting
Issue: Whether or not the award of the
the messages of their customers.
moral, compensatory and exemplary
damages is proper.

RULING:
ARRIETA VS. NARIC
10 SCRA 79 (1964)
Yes, there was a contract between the petitioner
and private respondent Sofia C. Crouch whereby,
FACTS:
for a fee, petitioner undertook to send said private
Mrs. Paz Arrieta participated in public bidding
respondent's message overseas by telegram.
called by NARIC on May 19, 1952 for the supply of
Petitioner failed to do this despite performance by
20,000 metric tons of Burmese rice. Her bid was $
said private respondent of her obligation by paying
203.00 per metric ton, it was the lowest that’s why
the required charges. Petitioner was therefore
the contract was awarded to her.
guilty of contravening its and is thus liable for
damages. This liability is not limited to actual or
On July 1,1952, Arrieta and NARIC entered into
quantified damages. To sustain petitioner's
contract. Arrieta was obligated to deliver 20,000
contrary position in this regard would result in an
metric ton of Burmese rice at $203.00 per metric
inequitous situation where petitioner will only be
ton to NARIC. In return, NARIC committed itself to
held liable for the actual cost of a telegram fixed
pay for the imported rice “by means of an
thirty (30) years ago.
irrevocable, confirmed and assignable letter of
credit in US currency in favour of Arrieta and/or
Art. 1170 of the Civil Code provides that "those
supplier in Burma (THIRI SETKYA), immediately.”
who in the performance of their obligations are
NARIC took the first step to open the letter of
guilty of fraud, negligence or delay, and those who
credit on July 30, 1952 by forwarding to the PNB
in any manner contravene the tenor thereof, are
its application for commercial letter of credit.
liable for damages." Art. 2176 also provides that
"whoever by act or omission causes damage to
Arrieta with the help of a counsel, advised NARIC
another, there being fault or negligence, is obliged
of the necessity for the opening of the letter
to pay for the damage done."
because she tender her supplier in Ragoon, Burma
of 5 of the price of 20,000 tons at $180.70 and if
Award of Moral, compensatory and exemplary
she didn’t comply the 5 will be confiscated if the
damages is proper.
required letter of credit is not received by them
before August 4, 1952. PNB informed NARIC that
The petitioner's act or omission, which amounted
their application of credit letter amounting to
to gross negligence, was precisely the cause of the
$3,614,000.00 was approved with the condition of
suffering private respondents had to undergo. Art.
50 marginal cash be paid. NARIC does not meet
2217 of the Civil Code states: "Moral damages
the condition. The allocation of Arrieta’s supplier in
include physical suffering, mental anguish, fright,
Ragoon was cancelled and the 5 deposit was
forfeited.
ISSUE :
Whether or not NARIC liable for damages.
HELD :
Yes, because the reason of the cancellation of the
contract by Arrieta in Ragoon, Burma was the
failure of NARIC to open the letter of credit within
a specific period of time. One who assumes
contractual obligation and fails to perform in which
he knew and was aware when he entered in the
contract, should be liable for his failure to do what
is required by a law. Under the Art. 1170 of the
Civil Code, not only the debtors guilty of fraud,
negligence or default but also a debtor of every, in
general, who fails in the performance of his
obligation is bound to indemnify for the losses and
damages caused thereby.
III. REMEDIES OF CREDITOR IN
CASE OF BREACH
REMEDIES IN GENERAL:
1. Action for performance (specific performance or
obtain compliance)
2. Action for rescission
3. Action for damages (exclusively OR in addition
to either of the first actions)
REMEDIES OF CREDITOR INREAL
OBLIGATION:
1. In a specific real obligation (obligation to deliver
a determinate thing):
a. Demand specific performance or
fulfillment of the obligation with a right to
indemnity for damages; or
b. Demand rescission or cancellation (in
certain cases) of the obligation also with a right
to recover damages (Art. 1170); or
c. Demand the payment of damages only (Art.
1170) when it is the only feasible remedy
2. In a generic real obligation (obligation to deliver
a generic thing)
a. Can be performed by a third person or the
debtor but the creditor may ask for
performance of the obligation
b. Whether by a third person or by a debtor, the
creditor can recover damages
REMEDIES OF CREDITOR IN POSITIVE
PERSONAL OBLIGATION:
1. If the debtor fails to comply with his obligation to
do, the creditor has the right:
a. To have the obligation performed by himself,
or by another unless personal considerations
are involved, at the debtor’s expense; and
b. To recover damages (Art. 1170)
2. In case the obligation is done in contravention of
the terms of the same or is poorly done, it may be
ordered (by the court) that it be undone if it is still
possible to undo what was done.
REMEDIES OF CREDITOR IN NEGATIVE
PERSONAL OBLIGATION:
∗ Since the duty is to obtain from an act, there is
no specific performance
∗ In this kind of obligation, the debtor cannot be
guilty of delay
1. The remedy is the undoing of the forbidden
thing plus damages
2. If it is not possible to undo what was done, the
remedy is an action for damages.
REMEDIES FOR THE SATISFACTION OF
CLAIMS:
1. Exact fulfillment (specific performance) with the
right to damages;
2. Pursue the leviable (not exempt from
attachment under the law) property of the debtor;
a. The debtor is liable with all his property,
present and future, for the fulfillment of his
obligations, subject to the exemptions provided
by law (see Art. 2236)
b. Art. 1708 CC – laborer’s wages not subject to
execution or attachment, except for debts
incurred for food, shelter, clothing and medical
attendance
c. Art. 155 FC – family home shall be exempt
from execution, forced sale or attachment,
except for non-payment of taxes, debts incurred
prior to constitution of family home, debts
secured by mortgages before or after
constitution, debts due to those who rendered
service or furnished material for the building.
d. Sec. 13, Rule 39, Rules of Court
3. After having pursued the property in possession
of the debtor, exercise all the rights (like the right
to redeem) and bring all the actions of the debtor
(like the right to collect from the debtor of his
debtor) except those inherent in or personal to the
person of the latter (such as the right to vote, to
hold office, to receive legal support, to revoke a
donation on the ground of ingratitude, etc.); and
4. Ask the court to rescind or impugn acts or
contracts which the debtor may have done to
defraud him when he cannot in any other manner
recover his claim.
SITUATIONS WHICH MAY GIVE RISE TO THE
NEED FOR REMEDIES:
1. The debtor fails to perform an obligation to do;
or
2. The debtor performs an obligation to do but
contrary to the terms thereof; or
3. The debtor performs an obligation to but in a
poor
manner.
A. ACTION FOR PERFORMANCE
1. ACTION FOR SPECIFIC PERFORMANCE OR
FULFILLMENT OF THE OBLIGATION (IN
OBLIGATION TO GIVE SPECIFIC THING)
Art. 1165, Par. 1. When what is to be
delivered is a determinate thing, the
creditor, in addition to the right granted him
by Art 1170 (indemnification for damages),
may compel the debtor to make the delivery.
ROC 39, Sec 10 Execution, satisfaction and
effect of judgment.
• Implies that the basis is a contractual relation
between plaintiff and defendants.
 the party fails to comply within the time
specified, the court may direct the act to be done
at the cost of the disobedient party by some other
person appointed by the court and the act when so
done shall have like effect as if done by the party
2. ACTION FOR SUBSTITUTED
PERFORMANCE (IN OBLIGATION TO GIVE
GENERIC THING)
Art. 1165, Par. 2. If the thing is
indeterminate or generic, he may ask that
the obligation be complied with at the
expense of the debtor
• Delivery of anything belonging to the species
stipulated will be sufficient.
• Debtor cannot avoid obligation by paying
damages if the creditor insists on the performance.
3. ACTION FOR SUBSTITUTED
PERFORMANCE OR UNDOING OF POOR
WORK (IN OBLIGATION TO DO)
Art. 1167. If a person obliged to do
something fails to do it, the same shall be
executed at his cost
This same rule shall be observed if he does it
in contravention of the tenor of the
obligation. Furthermore, it may be decreed
that what has been done poorly be undone
• The court has no discretion to merely award
damages to the creditor when the act can be done
in spite of the refusal or failure of debtor to do so.
• EXCEPTION: Imposition of personal force or
coercion upon the debtor to comply with his
obligation " tantamount to involuntary servitude
and imprisonment for debt
CASES
CHAVEX VS. GONZALES, SUPRA
TANGUILIG VS. CA, 266 SCRA 78 (1997)
FACTS:
On April 1987, petitioner Jacinto M. Tanguilig unde
r the name J.M.T.Engineering and General
Merchandising proposed to respondent Vicente
Herce, Jr. to construct a windmill system for the
latter, for a consideration of P60,000.00 with a
one-year guaranty.
Respondent paid petitioner a down payment of
P30,000.00 and an instalment payment of
P15,000.00, leaving a balance ofP15,000.00.
Then, the respondent refused to pay the balance,
so the petitioner filed a complaint to collect the
amount, on 14 March 1988.
Respondent denied the claim saying that he had
already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill
system was to be connected. According to
respondent, since the deep well formed part of the
system the payment he tendered to SPGMI should
be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in
the windmill system which caused the structure to
collapse after a strong wind hit their place.
Petitioner denied that the construction of a deep
well was included in the agreement to build the
windmill system, for the contract
price ofP60,000.00 was solely for the windmill.
Petitioner also disowned any obligation to repair or
reconstruct the system and insisted that he
delivered it in good and working condition to
respondent who accepted the same without
protest. Besides, its collapse was attributable to a
typhoon, a force majeure, which relieved him of
any liability.
The trial court held that the construction of the
deep well was not part of the windmill project as
evidenced clearly by the letter proposals submitted
by petitioner to respondent and with respect to the
repair of the windmill, there is no clear and
convincing proof that the windmill system fell
down due to the defect of the construction.
CA reversed the trial court's decision. It ruled that
the construction of the deep well was included in
the agreement of the parties because the term
“deep well” was mentioned in both proposals and
respondent’s witness Guillermo Pili, the proprietor
of SPGMI stated that the petitioner told him that
the cost of constructing the deep well would be
deducted from the contract price of P60,000.00.
CA also rejected petitioner’s claim of force majeure
and ordered the latter to reconstruct the windmill
in accordance with the stipulated one-year
guaranty. The petitioner filed for a motion for
reconsideration but was denied, hence this
petition.
ISSUE:
Whether or not private respondent was already in
default in the payment of his outstanding
balance of P15,000.00 and hence should bear his
own loss.
HELD: NO.
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. When the windmill failed to
function properly it became incumbent upon
petitioner to institute the proper repairs in
accordance with the guaranty stated in the
contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who
should bear the expenses for the
reconstruction of the windmill.
Article 1167 of the Civil Code is explicit on this
point that if a person obliged to do something fails
to do it, the same shall be executed at his cost.
4. ACTION FOR UNDOING (IN OBLIGATION
NOT TO DO)
Art 1168 When the obligation consists in not
doing, and the obligor does what has been
forbidden him, it shall also be undone at his
expense.
• EXCEPTION: When the only feasible remedy is
Indemnification for the damages caused:
o If has become impossible to undo the thing
physically or legally
o If the act is definite and will not cease even if
undone
B. ACTION FOR DAMAGES
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. (1101)
 the fraud is employed for the purpose of
evading the normal fulfillment of an obligation and
its existence merely results in breach thereof
giving rise to a right by the innocent party to
recover damages
 Recoverable damages include any and all
damages that a human being may suffer.
 Responsibility for damages is indivisible.

C. ACTION FOR RESCISSION
Art. 1191. The power to rescind obligation 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
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 a 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.
Art. 1192. In case both parties have
committed breach of obligation, the liability
of the first infractor shall be equitably
tempered by the courts. If it cannot be
determined which of the parties first
violated the contract, the same shall be
extinguished and each shall bear his own
damages.
• The remedy is alternative. Party seeking
rescission can only elect one between fulfillment
and rescission. There can be no partial
performance and partial rescission.
• Only applies to reciprocal obligations, where
there is “reciprocity” between the parties i.e.
creditor debtor relations arise from the same cause
or “identity of cause”
• Reciprocal obligations have a “TACIT
RESOLUTORY CONDITION.”
• Power to rescind:
o Pertains to the injured party, party who did not
perform not entitled to insist upon the performance
of the contract by the defendant or recover
damages by reason of his own breach
 Rights of injured party subordinated to the
rights of a 3rd person to whom bad faith is
not imputable
o Not absolute, not permitted in casual/slight
breach, may only be claimed in substantial breach
, (Song Fo v. Hawaiian Philippines)
o Rescission requires judicial approval to produce
legal effect
 EXCEPTION: object is not yet delivered
AND obligation has not yet been
performed
 If the obligation has not yet been
performed: extrajudicial declaration of
party willing to perform would suffice; can
refuse to perform if the other party is not
yet ready to comply
 If the injured party has already performed:
cannot extrajudicially rescind IF the other
party opposes the rescission (otherwise,
rescission produces legal effect). In the
case the other party impugns rescission,
the court comes in either to:
a. Declare the rescission as properly made
b. Give a period to the debtor in which to
perform
EFFECTS OF RESCISSION:
1. Extinguishes obligatory relation as if it had
never been created, extinction has a
retroactive effect. Equivalent to invalidate the
juridical tie, leaving things in their status before
the celebration of the contract
2. Mutual restitution
• EXPRESS RESOLUTORY CONDITION:
automatic resolution if one of the parties does not
comply with his obligation. Often found in
insurance contracts. Its nature is a “facultative
resolutory condition” (Taylor v. Uy Tieng)
IV. SUBSIDIARY REMEDIES OF
CREDITOR
CASE
METROPOLITAN BANK AND TRUST
COMPANY V. INTERNATIONAL
EXCHANGE BANK
G.R. NO. 176008, AUGUST 10, 2011

FACTS:
Sacramento Steel Corporation (SSC) is a Steel
manufacturing and producing corporation. SSC
entered into a Credit Agreement with International
Exchange Bank (IEB) and as security for its loan
obligations, the former executed five separate
deeds of chattel mortgage. SSC defaulted in the
payment of its obligations, where subsequently,
IEB filed a petition for extrajudicial foreclosure of
chattel mortgage. Meanwhile, while the case were
still pending between SSC and IEB, petitioner
METROBANK filed a motion contending that it has
legal interest in the properties subject of the
litigation between IEB and SSC because it is a
creditor of SSC and that the mortgage contracts
between IEB and SSC were entered into to defraud
the latter’s creditors. Metrobank prayed for the
rescission of the chattel mortgages executed by
SSC in favor of IEB.
ISSUE: Whether or not the chattel mortgages
executed by SSC in favor of IEB may be rescinded.
RULING: No.
It is thus apparent that an action to rescind, or an
accion pauliana, must be of last resort. Without
availing of the first and second remedies,
Metrobank simply undertook the third measure
and filed an action for annulment of the chattel
mortgages. Rescission can only be availed of in the
absence of any other legal remedy to obtain
reparation for the injury. This fact is not present in
this case. No evidence was presented nor even an
allegation was offered to show that Metrobank had
availed of the abovementioned remedies before it
tried to question the validity of the contracts of
chattel mortgage between IEB and SSC.
The following successive measures must be taken
by a creditor before he may bring an action for
rescission of an allegedly fraudulent contract:
(1) exhaust the properties of the debtor through
levying by attachment and execution upon all the
property of the debtor, except such as are exempt
by law from execution;
(2) exercise all the rights and actions of the
debtor, save those personal to him (accion
subrogatoria); and
(3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion
pauliana).
It is thus apparent that an action to rescind, or
an accion pauliana, must be of last resort, availed
of only after the creditor has exhausted all the
properties of the debtor not exempt from
execution or after all other legal remedies have
been exhausted and have been proven futile.
A. Accion Subrogatoria (action for
collection)
Art. 1177. The creditors, after having
pursued the property in possession of the
debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the
latter for the same purpose, save those
which are inherent in his person; they may
also impugn the acts which the debtor may
have done to defraud them.
1. CONCEPT: action which the creditor may
exercise in the place of his negligent debtor in
order to preserve or recover for the patrimony of
the debtor the product of such action, and then
obtain therefrom the satisfaction of his own credit
• Double function:
1. conserve patrimony of debtor and
2. make execution on such property effective
thereafter
• Rights of creditors:
1. To levy by attachment and execution upon all
the property of the debtor, except such as are
exempt by law from execution
2. To exercise all the rights and actions of the
debtor, except such as are inherently personal to
him
3. To ask for the rescission of the contracts made
by the debtor in defraud of their rights
• Property of the debtor is subject to liability for his
obligations (Art 2236); the liability of the property is
the legal guaranty in favor of creditors and, hence,
debtors cannot maliciously reduce such guaranty
(NOTE: there are properties exempt from
execution)
• Previous approval of court is not necessary in
exercising the accion subrogatoria
• Defenses: debtor sued may set up against the
plaintiff the same defenses he could set up against
his own creditor
• Extent: plaintiff is entitled only to so much as is
needed to satisfy his credit; any balance shall
pertain to the debtor

• Remedies available to the debtor for the
satisfaction of their claims (de Leon):
1. Specific performance with the right to damages
2. Pursue the leviable property of the debtor
3. Accion subrogatoria
4. Accion pauliana,
2. REQUISITES
1. The creditor has an interest in the right or action
not only because of his credit but because of the
insolvency of the debtor
2. Malicious or negligent inaction of the debtor in
the
exercise of his right or action of such seriousness
as to endanger the claim of the creditor
3. The credit of the debtor against a third person is
certain, demandable and liquidated
4. The debtor’s right against the third person must
be patrimonial, or susceptible of being transformed
to patrimonial value for the benefit of the creditor
• Not essential that the creditor’s claim be prior to
the acquisition of the right by the debtor
3. EXCEPTIONS – INHERENT RIGHTS OF A
DEBTOR
• Rights of the debtor which cannot be exercised
by the creditor:
1. Right to existence (exempts from the reach of
creditors whatever he may be receiving as
support)
2. Right or relation of a public character
3. Rights of an honorary character
4. Rights consisting of powers which have not
been used
a. Power to administer
b. Power to carry out an agency or deposit
c. Power to accept an order for a contract
5. Non-patrimonial rights (e.g., rights arising from
family relations)
6. Patrimonial rights not subject to execution (e.g.,
right to a government gratuity or pension)
7. Patrimonial rights inherent in the person of the
debtor (e.g., right to revoke a donation by reason
of ingratitude, and the right to demand the
exclusion of an unworthy heir)
Art. 772. Only those who at the time of the
donor's death have a right to the legitime
and their heirs and successors in interest
may ask for the reduction or inofficious
donations.
Those referred to in the preceding
paragraph cannot renounce their right
during the lifetime of the donor, either by
express declaration, or by consenting to the
donation.
The donees, devisees and legatees, who are
not entitled to the legitime and the creditors
of the deceased can neither ask for the
reduction nor avail themselves thereof.
B. Accion Pauliana
ARTICLE 1177. The creditors, after having
pursued the property in possession of the
debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the
latter for the same purpose, save those
which are inherent in his person; they may
also impugn the acts which the debtor may
have done to defraud them. (1111)
Art. 1381, Par. 3. The following contracts are
rescissible:
(3) Those undertaken in fraud of creditors
when the latter cannot in any other manner
collect the claims due them
1. CONCEPT: action to revoke or rescind acts
which the debtor may have done to defraud the
creditor
• Regulated by Arts 1380 to 1389
• Can revoke all acts of the debtor which
reduces his patrimony in fraud of his creditors,
whether by gratuitous or onerous title (e.g.,
alienations of property, payment of debts
which are not due, renunciation of rights;
assignments of credit, remission of debts)
• Payments of pre-existing obligations already
due, whether natural or civil, cannot be
impugned by an accion pauliana
a. Distinction between accion pauliana and insurer, American Home, paid the amount of
accion subrogatoria P354,000.00.
4. American Home instituted a Civil Case to
ACCION ACCION PAULIANA
SUBROGATORIA recover the money paid to the consignee,
Not essential that Credit must exist based on breach of contract of carriage.
credit is prior to the before fraudulent act
5. While the case was still pending, on December
acquisition of debtor’s
right 20, 1989, Cheng executed deeds of donations
Intent to defraud If contracts rescinded of parcels of land in favour of his children.
creditors is not is onerous, there must (The same deed was registered on December
required be fraudulent intent 27, 1989)
No period of Action prescribes
6. The trial court rendered judgement against
prescription within 4 years of the
discovery of the fraud Cheng on December 29, 1993, four years after
the donations were made and the TCTs were
registered in the donees names.
2. REQUISITES 7. A writ of execution was issued; however, it
1. Plaintiff asking for rescission has a credit prior to was not served. An alias writ of execution was,
the alienation, although demandable later thereafter, applied for and granted. Despite
earnest efforts, the sheriff found no property
2. Debtor has made a subsequent contract
conveying a patrimonial benefit to a third person under the name of Butuan Shipping Lines
and/or Cheng to levy or garnish the
3. Creditor has no clear legal remedy to satisfy his satisfaction of the trial court’s decision.
claim, but would benefit by the rescission of the
conveyance to the third person 8. On January 17, 1997, the sheriff, accompanied
by counsel of respondent Philam, went to
4. Act being impugned is fraudulent
Butuan City to enforce the alias writ of
• Presumption of fraud may be found in Art 1387 execution, they discovered that petitioner
(gratuitous transfer without leaving sufficient Cheng no longer had any property and he had
funds for obligations OR gratuitous transfers by conveyed the subject properties to his
a judgment debtor) children.
5. Third person who received the property 9. Philam filed a complaint for the rescission of
conveyed, if it is by onerous title, has been an the deeds of donation executed by Cheng in
accomplice in the fraud favour of his children and for the nullification
of their titles.

ISSUE:
CASE Whether or not the action to rescind the subject
deeds of donations already prescribed.

KHE HONG CHENG VS. CA
355 SCRA 701 (2001)
FACTS:
1. The Philippine Agricultural Trading Corporation
shipped on board the vessel M/V PRINCE
ERIC, owned by Khe Hong Cheng (petitioner,
Cheng for brevity), 3,400 bags of copra at
Masbate, for delivery to Zamboanga del Norte.
2. The shipment of copra was covered by a
marine insurance policy issued by American
Home Insurance Company (respondent
Philam’s assured).
3. M/V/ PRINCE ERIC, sank, resulting in the total
loss of the shipment. Because of the loss, the
RULING:
No. An accion pauliana accrues only when the
creditor discovers that he has no other legal
remedy for the satisfaction of his claim against the
debtor other than an accion pauliana. The accion
pauliana is an action of a last resort.
Respondent Philam only learned about the
unlawful conveyances made by petitioner Cheng in
January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of
Cheng. There they found that he no longer had
any properties in his name. it was only then that
respondent Philam’s action for rescission of the
deeds of donation accrued because then it could
be said that respondent Philam had exhausted all
legal means to satisfy the trial court’s judgement
in its favour.

Since respondent Philam filed its complain for
accion pauliana against Cheng on February 25,
1997, barely a month from its discovery that
Cheng had no property to satisfy the judgement
award against him, its action for rescission of the
subject deeds clearly had not yet prescribed.
Note / Doctrine:
 (New Civil Code) Article 1383. An action
for rescission is subsidiary; it cannot be
instituted except when the party suffering
damage has no other legal means to obtain
reparation for the same.
 Requisites of accion pauliana
1. Plaintiff asking for rescission has a credit prior
to the alienation, although demandable later.
2. Debtor has made a subsequent contract
conveying a patrimonial benefit to a third
persons.
3. Creditor has no other legal remedy to satisfy
his claim, but would benefit by rescission of
the conveyance to the person.
4. Act being impugned is fraudulent.
5. The third parsons who received the property
conveyed, if by onerous title, has been an
accomplice in the fraud.
 Accion pauliana presupposes the
following:
1. A judgment;
2. Issuance by the trial court of a writ of
execution for the satisfaction of the
judgement; and
3. The failure of the sheriff to enforce and satisfy
the judgement of the court.
4. It requires that the creditor has exhausted the
property of the debtor.
 Successive measures must be taken by a
creditor
1. Exhaust the properties of the debtor through
levying by attachment and execution upon all
the property of the debtor; except such as are
exempt from execution;
2. Exercise all the rights and actions of the
debtor, save those personal to him (accion
subrogatoria);
3. Seek rescission of the contracts executed by
the debtor in fraud of their rights (accion
pauliana).
C. Other Specific Remedies (accion
directa)
Art. 1652. The sublessee is subsidiarily liable
to the lessor for any rent due from the
lessee. However, the sublessee shall not be
responsible beyond the amount of rent due
from him, in accordance with the terms of
the sublease, at the time of the extra-
judicial demand by the lessor.
Payments of rent in advance by the
sublessee shall be deemed not to have been
made, so far as the lessor's claim is
concerned, unless said payments were
effected in virtue of the custom of the place.
Art. 1729. Those who put their labor upon or
furnish materials for a piece of work
undertaken by the contractor have an action
against the owner up to the amount owing
from the latter to the contractor
at the time the claim is made. However, the
following shall not prejudice the laborers,
employees and furnishers of materials:
1) Payments made by the owner to the
contractor before they are due;
2) Renunciation by the contractor of any
amount due him from the owner.
This article is subject to the provisions of
special laws.
Art. 1608. The vendor may bring his action
against every possessor whose right is
derived from the vendee, even if in the
second contract no mention should have
been made of the Mortgage Law and the
Land Registration Law with respect to third
persons.
Art. 1893. In the cases mentioned in Nos. 1
and 2 of the preceding article, the principal
may furthermore bring an action against the
substitute with respect to the obligations
which the latter has contracted under the
substitution.

V. EXTINGUISHMENT OF
LIABILITY IN CASE OF BREACH
DUE TO FORTUITOUS EVENT
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.
A. Concept of Fortuitous Event
FOIRTUITIOUS EVENT – an unexpected event or
act of God which could neither be foreseen nor
resisted (Escriche).
• Essential element: some extraordinary
circumstance independent of the will of the obligor,
or of his employees
1. ACT OF GOD – by nature, e.g. earthquakes,
storms, floods, epidemics, fires
2. ACT OF MAN – by acts of man, e.g. armed
invasion, attack by bandits, governmental
prohibitions, robbery
• In order that acts of man may constitute fortuitous
event, it is necessary that they have the force of an
imposition which the debtor could not have
resisted
FORTUITOUS EVENT:
• Includes unavoidable accidents, even if there has
been an intervention of human element, provided
fault or negligence cannot be imputed to the
debtor.
• Force majeure and fortuitous event are not
identical. Force majeure refers to “acts of god”
while fortuitous event refers to “acts of man”.
However, for purposes of exempting an obligor
from liability, they are similar in our jurisdiction. (de
Leon)
• Two kinds of fortuitous event in contract of
lease as distinguished in CC (de Leon):
1. Ordinary fortuitous events – those which are
common and which the contracting parties can
reasonably foresee (e.g., rain)
2. Extraordinary fortuitous events – those which
are uncommon and which the parties could not
have reasonably foreseen (e.g., earthquake, fire,
war)
B. Requisites
Characteristics of fortuitous events:
1. The cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply
with his obligations, must be independent of the
human ill
2. It must be impossible to foresee the event which
constitute the caso fortuito (ordinary), or if it can be
foreseen, it must be impossible to avoid
(extraordinary)
3. The occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a
normal manner
4. The obligor must be free from any participation
in the aggravation of the injury resulting to the
creditor (no concurrent negligence)
1. EFFECT OF CONCURRENT FAULT
• 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.
• If he creates a dangerous condition or negligence
although the act of god was the immediate cause,
he cannot escape liability for the natural and
probable consequence thereof.
• There must be no fraud, negligence, delay or
violation/contravention in any manner of the tenor
of the obligation.
• When the effect is found to be partly resulting
from the participation of man, whether due to his
active intervention or neglect or failure to act, the
whole occurrence is then humanized and removed
from the rules applicable to the acts of God (NPC
v. CA – the case of Welming and the exploding
dam)
CASES
JUAN NAKPIL & SONS VS CA
144 SCRA 597 (1986)
FACTS:
Private respondents – Philippine Bar Association
(PBA) – a non-profit organization formed under
the corporation law decided to put up a building in
Intramuros, Manila. Hired to plan the specifications
of the building were Juan Nakpil & Sons, while
United Construction was hired to construct it. The
proposal was approved by the Board of Directors
and signed by the President, Ramon Ozaeta. The
building was completed in 1966. In 1968, there
was an unusually strong earthquake which caused
the building heavy damage, which led the building
to tilt forward, leading the tenants to vacate the
premises. United Construction took remedial
measures to sustain the building. PBA filed a suit
for damages against United Construction, but
United Construction subsequently filed a suit
against Nakpil and Sons, alleging defects in the
plans and specifications. Technical Issues in the
case were referred to Mr. Hizon, as a court
appointed Commissioner. PBA moved for the
demolition of the building, but was opposed. PBA
eventually paid for the demolition after the
building suffered more damages in 1970 due to
previous earthquakes. The Commissioner found
that there were deviations in the specifications and
plans, as well as defects in the construction of the
building.
ISSUE:
Whether or not an act of God (fortuitous event)
exempts from liability parties who would otherwise
liable because of negligence.
RULING:
No.
Art. 1174 of the NCC, states that no person shall
be responsible for events, which could not be
foreseen. But to be exempt from liability due to an
act of God, the following must occur: 1) cause of
breach must be independent of the will of the
debtor 2) event must be unforeseeable or
unavoidable 3) event must be such that it would
render it impossible for the debtor to fulfill the
obligation 4) debtor must be free from any
participation or aggravation of the industry to the
creditor. Although the general rule for fortuitous
events stated in Article 1174 of the Civil Code
exempts liability when there is an Act of God, thus
if in the concurrence of such event there be fraud,
negligence, delay in the performance of the
obligation, the obligor cannot escape liability
therefore there can be an action for recovery of
damages. The negligence of the defendant was
shown when and proved that there was an
alteration of the plans and specification that had
been so stipulated among them.
Therefore, there should be no question that Nakpil
and united are liable for damages because of the
collapse of the building. 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.
REPUBLIC VS LUZON STEVEDORING CO.
21 SCRA 279 (1967)
FACTS:
- In the early afternoon of August 17, 1960, barge
L-1892, owned by Luzon Stevedoring Corporation
was being towed down the Pasig river by tugboats
“Bangus” and “Barbero” also belonging to the
same corporation, when the barge rammed
against one of the wooden piles of the Nagtahan
bailey bridge, smashing the posts and causing the
bridge to list. The river, at that time, was swollen
and the current swift, on account of the heavy
downpour of Manila and the surrounding provinces
on August 15 and 16, 1960.
- Republic of the Philippines sued for actual and
consequential damage caused by the said
company’s employees amounting to 200,000.
Defendant company
disclaimed liability on the grounds that it was
brought about by force majeure as they exercised
due diligence in the selection and supervision of its
employees and that the Nagtahan Bailey Bridge is
an obstruction to navigation. Defendant claims
that got the strongest tugboats, and the more
competent and experienced among its patrons.
- Trial court found said company liable. It filed
before the Supreme Court.
ISSUE:
Whether or not the collision of appellant’s barge
with the supports or piers of the Nagtahan bridge
was in law caused by fortuitous event or force
majeure.
HELD:
No. For caso fortuito or force majeure (which in
law are identical in so far as they exempt an
obligor from liability) by definition, are
extraordinary events not foreseeable or avoidable,
“events that could not be foreseen, or which,
though foreseen, were inevitable” (Art. 1174,CC).
It is not therefore enough that the event should
not have 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. The very
measures adopted by said company prove that the
possibility of danger was not only foreseeable. But
actually foreseen, and was not caso foruito.
Luzon Stevedoring Corporation, knowing and
appreciating the perils posed by the swollen
stream and its swift current, voluntarily entered
into a situation involving obvious danger. The
appellant company, whose barges and tugs travel
up and down the river everyday, could not safely
ignore the danger posed by these allegedly
improper constructions that had been erected and,
in place, for years.
DIOQUINO VS. LAUREANO
33 SCRA 527 (1971)
FACTS
Atty. Dioquino met patrol officer Federico Laureano
in the MVO office in Masbate to register his car.
Laureano helped Dioquino in the facilitation of the
registration of his car. Thereby, Atty. Dioquino lent
Laureano his car on a commodatum basis .
Defendant was the sole passenger, aside from
plaintiff’s driver, when the car was stoned by some
“mischievous boys,” as a result, breaking the
windshield.
ISSUE
Whether or not Laureano should be liable for
damages sustained by Dioquino’s car
HELD:
No. Laureano has no obligation to pay for the
damages sustained due to throwing of stones that
broke the windshield. The extraordinary
circumstance independent of his will as obligor
exempts him of the same by reason of force
majeure or caso fortuito; There is no requirement
of diligence beyond what human care and
foresight can provide.
Reasoning
Art. 1174 of the Civil Code provides:
General Rule: No person shall be responsible for
those events which could not be, foreseen, or
which, though foreseen were inevitable.
Obiter
Exception: 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
- What is contemplated in the exception is
resulting liability even if caused by a fortuitous
event where the party charged may be considered
as having assumed the risk incident in the nature
of the obligation to be performed.
- Force Majeure or Caso Fortuito are extraordinary
events not foreseeable or unavoidable (events that
though foreseen, are inevitable)
- Republic v. Luzon Stevedoring Corp – The mere
difficulty to foresee the happening is not
impossibility to foresee the same. The very
precautions adopted by appellant prove that the
possibility of danger was not only foreseeable, but
actually foreseen, and was not caso fortuito." In
that case then, the risk was quite evident and the
nature of the obligation such that a party could
rightfully be deemed as having assumed it.
AUSTRIA VS. CA
39 SCRA 527 (1971)
FACTS: Abad acknowledged having received from
Austria 1 pendant with diamonds to be sold on
commission basis or to be returned on demand.
While walking home to her residence, Abad was
said to have been accosted by two men and
snatched her purse containing money and the
consigned pendant. As Abad failed to return the
jewelry or pay for its value notwithstanding
demands, Austria brought an action against her
and her husband for recovery of the pendant or of
its value and damages. Defendant spouses
contended that the alleged robbery had
extinguished their obligation. While Austria opined
that the occurrence of the robbery should be
proved by a final judgment of conviction in the
criminal case for robbery to fall under the category
of fortuitous event.
ISSUE: Whether or not in a contract of agency
(consignment of goods for sale), it is necessary
that there be prior conviction for robbery before
the loss of the article shall exempt the consignee
from liability for such loss
RULING: NO.
To constitute a caso fortuito that would exempt a
person from responsibility, it is necessary that:
(1) the event must be independent of the human
will (or rather, of the debtor's or obligor's);
(2) the occurrence must render it impossible for
the debtor to fulfill the obligation, in a normal
manner; and
(3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.
A fortuitous event, therefore, can be produced by
nature, e.g., earthquakes, storms, floods, etc., or
by the act of man, such as war, attack by bandits,
robbery, etc., provided that the event has all the
characteristics enumerated above. It is not here
disputed that if respondent Maria Abad were
indeed the victim of robbery, and if it were really
true that the pendant, which she was obliged
either to sell on commission or to return to
petitioner, were taken during the robbery, then the
occurrence of that fortuitous event would have
extinguished her liability.
It is not necessary that the persons responsible for
the occurrence should be found or punished; it
would only be sufficient to establish that the
enforceable event, the robbery in this case, did
take place without any concurrent fault on the
debtor's part, and this can be done by
preponderant evidence.
However, to completely exonerate the debtor for
reason of a fortuitous event, such debtor must, in
addition to the casus itself, be free of any
concurrent or contributory fault or negligence.
ITCAB, considering the circumstances in City of
Manila and its suburbs, with their high incidence of
crimes against persons and property, that renders
travel after nightfall a matter to be sedulously
avoided without suitable precaution and
protection, the conduct of Abad, in returning alone
to her house in the evening, carrying jewelry of
considerable value, would be negligent per se, and
would not exempt her from responsibility in the
case of a robbery.
NPC VS. CA
161 SCRA 334 (1988)
Facts:
ECI entered into a contract with NAWASA to
undertake a construction of a tunnel from Ipo Dam
to Bicti including all materials, equipment and
labor for the said construction for 800 days.
The project involved 2 phases. The first involves
tunnel works and the second consists of outworks
at both ends of the tunnel. As soon as ECI finished
the tunnel works in Bicti, it transferred all its
equipments to Ipo Dam to finish the second phase
of the project.
The record shows that on November 4,1967,
typhoon ‘Welming’ hit Central Luzon, passing
through defendant’s (NPC) 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.”
ECI sued NPC for damages.
The trial court and the court of appeals found that
defendant NPC was negligent when opened the
gates only at the height of the typhoon holding
that it could have opened the spill gates gradually
and should have done so before the ‘typhoon’
came. Thus both courts awarded ECI for damages.
NPC assails the decision of the CA as being
erroneous on the grounds, inter alia, that the loss
sustained by ECI was due to force majeure. It
argued that the rapid rise of water level in the
reservoir due to heavy rains brought about by the
typhoon is an extraordinary occurrence that could
not have been foreseen. On the other hand, ECI
assails the decision of the court of appeals
modifying the decision of the trial court eliminating
the awarding of exemplary damages. Hence this
present appeal.
Issue: Whether or not NPC is liable for damages
even though the cause of the damage is due to a
force majeure.
Held:
Yes. NPC was undoubtedly negligent because it
opened the spillway gates of the Angat Dam
only at the height of typhoon “Welming”
when it knew very well that it was safer to
have opened the same gradually and earlier,
as it was also undeniable that NPC knew of the
coming typhoon at least four days before it
actually struck. And even though the typhoon
was an act of God or what we may call force
majeure, NPC cannot escape liability because its
negligence was the proximate cause of the loss
and damage.
As the court ruled in Juan F. Nakpil & Sons v. Court
of Appeals, (144 SCRA 596, 606-607): Thus, if
upon the happening of a fortuitous event or an act
of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in
any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor
cannot escape liability. The principle embodied
in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the
violence of nature and human agencies are to be
excluded from creating or entering into the cause
of the mischief.
When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active
intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it was, and
removed from the rules applicable to the acts of
God. (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 the loss or damage
may have been occasioned. (Fish & Elective
Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49
O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith,
45 Phil. 657).
YOBIDO VS. CA
281 SCRA 1 (1997)
FACTS:
1. On April 26, 1988, spouses Tito and Leny
Tumboy and their minor children named Ardee and
Jasmin, boarded at Mangagoy, Surigao del Sur, a
Yobido Liner bus bound for Davao City.
2. Along Picop Road in Km. 17, Sta. Maria, Agusan
del Sur, the left front tire of the bus exploded. The
bus fell into a ravine around three (3) feet from
the road and struck a tree. The incident
resulted in the death of 28-year-old Tito
Tumboy and physical injuries to other
passengers.
3. On November 21, 1988, a complaint for breach
of contract of carriage, damages and attorney’s
fees was filed by Leny and her children against
Alberta Yobido, the owner of the bus, and
Cresencio Yobido, its driver, before the Regional
Trial Court of Davao City.
4. At the pre-trial conference, the parties agreed
to a stipulation of facts. No amicable settlement
having been arrived at by the parties, trial on the
merits ensued.
5. On August 29, 1991, the lower court rendered a
decision dismissing the action for lack of merit. On
the issue of whether or not the tire blowout was a
caso fortuito, it found that “the falling of the bus
to the cliff was a result of no other outside factor
than the tire blowout.”
6. Dissatisfied, the plaintiffs appealed to the Court
of Appeals. They ascribed to the lower court the
following errors: (a) finding that the tire blowout
was a caso fortuito; (b) failing to hold that the
defendants did not exercise utmost and/or
extraordinary diligence required of carriers under
Article 1755 of the Civil Code, and (c) deciding the
case contrary to the ruling in Juntilla v. Fontanar,
and Necesito v. Paras.
7. On August 23, 1993, the Court of Appeals
rendered the Decision reversing that of the lower
court.
8. The defendants filed a motion for
reconsideration of said decision which was denied
on November 4, 1993 by the Court of Appeals.
9. Hence, the instant petition and pray that this
Court review the facts of the case.
ISSUE:
Whether or not the explosion of a newly installed
tire of a passenger vehicle is a fortuitous event
that exempts the carrier from liability for the death
of a passenger?
HELD:
NO. As a rule, when a passenger boards a
common carrier, he takes the risks incidental to the
mode of travel he has taken. After all, a carrier is
not an insurer of the safety of its passengers and
is not bound absolutely and at all events to carry
them safely and without injury.
However, when a passengers is injured or dies
while travelling, the law presumes that the
common carrier is negligent. Thus, the Civil Code
provides: “Art. 1756. In case of death or injuries to
passengers, common carriers are presumed to
have been at fault or to have acted negligently,
unless they prove that they observed extraordinary
diligence as prescribed in Articles 1733 and 1755.”
In view of the foregoing, petitioners’ contention
that they should be exempt from liability because
the tire blowout was no more than a fortuitous
event that could not have been foreseen, must fail.
A fortuitous event is possessed of the following
characteristics:
(a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to
comply with his obligations, must be
independent of human will;
(b) it must be impossible to foresee the event
which constitutes the caso fortuito, or if it can
be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation
in a normal manner; and
(d) the obligor must be free from any
participation in the aggravation of the injury
resulting to the creditor.
As Article 1174 provides, no person shall be
responsible for a fortuitous event which
could not be foreseen, or which, though
foreseen, was inevitable. In other words, there
must be an entire exclusion of human agency from
the cause of injury or loss.
Under the circumstances of this case, the
explosion of the new tire may not be
considered a fortuitous event. There are
human factors involved in the situation. The fact
that the tire was new did not imply that it was
entirely free from manufacturing defects or that it
was properly mounted on the vehicle. Neither may
the fact that the tire bought and used in the
vehicle is of a brand name noted for quality,
resulting in the conclusion that it could not
explode within five days’ use. Be that as it may, it
is settled that an accident caused either by defects
in the automobile or through the negligence of its
driver is not a caso fortuito that would exempt the
carrier from liability for damages.
B. EXTINGUISHMENT OF LIABILITY;
EXCEPTIONS
ARTICLE 1174. Except in cases expressly
specified by the law, or when it is otherwise
declared by stipulation, or when the nature
of the obligation requires the assumption of
risk, no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.
(1105a)
• General rule: debtor cannot be held liable for
damages for non-performance if he is unable to
fulfill his obligation because of fortuitous event
• Specific application:
o Non performance
o Delay
o Loss and deterioration of a specific,thing
o Art 1189 Loss without the fault of debtor in
suspensive condition
o Art 1190 Loss without the fault of debtor in
resolutory condition
o Art 1194 Loss without the fault of the debtor
in suspensive period
o Art 1204 Loss of all alternative prestations
o Art 1205 In alternative obligations, in case of
loss of one alternative, creditor chooses from
remainder
EXCEPTIONS:
Art. 1165, Par. 3. If the obligor delays, or
has promised to deliver the same thing to
two or more persons who do not have the
same interest, he shall be responsible for
any fortuitous event until he has effected
the delivery.
Art 552. A possessor in good faith shall not
be liable for the deterioration or loss of the
thing possessed, except in cases in which it
is proved that he has acted with fraudulent
intent or negligence, after the judicial
summons.
A possessor in bad faith shall be liable for
deterioration or loss
in every case, even if caused by a fortuitous
event.
Art 1942. The bailee is liable for the loss of
the thing, even if it should be through a
fortuitous event:
1) If he devotes the thing to any purpose
different from that for which it has been
loaned;
2) If he keeps it longer than the period
stipulated, or after the accomplishment of
the use for which the commodatum has
been constituted;
3) If the thing loaned has been delivered
with appraisal of its value, unless there is a
stipulation exempting the bailee from
responsibility in case of a fortuitous event;
4) If he lends or leases the thing to a third
person, who is not a member of his
household;
5) If, being able to save either the thing
borrowed or his own thing, he chose to save
the latter.
Art. 1979. The depositary is liable for the
loss of the thing through a fortuitous event:
1) If it is so stipulated;
2) If he uses the thing without the
depositor's permission;
3) If he delays its return;
4) If he allows others to use it, even though
he himself may have been authorized to use
the same.
Art 2001. The act of a thief or robber, who
has entered the hotel is not deemed force
majeure, unless it is done with the use of
arms or through an irresistible force.
Art 2147. The officious manager shall be
liable for any fortuitous event:
1) If he undertakes risky operations which
the owner was not accustomed to embark
upon;
2) If he has preferred his own interest to
that of the owner;
3) If he fails to return the property or
business after demand by the owner;
4) If he assumed the management in bad
faith.
ARTICLE 1268. When the debt of a thing
certain and determinate proceeds from a
criminal offense, the debtor shall not be
exempted from the payment of its price,
whatever may be the cause for the loss,
unless the thing having been offered by him
to the person who should receive it, the
latter refused without justification to accept
it. (1185)
VI. USURIOUS TRANSACTIONS
Art. 1175. Usurious transactions shall be
governed by special laws.
Usury  is contracting for or receiving interest in
excess of the amount allowed by law for the loan
or use of money, goods, chattels, or credits.
Simple loan or mutuum  is a contract whereby
one of the parties delivers to another money or
other consumable thing, upon the condition that
the same amount of the same kind and quality
shall be paid. It may be gratuitous or with a
stipulation to pay interest.
• Interest – income produced by money in relation
to its amount and to the time that it cannot be
utilized by its owner; may either be moratory or
compensatory
o Moratory – those paid in contractual
obligations to pay a sum of money, either as the
price for the use of the money, or as the
stipulated advanced determination of the
 damages due to the delay in fulfillment of the
obligation.
o Compensatory – those which have an extra-
contractual or delictual origin
• Kinds of interest (de Leon):
1. Simple interest – when the rate is stipulated by
the parties (Art 2209)
2. Compound interest – when the earned is upon
interest due (Arts 2212, 1959)
3. Legal interest – when the rate of interest
intended by the parties is presumed by law, as
when the loan mentions interest but does not
specify the rate thereof (Art 2209)
4. Lawful interest – when the rate of interest is
within the maximum allowed by Usury Law
5. Unlawful interest – when the rate of interest is
beyond the maximum fixed by law
Art. 1413. Interest paid in excess of the
interest allowed by the usury laws may be
recovered by the debtor, with interest
thereon from the date of the payment.
Art. 1961. Usurious contracts shall be
governed by the Usury Law and other
special laws, so far as they are not
inconsistent with this Code.
A. PD 858; PD 1685
PD 858 (1975) – Amending Further Act
Numbered 2655, As Amended, Otherwise
Known as the “Usury Law”
Sec 1 (amending Sec 1a of Act 2655) – The
Monetary Board is hereby authorized to prescribe
the maximum rate or rates of interest for the loan
or renewal thereof or the forbearance of any
money, goods or credits, and to change such rate
of rates whenever warranted by prevailing
economic and social conditions.
In the exercise of the authority herein granted, the
Monetary Board may prescribe higher maximum
rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans
made by pawnshops, finance companies and other
similar credit institutions although the rates
prescribed for these institutions need not
necessarily be uniform. The Monetary Board is
also authorized to prescribe different maximum
rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans
of financial intermediaries.
Sec 2 (amending Sec 4[a of Act 2655) – The
Monetary Board may eliminate, exempt from, or
suspend the effectivity of, interest rate ceilings on
certain types of loans or renewals thereof or
forbearances of money, goods, or credit, whenever
warranted by prevailing economic and social
conditions.
PD 1685 (1980) – Amending PD 1309
Authorizing the Central Bank of the Philippines
to Engage in Special Borrowing and Lending
Operations
Sec 4 – The Monetary Board shall establish
safeguards as it may deem proper to prevent
undue inflationary effect of the lending operations
of the Central Bank and shall issue such rules and
regulations as may be necessary to implement this
Decree and to insure a rational and coordinated
approach to the international capital markets.
B. Central Bank Circular 416
• Amends the provisions of the Manual of
Regulation for Banks
1. Subsection X116.2 is amended to reflect (1) the
reduction in the risk weight of multilateral
development banks from 20 to 0 ; and (2) to
remove loans to exporters to the extent
guaranteed by the Guarantee Fund for Small and
Medium Enterprises
(GFSME) from the list of 0 risk weighted assets, as
follows:
“,x x x
0 ,risk,weight,–
1) Cash on hand;
2) Claims on or portions of claims guaranteed by
or collateralized by securities issued by –
i. Philippine national government and BSP; and
ii. Central governments and central banks of
foreign countries with the highest credit quality as
defined in Subsec. X116.3;
3) Claims on or portions of claims guaranteed by
or
collateralized by securities issued by multilateral 7) Claims on Philippine incorporated banks, which
development banks; claims obtain and maintain credit ratings of at least
equal to that of the Philippine national government
4) Loans to the extent covered by hold-out on, or
from a BSP recognized international credit rating
assignment of deposits/deposit substitutes
agency;
maintained with the lending bank;
x,,x,,x.”
5) Loans or acceptances under letters of credit to
the extent covered by margin deposits;
2. Subsection X116.3 is amended to expand the
6) Portions of special time deposit loans covered list of multilateral development banks assigned a
by Industrial Guarantee and Loan Fund (IGLF) zero percent risk weight, as follows:
guarantee; “x,,x,,x
Multilateral development banks.
7) Real estate mortgage loans to the extent
These refer to the World Bank Group comprised of
guaranteed by the Home Guaranty Corporation
the International Bank for Reconstruction and
(HGC);
Development (IBRD) and the International
8) Loans to the extent guaranteed by the Trade Finance Corporation (IFC), the Asian
and Investment Development Corporation of the Development Bank (ADB), the African
Philippines (TIDCORP); Development Bank (AfDB), the European Bank for
Reconstruction and Development (EBRD), the
9) Foreign currency notes and coins on hand
Inter-American Development Bank (IADB), the
acceptable as international reserves; and
European Investment Bank (EIB); the Nordic
10) Gold bullion held either in own vaults, or in Investment Bank (NIB); the Caribbean
another’s vaults on an allocated basis, to the Development Bank (CDB), the Council of
extent it is offset by gold bullion liabilities; Europe Development Bank (CEDB) and such
others as may be recognized by the BSP. x x x”
20 ,risk,weight,–
1) Checks and other cash items;
2) Claims on or portions of claims guaranteed by C. Monetary Board Circular #905 lifting the
or collateralized by securities issued by non- Interest rate ceiling
central government public sector entities of foreign
countries with the highest credit quality as defined MB 905. Interest can now be charged as
in Subsec. X116.3;
lender and borrower may agree upon. It
3) Claims on or portions of claims guaranteed by shall not be subject to any ceiling prescribed
Philippine incorporated banks/quasi?banks with under or pursuant to the Usury Law as
the highest credit quality as defined in Subsec. amended.
X116.3;
4) Claims on or portions of claims guaranteed by
foreign incorporated banks with the highest credit Art. 2209. If the obligation consists in the
quality as defined in Subsec. X116.3; payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages,
5) Loans to exporters to the extent guaranteed by there being no stipulation to the contrary,
Small Business Guarantee and Finance shall be the payment of the interest agreed
Corporation (SBGFC):
upon, and in the absence of stipulation, the
legal interest, which is six per cent per
annum.
Provided, That loans to exporters to the extent
guaranteed by the Guarantee Fund for Small
1. TWO CONCEPTS ON PAYMENT OF
and Medium Enterprises (GFSME) outstanding
INTEREST
as of the date of the effectivity of the merger of
the SBGFC and the GFSME shall continue to
a. Interest for the use or loan or forbearance of
have a zero percent risk weight:
money, goods or credit
Provided, further, That the zero percent risk
weight shall not apply to loans renewed after
the merger of the SBGFC and the GFSME.
6) Foreign currency checks and other cash items
denominated in currencies acceptable as
international reserves; and

b. Interest as damages for breach or default in
payment of loan or forbearance of money,
goods, credit
c. If obligation not consisting of a loan or
forbearance of money, goods or credit is
breached, e.g. obligation to give, to do, not to
do
• Interest may be imposed at the discretion of court
at the rate of 6 per annum.
• No interest adjudged on unliquidated claims or
damages, until demand can be established with
reasonable certainty.
• After thus established with reasonable certainty,
interest of 6 per annum shall begin to run from the
date of judicial or extrajudicial demand.
• But if obligation cannot be established with
reasonable certainty at time of demand, 6 per
annum interest shall begin to run only from date of
judgment – on amount finally adjudged by court.
d. When judgment of court awarding money
becomes final and executory, money judgment
is A, B and C (above) shall earn 12 per annum
from finality of judgment until full payment –
money judgment shall be considered as
forbearance of credit (Eastern Shipping Lines
vs. CA, 1994)
CASES
EASTERN SHIPPING LINE VS. CA
234 SCRA 781 (1994)
FACTS:
Two fiber drums were shipped owned by Eastern
Shipping from Japan. The shipment is insured with
a marine policy. Upon arrival in Manila unto the
custody of metro Port Service, which excepted to
one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance
Company. Allied Brokerage Corporation received
the shipment from Metro, one drum opened and
without seal. Allied delivered the shipment to the
consignee’s warehouse. The latter accepted to one
drum which contained spillages while the rest of
the contents was adulterated/fake. As
consequence of the loss, the insurance company
paid the consignee, so that it became subrogated
to all the rights of action of consignee against the
defendants Eastern Shipping, Metro Port and Allied
Brokerage. The insurance company filed before the
trial court. The trial court ruled in favor of plaintiff
and ordered defendants to pay the former with
present legal interest of 12 per annum from the
date of the filing of the complaint. On appeal by
defendants, the appellate court denied the same
and affirmed in toto the decision of the trial court.
ISSUES:
Whether or not the applicable rate of legal interest
is 12 or 6 .
Whether or not the payment of legal interest on
the award for loss or damage is to be computed
from the time the complaint is filed from the date
the decision appealed from is rendered.
RULING:
The Court held that the legal interest is 6
computed from the decision of the court a quo.
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 shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with
reasonable certainty. When the judgment of the
court awarding a sum of money becomes final and
executory, the rate of legal interest shall be 12 per
annum from such finality until satisfaction, this
interim period being deemed to be by then an
equivalent to a forbearance of money.
The interest due shall be 12 PA to be computed
from default, judicial or extrajudicial demand.
From the date the judgment is made. Where the
demand is established with reasonable certainty,
the interest shall begin to run from the time the
claim is made judicially or extrajudicially 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 of judgment of the
court is made. 3) The Court held that it should be
computed from the decision rendered by the court
a quo.
SECURITY BANK AND TRUST CO. VS.
RTC OF MAKATI
(263 SCRA 483)
FACTS:
On various dates in 1983, private respondent
executed three promissory notes in favor of
petitioner. Each of these promissory notes
contained a provision where the parties agreed to
a stipulated interest of 23 per annum. Eventually,
private respondent failed to pay the obligation and
petitioner filed a case against him. The RTC ruled
in favor of petitioner but refused to allow an
interest rate above 12 per annum.
ISSUE: Whether or not the 23 rate of interest per
annum agreed upon by petitioner bank and
respondents is allowable and not against the Usury
Law.
RULING: Yes. The applicable provision of law is
Central Bank Circular No. 905 which took effect on
December 22, 1982, particularly Sections 1 and 2
— which state: "Sec. 1. 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 judicial, shall not be subject to any
ceiling prescribed under or pursuant to the Usury
Law, as amended. Sec. 2. The rate of interest for
the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the
absence of express contract as to such rate of
interest, shall continue to be twelve percent (12 )
per annum." This circular did not repeal nor in
anyway amend the Usury Law but simply
suspended the latter's effectivity. Here, the rate of
interest was agreed upon by the parties freely.
Significantly, respondent did not question that
rate. It is not for respondent court a quo to
change the stipulations in the contract where it is
not illegal. Furthermore, Article 1306 of the New
Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good
customs, public order, or public policy. We find no
valid reason for the respondent court a quo to
impose a 12 rate of interest on the principal
balance owing to petitioner by respondent in the
presence of a valid stipulation. In a loan or
forbearance of money, the interest due should be
that stipulated in writing, and in the absence
thereof, the rate shall be 12 per annum. Hence,
only in the absence of a stipulation can the court
impose the 12 rate of interest.
NACAR VS. GALLERY FRAMES
GR 189871, AUGUST 13, 2013
FACTS:
Dario Nacar filed a labor case against Gallery
Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by
Gallery Frames on January 24, 1997. On October
15, 1998, the Labor Arbiter (LA) found Gallery
Frames guilty of illegal dismissal hence the Arbiter
awarded Nacar P158,919.92 in damages consisting
of backwages and separation pay. Gallery Frames
appealed all the way to the Supreme Court (SC).
The Supreme Court affirmed the decision of the
Labor Arbiter and the decision became final on
May 27, 2002. After the finality of the SC decision,
Nacar filed a motion before the LA for
recomputation as he alleged that his backwages
should be computed from the time of his illegal
dismissal (January 24, 1997) until the finality of
the SC decision (May 27, 2002) with interest. The
LA denied the motion as he ruled that the
reckoning point of the computation should only be
from the time Nacar was illegally dismissed
(January 24, 1997) until the decision of the LA
(October 15, 1998). The LA reasoned that the said
date should be the reckoning point because Nacar
did not appeal hence as to him, that decision
became final and executory.
ISSUE: Whether or not a re-computation in the
course of execution of the labor arbiter's original
computation of the awards made is legally proper.

RULING: Yes. For backwages, it will be computed
from the date of illegal dismissal until the date of
the decision of the Labor Arbiter. But if the
employer appeals, then the end date shall be
extended until the day when the appellate court’s
decision shall become final. Hence, as a
consequence, the liability of the employer, if he
loses on appeal, will increase – this is just but a
risk that the employer cannot avoid when it
continued to seek recourses against the Labor
Arbiter’s decision. This is also in accordance with
Article 279 of the Labor Code.
Anent the issue of award of interest in the form of
actual or compensatory damages, the Supreme
Court ruled that the old case of Eastern Shipping
Lines vs CA is already modified by the
promulgation of the Bangko Sentral ng Pilipinas
Monetary Board Resolution No. 796 which lowered
the legal rate of interest from 12 to 6 .
Specifically, the rules on interest are now as
follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand
(filing of the case)
a.2. rate of interest shall be that amount
stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either
failure to pay upon extra-judicial demand or
upon judicial demand whichever is
appropriate and subject to the provisions of
Article 1169 of the Civil Code)
b.2. rate of interest shall be 6 per annum
2. Non-Monetary Obligations (such as the case at
bar)
a. If already liquidated, rate of interest shall be 6
per annum, demandable from date of judicial or
extra-judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest Except: When later
on established with certainty. Interest shall still
be 6 per annum demandable from the date of
judgment because such on such date, it is
already deemed that the amount of damages is
already ascertained.
3. Compounded Interest– This is applicable to both
monetary and non-monetary obligations– 6 per
annum computed against award of damages
(interest) granted by the court. To be computed
from the date when the court’s decision becomes
final and executory until the award is fully satisfied
by the losing party.
4. The 6 per annum rate of legal interest shall be
applied prospectively:– Final and executory
judgments awarding damages prior to July 1, 2013
shall apply the 12 rate;– Final and executory
judgments awarding damages on or after July 1,
2013 shall apply the 12 rate for unpaid obligations
until June 30, 2013; unpaid obligations with
respect to said judgments on or after July 1, 2013
shall still incur the 6 rate.
MANILA CREDIT CORPORATION VS.
VIROOMAL
G.R. NO. 258526, JANUARY 11, 2023
FACTS:
In September 2009, respondents Ramon S.
Viroomal (Ramon) and Anita S. Viroomal obtained
a loan from petitioner Manila Credit Corporation
(MCC) under Promissory Note (PN) No. 7155 in the
amount of PHP467,600.00 payable in 60 months.
The loan has an interest rate of 23.36 per annum
and is secured by a real estate mortgage (REM)
7over Ramon's property in Parañaque City covered
by Transfer Certificate of Title (TCT) No. (92517)
72248. To keep up with the monthly payments,
respondents asked for a loan restructuring and
executed a second promissory note, PN No. 8351,
for the amount of PHP495,840.00 payable in 84
months at 24.99 interest per annum. The
restructured amount represents the unpaid
balance in PN No. 7155, interests, and penalty
charges. As respondents failed to make timely
amortizations, MCC demanded full payment of the
outstanding obligation of PHP549,029.69 as of
October 15, 2016. Respondents, however, claimed
that they already paid a total of PHP1,175,638.12
and thus asked for a recomputation of their
account. MCC ignored respondents' request.
Instead, it proceeded with the extra-judicial
foreclosure of the REM. This prompted
respondents to file a Complaint, Civil Case No.
2017-79, for the declaration of nullity of real estate
mortgage, injunction, and specific performance
with prayer for temporary restraining order and/or
writ of preliminary injunction before the Regional
Trial Court of Parañaque City (RTC). Mainly,
respondents argue that their loan obligation was
fully paid had they not been burdened by the 36
per annum effective interest rate (EIR) and other
charges which were allegedly surreptitiously
imposed by MCC. Respondents assert that MCC is
engaged in a predatory lending scheme of luring
borrowers with instant cash and easy payment
terms, which, in reality, entraps one into deeper
debt because of unconscionable interest rates and
hidden charges. Both the RTC and the CA found
that the interests and charges imposed by MCC in
PN No. 7155 are void for being grossly excessive.
ISSUE:
Whether or not the RTC and the CA were correct
in ruling that the entire principal obligation of
PHP467,600.00 under the first promissory note, PN
7155, has been fully paid by respondents.
RULING:
Yes.
The RTC and the CA correctly ruled that
respondents had fully paid the entire obligation.
The Court finds that the obligation was fully paid
as early as August 2012 and there was even an
overpayment of PHP11,532.47 for that month.
Since respondents continued the payments until
January 2014, they have a total overpayment of
PHP203,532.47 for PN No. 7155.
The total amount to be refunded to respondents
must cover not only the payments made in PN No.
8351 in the amount of PHP417,859.58, as awarded
by the RTC and the CA, but also the overpayment
in PN No. 7155 amounting to PHP203,532.47, as
shown in the computation of the court, plus legal
interest of 6 per annum from the date of the filing
of respondents' Complaint until finality, following
Nacar v. Gallery Frames.
VII. FULFILLMENT OF
OBLIGATIONS
∗ See Chapter 4: Payment
PRESUMPTIONS IN PAYMENT OF INTERESTS
AND INSTALLMENTS
Art. 1176. The receipt of the principal by the
creditor, without reservation with respect to
the interest, shall give rise to the
presumption that interest has been paid.
The receipt of a later installment of a debt
without reservation as to prior installments,
shall likewise raise the presumption that
such installments have been paid.
• GENERAL RULE:
If the debt produces interests, payment of the
principal shall not be deemed to have been made
unless the interests have been covered.
2 KINDS OF PRESUMPTION:
1. Conclusive Presumption – one which cannot
be contradicted, like the presumption that
everyone is presumed to know the law
2. Disputable (or rebuttable) Presumption – one
which can be contradicted or rebutted by
presenting proof to the contrary like the
presumption in Art. 1176 (see Sec. 69[i], Rule 123,
Rules of Court)
WHEN PRESUMPTIONS DO NOT APPLY:
1. With reservation as to interest
• Does not arise where there is a reservation as to
interest or prior installments
• Reservation can be made in writing or verbally
2. Receipt for a part of principal
• A receipt for a part of the principal, without
mentioning the interest, merely implies that the
creditor waives his right to apply the payment first
to the interest and then to the principal, as
permitted by Art. 1253
3. Receipt without indication of particular
installment paid
• The presumption in par. 2 is not applicable if the
receipt does not recite that it was issued for a
particular installment due as when the receipt is
only dated
4. Payment of taxes
• Taxes payable by the year are not installments of
the same obligation – separate obligations every
year
5. Non-payment proven
• Not applicable where the non-payment of the
prior
obligations has been proven
• Between a proven fact and a presumption pro
tanto he former stands and the latter falls
VIII. TRANSMISSIBILITY OF
RIGHTS
Art. 1178. Subject to the laws, all rights
acquired in virtue of an obligation are
transmissible, if there has been no
stipulation to the contrary.
EXCEPTIONS:
1. Not transmissible by their very nature e.g.
purely personal rights
2. There is a stipulation of the parties that they
are not transmissible
• The stipulation against transmission must not
be contrary to public policy. (Art 1306)
• Not be easily implied but clearly established or
at the very least, clearly inferable
3. Not transmissible by law
a. By the contract, of partnership, two or more
persons bind themselves to contribute money,
property or industry to a common fund, with the
intention of dividing the profits among
themselves. (Art. 1767.)
b. By the contract of agency, a person binds
himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter. (Art. 1868.)
c. By the contract of commodatum, one of the
parties delivers to another something not
consumable so that the latter may use the same
for a certain time and return it. Commodatum,is
essentially gratuitous. (Art. 1933.)
CASES
DKC HOLDINGS CORP VS. CA
329 SCRA
Facts:
The subject of the controversy is a 14,021 square
meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally
owned by private respondent Victor U. Bartolome’s
deceased mother, Encarnacion Bartolome, under
Transfer Certificate of Title No. B-37615 of the
Register of Deeds of Metro Manila, District III. This
lot was in front of one of the textile plants of
petitioner and, as such, was seen by the latter as a
potential warehouse site. March 16, 1988. DKC
entered a contract of lease with option to buy with
Encarnacion Bartolome (Victor’s deceased mom).
DKC was given the option to lease or lease with
purchase the subject land, which option must be
exercised within a period of two years counted
from the signing of the Contract. In turn, DKC
undertook to pay P3,000.00 a month as
consideration for the reservation of its option.
Within the two-year period, DKC shall serve formal
written notice upon the lessor Encarnacion
Bartolome of its desire to exercise its option. The
contract also provided that in case DKC chose to
lease the property, it may take actual possession
of the premises.
In such an event, the lease shall be for a period of
six years, renewable for another six years, and the
monthly rental fee shall be P15,000.00 for the first
six years and P18,000.00 for the next six years, in
case of renewal. DKC regularly paid Encarnacion
until her death in January 1990. DKC then directed
its payment to the son of Enacarnacion who is the
sole heir but Victor (Encarnacion’s son) refused
the payment. January 10, 1990.
Victor executed an affidavit of Self Adjudication all
over her deceased mom’s properties, including the
subject lot.
Victor the dick then canceled the deed of transfer
of DKC and then issued a transfer certificate under
his name, what a dick. March 14, 1990. DKC sent
a notice to Victor the royal douche, stating that
they are going to exercise their option to lease,
tendering the amount of P15,000 as rent.
Victor the douche, being a dick as he is, refused
payment. DKC then opened a saving account with
the China Banking Corp. under the name of Victor
and deposited the P15,000 as rental fee while also
adding another P6000 for reservation fees. DKC
also tried to register and annotate the Contract on
the title of Victor the dick to the property. Although
respondent Register of Deeds accepted the
required fees, he nevertheless refused to register
or annotate the same or even enter it in the day
book or primary register.
April 23, 1990. DKC filed a complaint for specific
performance and damages against Victor and the
Register of Deeds. DKC prayed for the surrender
and delivery of possession of the subject land in
accordance with the Contract terms; the surrender
of title for registration and annotation thereon of
the Contract; and the payment of P500,000.00 as
actual damages, P500,000.00 as moral damages,
P500,000.00 as exemplary damages and
P300,000.00 as attorney’s fees.
During the May of 1990, some guy named Andres
Lonzano filed a motion for intervention with
motion to dismiss for he was a tenant-tiller
of the subject property, dude is under the
Comprehensive Agrarian Reform Law, the motion
was denied by the court, poor guy. The lower court
then rendered its decision, it dismissed the
complaint and ordered DKC to pay Victor for
P30,000 as attorney’s fee. On appeal, the CA
affirmed the decision of the lower court

Issue: W/ON the Contract of Lease with Option to

Buy entered into by the late Encarnacion
Bartolome with petitioner was terminated upon her
death or whether it binds her sole heir, Victor, even
after her demise.

Held: No. Article 1311 of the Civil Code and

jurisprudence, Victor is bound by the subject
Contract of Lease with Option to buy executed by
his predecessor-in-interest. It is futile for Victor to
insist that he is not a party to the contract because
of the clear provision of Article 1311 of the Civil
Code.

Indeed, being an heir of Encarnacion, there is

privity of interest between him and his deceased
mother. He only succeeds to what rights his
mother had and what is valid and binding against
her is also valid and binding as against him. The
general rule, therefore, is that heirs are bound
by contracts entered into by their
predecessors-in-interest except when the
rights and obligations arising therefrom are
not transmissible by (1) their nature, (2) stipulation
or (3) provision of law.