1922 Cases

Marsman Drysdale Land, Inc. vs. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc.
(G.R. No. 183374, June 29, 2010)

Facts:

Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties,

Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the
construction and development of an office building on a land owned by
Marsman Drysdale in Makati City.[1]

JVA contained the following pertinent provisions:

Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute

the Property.

The total appraised value of the Property is PESOS: FOUR HUNDRED

TWENTY MILLION (P420,000,000.00) in a buildable condition within ninety
(90) days from signing of this Agreement barring any unforeseen
circumstances [Gotesco] shall contribute the amount of PESOS: FOUR
HUNDRED TWENTY MILLION (P420,000,000.00) in cash which shall be
payable as follows:

4.2.1.

The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of

this Agreement.

4.2.2.

The balance of PESOS: THREE HUNDRED SEVENTY MILLION

(P370,000,000.00) shall be paid based on progress billings, relative to the
development and construc... the joint venture engaged the services of
Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration,
laboratory testing, seismic study and geotechnical engineering for the...
project. PGI, was, however, able to drill only four of five boreholes needed
to conduct its subsurface soil exploration and laboratory testing,
justifying its failure to drill the remaining borehole to the failure on the
part of the joint venture partners to clear the area where... the drilling
was to be made.

PGI then billed the joint venture

Despite repeated demands from PGI,[5] the joint venture failed to pay its
obligations.
due to unfavorable economic conditions at the time, the joint venture was
cut short and the planned building project was eventually shelved.

PGI subsequently filed on November 11, 1999 a complaint for collection of

sum of money and damages at the Regional Trial Court (RTC) of Quezon
City against Marsman Drysdale and Gotesco.

Marsman Drysdale passed the responsibility of paying PGI to Gotesco

which, under the JVA, was solely liable for the monetary expenses of the
pro

Gotesco, on the other hand, countered that PGI has no cause of action
against it as PGI had yet to complete the services enumerated in the

Branch 226 of the Quezon City RTC rendered judgment in favor of PGI,...
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay
plaintiff, jointly

Marsman Drysdale moved for partial reconsideration, contending that it

should not have been held jointly liable with Gotesco on PGI's claim...
motion... denied

Both Marsman Drysdale and Gotesco appealed to the Court of Appeals

which, by Decision of January 28, 2008,[10] affirmed with modification
the decision of the trial court.

the appellate court ratiocinated that notwithstanding the terms of the

JVA, the joint venture cannot avoid payment of PGI's claim since "[the
JVA] could not affect third persons like [PGI] because of the basic civil
law principle... of relativity of contracts which provides that contracts
can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has
acted with knowledge thereof.

Marsman Drysdale and Gotesco filed separate petitions for review with
the Court... whether PGI was indeed entitled to the payment of services it
rendered... which between joint venturers Marsman Drysdale and Gotesco
bears the liability to pay PGI its unpaid claims.

Issues:

Whether PGI was indeed entitled to the payment of services it rendered...

which between joint venturers Marsman Drysdale and Gotesco bears the
liability to pay PGI its unpaid claims.

Ruling:

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was
never a party to the JVA. While the JVA clearly spelled out, inter alia, the
capital contributions of Marsman Drysdale (land) and Gotesco (cash) as
well as the funding and financing mechanism for the... project, the same
cannot be used to defeat the lawful claim of PGI against the two joint
venturers-partners.

The Technical service contract clearly listed the joint venturers Marsman
Drysdale and Gotesco as the beneficial owner of the project,[19] and all
billing invoices indicated the consortium therein as the client.

The only time that the JVA may be made to apply in the present petitions
is when the liability of the joint venturers to each other would set in.

A joint venture being a form of partnership, it is to be governed by the

laws on partnership.

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the
proceeds of the project.[21] They did not provide for the splitting of
losses, however. Applying the above-quoted provision of Article 1797
then, the same ratio applies in... splitting the P535,353.50 obligation-loss
of the joint venture.

Marsman Drysdale and Gotesco being jointly liable, there is no need for
Gotesco to reimburse Marsman Drysdale for "50% of the aggregate sum
due" to PGI.

Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI

would not only be contrary to the law on partnership on division of losses
but would partake of a clear case of unjust enrichment at Gotesco's
expense.

assailed Decision and Resolution of the Court of Appeals are AFFIRMED

with MODIFICATION in that the order for Gotesco to reimburse Marsman
Drysdale is DELETED

Principles:

Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same...
proportion.

Philippine Airlines, Inc. vs. Lim, et. Al (G.R. No. 168987, October 17, 2012)
Facts:

Plaintiffs are Cebu-based businessmen

On 22 February 1991... purchased three (3) confirmed PAL roundtrip

tickets

They were booked on a Link-Flight... return trip

February 26, 1991, at the check-in counter at the Ninoy Aquino

International Airport (NAIA), plaintiffs Francisco Lao Lim and Henry Go
were informed by PAL's check-in clerk that... their bookings on Flight
PR300 Manila-Hongkong (8:00 a.m.) had been cancelled and that their
names were not on the computer's passenger list for the said flight.
Plaintiff Manuel Limtong, however, was able to board the flight. Francisco
Lao Lim and Henry Go explained to the... check-in clerk that they were
holding confirmed bookings and that they did not have the same
cancelled. They likewise begged and pleaded that they be allowed to
board the said flight but their pleas fell on deaf ears. At 5:00 p.m. of the
same day, plaintiffs Francisco Lao Lim... and Henry Go took Flight No.
PR301 leaving Manila to Hongkong.

Plaintiffs brought this suit for breach of contract of carriage and damages
against PAL alleging that the PAL personnel at the check-in clerk at NAIA
arrogantly shouted at them and humiliated them in front of the other
passengers by labeling their tickets "cheap tickets" thus... entitling them
to moral damages in the amount of P350,000.00 each as such abusive and
injurious language had humiliated them, wounded their feelings and
besmirched their reputations. Plaintiffs further claimed that because of
their failure to reach Hongkong in time for the... scheduled business
conferences, their contacts did not anymore wait for them.

In its defense, PAL contended that plaintiffs were revenue passengers

who made their travel arrangements with Rainbow Tours.

A perusal of the records show that PAL witness Rosy Mancao testified
that PAL and Rainbow Tours agreed not to tell the plaintiffs that their
confirmed bookings for PR300 on 26 February 1991 had been erroneously
cancelled and that the said flight was on critical status due to an...
overbooking of passengers because if they inform the plaintiffs "it would
just create further problems.

Issues:
The Court finds petitioner's claim that only herein respondent, (third-party
defendant before the trial court) Rainbow Tours and Travel, Inc., should
be made liable to respondents Lao Lim and Go

Ruling:

Having proven the existence of a contract of carriage between

respondents Lao Lim and Go, and the fact of... non-performance by
petitioner of its obligation as a common carrier, it is clear that petitioner
breached its contract of carriage with respondents Lao Lim and Go.

Since respondent Henry Go was not able to testify, there is then no

evidence on record to prove that he suffered mental anguish, besmirched
reputation, sleepless nights, wounded feelings or similar injury by reason
of petitioner's conduct. Thus, on the... award of moral damages in favor of
deceased respondent Go, substituted by his heirs, the Court finds the
same improper as it lacks the required factual basis.

However, there was no error committed by the lower courts with regard
to the award of temperate or moderate damages of P100,000.00 to
respondents Lao Lim and Go.

it is only just that respondents Lao Lim and Henry Go be... awarded
temperate or moderate damages.

The Court agrees with petitioner that respondent Manuel Limtong is not
entitled to any award for damages because, as to said respondent,
petitioner faithfully complied with their contract of carriage. Respondent
Limtong was able to board PR300 on February 26, 1991, as... stated in his
confirmed plane ticket. The contract of carriage does not carry with it an
assurance that he will be travelling on the same flight with his chosen
companions. Even if petitioner failed to transport respondents Lao Lim
and Go on the same flight as respondent

Limtong, there is absolutely no breach of the contract of carriage

between the latter and petitioner. Hence, petitioner should not be made
liable for any damages in favor of respondent Limtong to be untenable.
They have acted together in creating the confusion leading... to the
erroneous cancellation of aforementioned respondents' confirmed
bookings and the failure to inform respondents of such fact. As such, they
have become joint tort feasors,

Principles:

The New Civil Code provides:

Art. 2224. Temperate or moderate damages, which are more than nominal
but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved, with... certainty.

Article 2229 of the Civil Code provides that exemplary or corrective

damages are imposed in addition to the moral, temperate, liquidated or
compensatory damages. Exemplary damages are not recoverable as a
matter of right. The requirements... of an award of exemplary damages
are: (1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to them has
been established; (2) that they cannot be recovered as a matter of right,
their determination depending upon the... amount of compensatory
damages that may be awarded to the claimant; (3) the act must be
accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner. x x x[14] (Emphasis supplied)

PCIC vs. Petroleum Distributors & Service Corporation (G.R. No. 180898, April
18, 2012)

Facts:

The respondent Petroleum Distributors and Services Corporation

(PDSC),... entered into a building contract[3] with N.C. Francia
Construction Corporation (FCC)... for the construction of a four-story
commercial and parking complex... for the price of P45,522,197.72.

the parties agreed that the construction work would begin on February 1,
1999.

Phase 1[

Phase 2

It was further stipulated that in the event FCC failed to finish the...
project within the period specified, liquidated damages equivalent to 1/10
of 1% of the contract price for every day of delay shall accrue in favor of
PDSC.[7]

To ensure compliance with its obligation, FCC's individual officers,...

signed the Undertaking of

Surety [8] holding themselves personally liable for the accountabilities of

FCC.
FCC procured Performance Bond No. 31915 amounting to P6,828,329.00
from petitioner Philippine Charter Insurance Corporation

During the Phase 1 of the project, PDSC noticed that FCC was sixteen (16)
days behind schedule and ballooned to 60 days

For failure of FCC to accomplish the project within the agreed completion
period, PDSC, in a letter... informed FCC that it was terminating their
contract

FCC admitted that it entered into a contract with PDSC for the
construction of the Park 'N Fly building. It, however, asserted that due to
outsourcing of different materials and... Subcontracting of various phases
of works made by PDSC, the contract price was invariably reduced to
P19, 809,822.12.

FCC denied any liability to PDSC

PCIC averred that as a surety, it was not liable as a principal obligor;

PCIC also alleged that its obligation under the performance bond was
terminated when it expired on October 15, 1999 and the extension of the
performance bond until March 2, 2000 was not binding as it was made
without its knowledge and... Consent.

The RTC rendered its Decision [25] in favor of PDSC.

It pronounced FCC and PCIC jointly and severally liable and ordered them
to... pay PDSC the amount of P9,000,000.00 as damages and P50,000.00
as attorney's fees plus interest.

The CA agreed that FCC incurred delay in the construction of the project.

Issues:

Whether or not the September 10, 1999 MOA executed by PDSC and FCC
extinguished PCIC's liability under the performance bond;

Paragraph 2.3 of the Building Contract clearly provides a stipulation for

the payment of liquidated damages in case of delay in the construction of
the project. Such is in the nature of a penalty clause fixed by the
contracting parties as a compensation or substitute for damages... in
case of breach of the obligation.[34] The contractor is bound to pay the
stipulated amount without need for proof of the existence and the
measures of damages caused by the breach.[35]

Ruling: Yes
Paragraph 2.3 of the Building Contract clearly provides a stipulation for
the payment of liquidated damages in case of delay in the construction of
the project. Such is in the nature of a penalty clause fixed by the
contracting parties as a compensation or substitute for damages... in
case of breach of the obligation.[34] The contractor is bound to pay the
stipulated amount without need for proof of the existence and the
measures of damages caused by the breach.[35]

By the language of the performance bond issued by PCIC, it guaranteed

the full and faithful compliance by FCC of its obligations in the
construction of the Park 'N Fly. In fact, the primary purpose for the
acquisition of the performance bond was to guarantee to PDSC that the...
project would proceed in accordance with the terms and conditions of the
contract and to ensure the payment of a sum of money in case the
contractor would fail in the full performance of the contract.[39] This
guaranty made by PCIC gave PDSC the right to... proceed against it (PCIC)
following FCC's non-compliance with its obligation.

A contract of surety ship is an agreement whereby a party, called the

surety, guarantees the performance by another party, called the principal
or obligor, of an obligation or undertaking in favor of another party, called
the obligee.[40] Although the... contract of a surety is secondary only to a
valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom.[

The Court also found untenable the contention of PCIC that the principal
contract was novated when PDSC and FCC executed the September 10,
1999 MOA, without informing the surety, which, in effect, extinguished its
obligation.

A surety agreement has two types of relationship: (1) the principal

relationship between the obligee and the obligor; and (2) the accessory
surety relationship between the principal and the surety.

It must likewise be emphasized that pursuant to the September 10, 1999

MOA, PCIC extended the coverage of the performance bond until March 2,
2000.[52]... the petition is DENIED.

Principles:

Article 2226 of the Civil Code allows the parties to a contract to stipulate
on liquidated damages to be paid in case of breach

It is attached to an obligation in order to insure performance and has a

double function: (1) to provide for liquidated damages, and (2) to...
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach.[36] As a general rule, contracts
constitute the law between the parties, and they are bound by its
stipulations.[37] For as... long as they are not contrary to law, morals,
good customs, public order, or public policy, the contracting parties may
establish such stipulations, clauses, terms and conditions as they may
deem convenient.[38]

Article 2226 of the Civil Code allows the parties to a contract to stipulate
on liquidated damages to be paid in case of breach. It is attached to an
obligation in order to insure performance and has a double function: (1) to
provide for liquidated damages, and (2) to... strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of
breach.[36] As a general rule, contracts constitute the law between the
parties, and they are bound by its stipulations.[37] For as... long as they
are not contrary to law, morals, good customs, public order, or public
policy, the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient.[38]

As mandated by Article 2047 of the Civil

Code, to wit:

Article 2047. By guaranty, a person, called the guarantor, binds himself to

the creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the

provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case, the contract is called a suretyship.

Operators Incorporates vs. American Biscuit Co., Inc. (G.R. No. L-34767, October
23, 1987)

Facts:

Plaintiff American Biscuit Company was, before World War II, a

manufacturer of biscuit, candy and bubble gum products. After the
liberation, it reopened its candy department.

Financial difficulties and reverses, however, forced it to discontinue its

business operations.

plaintiff... entered into an agreement with defendant Operators, Inc.

Under this agreement, it ceded the entire, total and complete present
operation of its business to defendant Operators,... Inc., in consideration
for which Operators, Inc. undertook to answer for existing obligations of
the plaintiff to its several creditors and to compensate plaintiff with a
percentage of the gross profits realized in the course of its operations.

barely 10 months thereafter, plaintiff and Operators, Inc., entered into

another agreement, this time with defendant Associated Biscuit
Operators, Inc., with the consent of plaintiff, who was a formal party... in
this agreement,... known as the Tripartite Agreement, Associated agreed
to engage in the manufacture and marketing of the biscuit products of
American Biscuit Company,... on eight (8) months after the conclusion of
the Tripartite Agreement-it appears that differences had arisen between
the two defendants on the utilization of plaintiff's establishment and
equipment.

Meanwhile also, since the two defendants-Operators and Associated-had

both undertaken to pay ABC's obligation... arrangements were made
between the parties with the China Banking Corporation whereby the
defendants would share fifty-fifty in the payment by monthly installments
of the P110,000.00 unpaid balance of the loan by the bank to... plaintiff
(Exh. 3-A-Operators).

Defendant Associated in turn, failed to make good its commitments to

pay its share of P55,000.00.

As a result of Associated's failure to observe its commitments towards

the liquidation of ABC's pending accounts, China Banking Corporation
filed against plaintiff... merican Biscuit maintained that the payment of its
indebtedness and of its overhead expenses was a joint... and solidary
obligation of Operators and Associated Biscuit.

Operators submitted in its answer that the Operating Contract had been
novated by the Tripartite Agreement which allegedly severed its
obligation from Associated Biscuit's own liabilities, and since it had fully
complied with its obligations, American

Biscuit had no cause of action against it.

[T]he final result must be that between American Biscuit and Operators,
while Operators should be liable solidarily for breach of Exh. B by
Associated, and must therefore together with Associated, pay unto
American

Biscuit the liquidated damages of P300,000.00, yet, American Biscuit

must also be liable unto Operators for breach of the same contract in
regard to the arbitration clause and be liable therefor for the same
amount of P300,000.00, so that these claims will offset... each other,
Issues:

The fundamental question is whether or not Associated Biscuit violated

the terms of the Operating Contract and the Tripartite Agreement.

Ruling:

Both the trial and appellate courts were agreed that Associated Biscuit
failed to... comply with its dual contractual commitments of settling the
financial obligations of American Biscuits and of paying its monthly
overhead expenses.

when there is insufficient payment, as factually shown in the cases at

bar, there is a violation of the Operating Contract.

For one of the essential ingredients of payment as a mode of

extinguishing obligations is integrity, that is, the payment must be
complete or full.

There is thus no mistaking the fact that Operators and Associated had
assumed, per their agreements, American's liabilities to its creditors in
solidum.

What may have led Operators in denying the solidary character of its
obligations was the fact that it was engaged in the manufacture of candy
whereas Associated Biscuit was supposed to manufacture biscuits, and
the fact that the two operators were required... to invest different
minimum amounts in the venture. But these conditions do not alter the
solidary nature of their obligations as expressly provided. According to
Article 1211 of the Civil Code, "solidarity may exist although... the debtors
may not be bound in the same manner and by the same periods and
conditions."[19] Accordingly, the disparity in their functions under... the
contracts does not vary the fact that they were bound, in connection with
American's liabilities, jointly and severally.

Principles:

Article 1233 of the Civil Code states: "A debt shall not... be understood
to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be."

Article 1207 of the new Civil Code states that: "there is a solidary
liability when the obligation expressly so states x x x.