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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. 46274 November 2, 1939

A.O. FISHER, plaintiff-appellee, vs.JOHN C. ROBB, defendant-appellant.

Marcial P. Lichauco and Manuel M. Mejia for appellant.Wolfson, Barrion and Baradi and Ignacio Ycaza for appellee.

VILLA-REAL, J.:

The defendant John C. Robb appeals to this Court from the judgment of the Court of First Instance of Manila, the dispositive part of which reads:

Judgment is hereby rendered in favor of the plaintiff and against the defendant, who is ordered to pay to the former the sum of P2,000, with interest at the legal rate from March 11, 1938, until paid, plus costs.

The facts established at the trial without discussion are the following:

In September, 1935, the board of directors of the Philippine Greyhound Club, Inc., told the herein defendant-appellant John C. Robb, to make a business trip to Shanghai to study the operation of a dog racing course. In Shanghai, the defendant-appellant stayed at the American Club where be became acquainted with the plaintiff-appellee, A. O. Fisher, through their mutual friends. In the course of a conversation, the defendant-appellant came to know that the plaintiff-appellee was the manager of a dog racing course. Upon knowing the purpose of the defendant-appellant's trip, the plaintiff-appellee showed great interest and invited him to his establishment and for several days gave him information about the business. It seems that the plaintiff became interested in the Philippine Greyhound Club, Inc., and asked the defendant if he could have a part therein as a stockholder. As the defendant-appellant answered in the affirmative, the plaintiff-appellee thereupon filled a subscription blank and, through his bank in Shanghai, sent to the Philippine Greyhound Club, Inc., in Manila telegraphic transfer for P3,000 in payment of the first installment of his subscription. Later on the defendant-appellant returned to Manila from Shanghai.

Some months thereafter, when the board of directors of the Philippine Greyhound Club, Inc., issued a call for the payment of the second installment of the subscriptions, the defendant-appellant sent a radiogram to the plaintiff-appellee did so and sent P2,000 directly to the Philippine Greyhound Club,

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Inc., in payment of the said installment. Due to the manipulations of those who controlled the Philippine Greyhound Club, Inc., during the absence of the defendant-appellant undertook the organization of a company called The Philippine Racing Club, which now manages the race track of the Santa Ana park. The defendant immediately endeavored to save the investment of those who had subscribed to the Philippine Greyhound Club, Inc., by having the Philippine Racing Club acquire the remaining assets of the Philippine Greyhound Club, Inc. The defendant-appellant wrote a letter to the plaintiff-appellee in Shanghai explaining in detail the critical condition of the Philippine Greyhound Club, Inc., and outlining his plans to save the properties and assets of the plaintiff-appellee that he felt morally responsible to the stockholders who had paid their second installment (Exh. C). In answer to said letter, the plaintiff-appellee wrote the defendant-appellant requiring him to return the entire amount paid by him to the Philippine Greyhound Club, Inc., (exhibit E). Upon receiving this letter, the defendant-appellant answered the plaintiff-appellee for any loss which he might have suffered in connection with the Philippine Greyhound Club, Inc., in the same way that he could not expect anyone to reimburse him for his own losses which were much more than those of the plaintiff-appellee (Exh. B).

The principal question to be decided in this appeal is whether or not the trial court erred in holding that there was sufficient consideration to justify the promise made by the defendant-appellant in his letters Exhibits B and C.

In the fifth paragraph of the letter Exhibit B, dated March 16, 1936, addressed by the defendant-appellant to the plaintiff-appellee, the former said: "I feel a moral responsibility for these second payments, which were made in order to carry out my plan (not the first payments, as you have it in your letter), and Mr. Hilscher and I will see to it that stockholders who made second payments receive these amounts back as soon as possible, out of our own personal funds. "As it is, I have had to take my loss along with everyone else here, and so far as I can see that is what all of us must do. The corporation is finally flat, so it is out of the question to receive back any of your investment from that source; the only salvage will be the second payment that you made, and that will come from Hilscher and me personally, as I say, not because of any obligation, but simply because we have taken it on ourselves to do that. (And I wish I could find someone who would undertake to repay a part of my own losses in the enterprise!)" And in the seventh paragraph of the letter Exhibit C, dated February 21, 1936, addressed by the same defendant-appellant to the same plaintiff-appellee the former said the following:

However, Mr. Fischer and I feel a personal responsibility to those few stockholders who made their second payments, including yourself, and it is our intention to personally repay the amounts of the second payments made by those few.

. . . And, finally, paragraph 8 of the same letter Exhibit C states: "We are to receive a certain share of the new Philippine Racing Club for our services as promoters of that organization, and as soon as this is received by us, we will be in a position to compensate you and the few others who made the second payments. That, as T have said, will come from us personally, in an effort to make things easier for those who were sportsmen enough to try to save the Greyhound organization by making second payments.

Article 1254 of the Civil Code provides as follows:

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A contract exists from the moment one or more persons consent to be bound with respect to another or others to deliver something or to render some services.

And article 1261 of the same Civil Code provides the following:

ART. 1261. There is no contract unless the following requisites exists:

1. The consent of the contracting parties;

2. A definite object which is the subject-matter of the contract;

3. A consideration for the obligation established.

In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally responsible for the second payments which had been made to carry out his plan, and that Mr. Hilscher and he would do everything possible so that the stockholders who had made second payments may receive the amount paid by them from their personal funds because they voluntarily assumed the responsibility to make such payment as soon as they receive from the Philippine racing Club certain shares for their services as promoters of said organization, it does not appear that the plaintiff-appellee had consented to said form of reimbursement of the P2,000 which he had directly paid to the Philippine Greyhound Club, Inc., in satisfaction of the second installment.

The first essential requisite, therefore, required by the cited article 1261 of the Civil Code for the existence of a contract, does not exists.

As to the third essential requisite, namely, "A consideration for the obligation established," article 1274 of the same Code provides:lawphi1.net

In onerous contracts the consideration as to each of the parties is the delivery or performance or the promise of delivery or performance of a thing or service by the other party; in remuneratory contracts the consideration is the service or benefit for which the remuneration is given, and in contracts of pure beneficence the consideration is the liberality of the benefactors.

And article 1275 of the same Code provides:

ART. 1275. Contracts without consideration or with an illicit consideration produce no effect whatsoever. A consideration is illicit when it is contrary to law or morality.

Manresa, in volume 8, 4rth edition, pages 618-619 of his Commentaries on the Civil Code, has this to say:

Considering the concept of the consideration as the explanation and motive of the contract, it is related to the latter's object and even more to its motives with which it is often confused. It is differentiated from them, however, in that the former is the essential reason for the contract, while the latter are the particular reasons of a contracting party which do not affect the other party and which do not preclude the existence of a different consideration. To clarify by an example: A thing purchased constitutes the

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consideration for the purchaser and not the motives which have influenced his mind, like its usefulness, its perfection, its relation to another, the use thereof which he may have in mind, etc., a very important distinction, which precludes the annulment of the contract by the sole influence of the motives, unless the efficacy of the former had been subordinated to compliance with the latter as conditions.

The jurisprudence shows some cases wherein this important distinction is established. The consideration of contracts, states the decision of February 24, 1904, is distinct from the motive which may prompt the parties in executing them. The inaccuracies committed in expressing its accidental or secondary details do not imply lack of consideration or false consideration, wherefore, they do not affect the essence and validity of the contract. In a loan the consideration in its essence is, for the borrower the acquisition of the amount, and for the lender the power to demand its return, whether the money be for the former or for another person and whether it be invested as stated or otherwise.

The same distinction between the consideration and the motive is found in the decisions of November 23, 1920 and March 5, 1924.

The contract sought to be judicially enforced by the plaintiff-appellee against the defendant-appellant is onerous in character, because it supposes the deprivation of the latter of an amount of money which impairs his property, which is a burden, and for it to be legally valid it is necessary that it should have a consideration consisting in the lending or or promise of a thing or service by such party. The defendant-appellant is required to give a thing, namely, the payment of the sum of P2,000, but the plaintiff-appellee has not given or promised anything or service to the former which may compel him to make such payment. The promise which said defendant-appellant has made to the plaintiff-appellee to return to him P2,000 which he had paid to the Philippine Greyhound Club, Inc., as second installment of the payment of the amount of the shares for which he has subscribed, was prompted by a feeling of pity which said defendant-appellant had for the plaintiff-appellee as a result of the loss which the latter had suffered because of the failure of the enterprise. The obligation which the said defendant-appellant had contracted with the plaintiff-appellee is, therefore, purely moral and, as such, is not demandable in law but only in conscience, over which human judges have no jurisdiction.1awphi1.net

As to whether a moral obligation is a sufficient consideration, read in volume 12 of the American Jurisprudence, pages 589-590, paragraphs 96, 67, the following:

SEC. 96. Moral obligation. — Although there is authority in support of the board proposition that a moral obligation is sufficient consideration, such proposition is usually denied. . . . .

The case presenting the question whether a moral obligation will sustain an express executory promise may be divided into five classes: (1) Cases in which the moral obligation arose wholly from ethical considerations, unconnected with any legal obligations, perfect or imperfect, and without the receipt of actual pecuniary or material benefit by the promisor prior to the subsequent promise; (2) cases in which the moral obligation arose from a legal liability already performed or still enforceable; (3) cases in which the moral obligation arose out of, or was connected with, a previous request or promise creating originally an enforceable legal liability, which, however, at the time of the subsequent express promise had become discharged or barred by operation of a positive rule of law, so that at that time there was

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no enforceable legal liability; (4) cases in which the moral obligation arose from, or was connected with, a previous request or promise which, however, never created any enforceable legal liability, because of a rule of law which rendered the original agreement void, or at least unenforceable; and (5) cases in which the moral obligation arose out of, or was connected with, the receipt of actual material or pecuniary benefit by the promisor, without, however, any previous request or promise on his part, express or implied, and therefore, of course, without any original legal liability, perfect or imperfect.

SEC. 97. Moral obligation unconnected with legal liability or legal benefit. — Although, as subsequently shown was formerly some doubt as to the point, it is now well established that a mere moral obligation or conscience duty arising wholly from ethical motives or a mere conscientious duty unconnected with any legal obligation, perfect or imperfect, or with the receipt of benefit by the promisor of a material or pecuniary nature will not furnish a consideration for an executory promise. . . . .

In view of the foregoing considerations, we are of the opinion and so hold, that the promise made by an organizer of a dog racing course to a stockholder to return to him certain amounts paid by the latter in satisfaction of his subscription upon the belief of said organizer that he was morally responsible because of the failure of the enterprise, is not the consideration rquired by article 1261 of the Civil Code as an essential element for the legal existence of an onerous contract which would bind the promisor to comply with his promise.

Wherefore, the appealed judgment is reversed and the costs to the plaintiff.

Avanceña, C.J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur.

2. VILLAROEL VS. ESTRADA71 Phil. 140 (1940)

FACTS

This was originally an action commenced by the plaintiff 

(respondent) against the defendant (petitioner) for the purpose of enforcing a contract entered into on August 9, 1903, by virtue of which the defendant undertook to pay to the plaintiff a certain debt 

which his deceased mother had incurred from the deceased parents of the said plaintiff more than eighteen years ago. It is submitted 

that this debt had already prescribed. 

ISSUE

Whether or not this action will prosper, considering that 

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the debt incurred by the defendant's mother had already prescribed.

HELD

The Supreme Court held that the present action is not 

founded on the original obligation contracted by the mother of the 

defendant, which had already prescribed, but on that contracted by 

the defendant on August 9, 1930, in assuming the obligation which 

had already prescribed. The defendant being the only heir of the 

original debtor with the right to succeed in her inheritance, that 

debt lawfully contracted by his mother, although it lost its 

efficacy by prescription, is nevertheless now a moral obligation as 

far as he is concerned, a moral obligation which is a sufficient 

consideration to create and make effective and demandable the 

obligation which he had voluntarily contracted on August 9, 1930.

3. Barredo vs. Garcia

73 Phil 607

Torts and Damages – Civil Liability from Quasi Delicts vs Civil Liability from Crimes

At about 1:30am on May 3, 1936, Fontanilla’s taxi collided with a “kalesa” thereby killing the 16 year old Faustino Garcia. Faustino’s parents filed a criminal suit against Fontanilla and reserved their right to file a separate civil suit. Fontanilla was eventually convicted. After the criminal suit, Garcia filed a civil suit against Barredo – the owner of the taxi (employer of Fontanilla). The suit was based on Article 1903 of the civil code (negligence of employers in the selection of their employees). Barredo assailed the suit arguing that his liability is only subsidiary and that the separate civil suit should have been filed against Fontanilla primarily and not him.

ISSUE: Whether or not Barredo is just subsidiarily liable.

HELD: No. He is primarily liable under Article 1903 which is a separate civil action against negligent employers. Garcia is well within his rights in suing Barredo. He reserved his right to file a separate civil action and this is more expeditious because by the time of the SC judgment Fontanilla is already serving his sentence and has no property. It was also proven that Barredo is negligent in hiring his employees because it was shown that Fontanilla had had multiple traffic infractions already before he hired him – something he failed to overcome during hearing. Had Garcia not reserved his right to file a separate civil action, Barredo would have only been subsidiarily liable. Further, Barredo is not being sued for damages arising from a criminal act (his driver’s negligence) but rather for his own negligence in selecting his employee (Article 1903)

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4. MENDOZA V. ARRIETA [91 S 113 (1979)] - Where in a multiple highway accident involving a truck which hit a jeep which then hit a Mercedes Benz coming from the opposite direction, two criminal actions for reckless imprudence was filed against the drivers of the truck and jeep, and the driver of the truck was found guilty and the driver of the jeep acquitted, a civil action for damages against the owner of the truck would prosper as there is no res judicata, the parties and causes of action being different. Furthermore, under Art. 31 of the Civil Code, When the civil action is based on an obli¬gation not arising from crime, the civil action may proceed independently of the criminal proceed¬ings regardless of result of the latter. Citing Garcia v. Florido, "As we have stated at the outset, the same negligent act causing damages may produce a civil liabil¬ity arising from crime or create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law, while the latter is a distinct and independent negligenc, having always had its own foundation and individuality. Some legal writers are of the view that in accord¬ance with Article 31, the civil action based upon quasi-delict may proced independently of the criminal proceeding for criminal negligence and regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111 (requiring reservation of civil actions) with reference to Articles 32, 33, and 34 of the Civil Code, is contrary to the letter and spirit of the said articles, for these articles were drafted and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedura, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide for the reservation required in the proviso."However, a civil action for damages against the owner-driver of the jeep would not prosper because civil liability arising from crime co-exists with criminal liability in criminal cases. Hence, the offended party had the option to prosecute on civil liability arising from crime or from quasi-delict. His active participation in the criminal case implies that he opted to recover the civil liability arising from crime. Hence, since the acquittal in the criminal case, which was not based on reasonable doubt, a civil action for damages can no longer be instituted.

5. Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where it would deliver molasses to the latter.

Hawaiian-Philippine Co. was able to deliver 55,006 gallons of molasses before the breach of contract.

SFC filed a complaint for breach of contract against Hawaiian-Philippine Co. and asked P70,369.50. Hawaiian-Philippine Co. answered that there was a delay in the payment from Song Fo & Co. and that Hawaiian-Philippine Co. has the right to rescind the contract due to that and claims it as a special defense.

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The judgment of the trial court condemned Hawaiian-Philippine Co. to pay Song Fo & Co. a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs.

Issue:

(1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses?

(2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Co.?

(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by Hawaiian-Philippine Co., what is the measure of damages?

Held:

(1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as seen in the documents presented in court. The language used with reference to the additional 100,000 gallons was not a definite promise.

(2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to make the payments for the delivery of molasses as shown in the documents presented by the parties.

The Supreme Court said that Hawaiian-Philippine Co. does not have the right to rescind the contract. It should be noted that the time of payment stipulated for in the contract should be treated as of the presence of the contract. There was only a slight breach of contract when the payment was delayed for 20 days after which Hawaiian-Philippine Co. accepted the payment of the overdue accounts and continued with the contract, waiving its right to rescind the contract. The delay in the payment of Song Fo & Co. was not such a violation for the contract.

(3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater expense to which it was put in being compelled to secure molasses from other sources to which

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Supreme Court ruled that P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until payment.

The second cause of action was based on the lost profits on account of the breach of contract. Supreme Court said that Song Fo & Co. is not entitled to recover anything under the second cause of action because the testimony of Mr. Song Heng will follow the same line of thought as that of the trial court which in unsustainable and there was no means for the court to find out what items make up the P14,000 of alleged lost profits.

6. Velarde vs. CA

FACTS:The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance of P1.8 million, in favor of the petitioners. Pursuant to said agreements, plaintiffs paid the bank (BPI) for three (3) months until they were advised that the Application for Assumption of Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru counsel responded that they are willing to pay in cash the balance subject to several conditions. Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale. Petitioners filed a complaint which was consequently dismissed by an outgoing judge but was reversed by the assuming judge in their Motion for Reconsideration. The Court of Appeals reinstated the decision to dismiss.

ISSUE:Whether or not there is a substantial breach of contract that would entitle its rescission.

RULING:YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.

7. ANGELES VS. CALASANZ135 SCRA 323

FACTS:On December 19, 1957, defendants-appellantsUrsula Torres Calasanz and plaintiffs-appellees

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Buenaventura Angeles and Teofila Juani entered into acontract to sell a piece of land located in Cainta, Rizal forthe amount of P3,920.00 plus 7% interest per annum. Theplaintiffs-appellees made a downpayment of P392.00 uponthe execution of the contract. They promised to pay thebalance in monthly installments of P41.20 until fully paid,the installment being due and payable on the 19th day ofeach month. The plaintiffs-appellees paid the monthlyinstallments until July 1966, when their aggregatepayment already amounted to P4,533.38.

On December 7, 1966, the defendants-appellantswrote the plantiffs-appellees a letter requesting theremittance of past due accounts. On January 28, 1967, thedefendants-appellants cancelled the said contract becausethe plaintiffs failed to meet subsequent payments. Theplaintiffs’ letter with their plea for reconsideration of thesaid cancellation was denied by the defendants.

The plaintiffs-appellees filed a case before theCourt of First Instance to compel the defendant to executein their favor the final deed of sale alleging inter alia thatafter computing all subsequent payments for the land inquestion, they found out that they have already paid thetotal amount including interests, realty taxes andincidental expenses. The defendants alleged in theiranswer that the plaintiffs violated par. 6 of the contract tosell when they failed and refused to pay and/or offer to paymonthly installments corresponding to the month ofAugust, 1966 for more than 5 months, therebyconstraining the defendants to cancel the said contract.

The Court of First Instance rendered judgment infavor of the plaintiffs, hence this appeal.

ISSUE:Has the Contract to Sell been automatically andvalidly cancelled by the defendants-appellants?

RULING:No. While it is true that par.2 of the contractobligated the plaintiffs-appellees to pay the defendants the

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sum of P3,920 plus 7% interest per annum, it is likewisetrue that under par 12 the seller is obligated to transfer thetitle to the buyer upon payment of the said price.

The contract to sell, being a contract of adhesion,must be construed against the party causing it. TheSupreme Court agree with the observation of the plaintiffsappelleesto the effect that the terms of a contract must beinterpreted against the party who drafted the same,especially where such interpretation will help effect justiceto buyers who, after having invested a big amount ofmoney, are now sought to be deprived of the same thru theprayed application of a contract clever in its phraseology,condemnable in its lopsidedness and injurious in its effectwhich, in essence, and its entirety is most unfair to thebuyers.

Thus, since the principal obligation under thecontract is only P3,920.00 and the plaintiffs-appelleeshave already paid an aggregate amount of P4,533.38, thecourts should only order the payment of the few remaininginstallments but not uphold the cancellation of thecontract. Upon payment of the balance of P671.67 withoutany interest thereon, the defendant must immediatelyexecute the final deed of sale in favor of the plaintiffs andexecute the necessary transfer of documents, as providedin par.12 of the contract.

8.

Aerospace Chemical Industries, Inc vs CA and Philippine Phosphate Fertilizer Corp.Facts

1.

On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five hundred metric tons ofsulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation.2.

Petitioner agreed to secure the means of transport to pick-up the sulfuric acid from privaterespondents' loadports in Basay, Negros Oriental and Sangi, Cebu.3.

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On October 3, 1986, petitioner paid the purchased price of 500 MT of sulfuric acid. Then, itchartered M/T Sultan Kayumanggi to carry the agreed volumes of freight from designatedloading areas.4.

But the vessel was able to withdraw a partial amount of sulfuric acid from Basay and Sangibecause it tilted. And later, it sank with a total amount of 227.51 MT of sulfuric acid on board.5.

Petitioner sent a demand letter to private respondent for delivery of the 272.49 MT of sulfuricacid.6.

Petitioner then filed a complaint against private respondent for specific performance and/ordamages before the Regional Trial Court of Pasig.7.

The private respondent filed an answer with counterclaim and alleged that it was the petitionerwhich was remiss in the performance of its obligation in arranging the shipping requirements ofits purchases and, hence, should pay damages.8.

Petitioner prevailed in the trial court.9.

However, on appeal, the Court of Appeals reversed the decision of the trial court and insteadfound petitioner guilty of delay and therefore, liable for damages.10.

Hence, this petition.

Issue

1.

Did the respondent court err in holding that the petitioner committed breach of contract,considering that:a.

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the petitioner allegedly paid the full value of its purchases, yet received only a portion ofsaid purchases?b.

petitioner and private respondent allegedly had also agreed for the purchase and supplyof an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?2.

Did the respondent court err in awarding damages to private respondent?3.

Should expenses for the storage and preservation of the purchased fungible goods, namelysulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

Ruling

1.

No, CA did not err in absolving the private respondent from liability.Petitioner, as the buyer, was obligated under the contract to undertake the shippingrequirements of the cargo from the private respondent's loadports to the petitioner'sdesignated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel

was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuricacid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi withanother sea worthy vessel.Where there has been breach of contract by the buyer, the seller has a right of action fordamages. Following this rule, a cause of action of the seller for damages may arise where thebuyer refuses to remove the goods, such that buyer has to remove them. Article 1170 of CivilCode provides: "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 fordamages."2.

No, respondent court did not err in awarding damages to private respondent.Where there has been breach of contract by the buyer, the seller has a right of action fordamages. Following this rule, a cause of action of the seller for damages may arise where thebuyer refuses to remove the goods, such that buyer has to remove them. Article 1170 of CivilCode provides: "Those who in the performance of their obligations are guilty of fraud,negligence, or delay and those who in any manner contravene the tenor

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thereof, are liable fordamages."Delay begins from the time the obligee judicially or extrajudicially demands from the obligor theperformance of the obligation. Art. 1169 states: "Art. 1169. Those obliged to deliver or to dosomething incur in delay from the time the obligee judicially or extrajudicially demands fromthem the fulfillment of their obligation." In order that the debtor may be in default, it isnecessary that the following requisites be present:(1) that the obligation be demandable and already liquidated;(2) that the debtor delays performance; and(3) that the creditor requires the performance judicially or extrajudicially.Records reveal that a tanker ship had to pick up sulfuric acid in Basay, then proceed to get theremaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel totravel between Basay and Sangi. Logically, the computation of damages arising from theshipping delay would then have to be from December 15, 1986, given said reasonable periodafter the December 12th letter. More important, private respondent was forced to vacate Basaywharf only on December 15th. Its Basay expenses incurred before December 15, 1986, werenecessary and regular business expenses for which the petitioner should not be obliged topay. AaID3.

No, Article 1504 is not applicable.The general rule that before delivery, the risk of loss is borne by the seller who is still the owner,is not applicable in this case because petitioner had incurred delay in the performance of itsobligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goodsremain at the seller's risk until the ownership therein is transferred to the buyer, but when theownership therein is transferred to the buyer the goods are at the buyer's risk whether actual

delivery has made or not except that: . . .

(2)

Where actual delivery had been delayed throughthe fault of either the buyer or seller the goods are at the risk of the party at fault

.As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessaryextrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. Whenpetitioner failed to comply with its obligations under the contract it became liable for itsshortcomings. Petitioner is indubitably liable for proven damages

Case number 9:

ERMEN REALTY DEVELOPMENTCORPORATION VS. COURT OF APPEALS G.R. No.

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101762

FACTS:Under the conditions of the so-called “OffsettingAgreement”, Vermen Realty (the first party in the contract)and Seneca Hardware (the second party) were under areciprocal obligation. Seneca Hardware shall deliver toVermen Realty construction materials worth P552,000.00.Vermen Realty's obligation under the agreement is threefold:he shall pay Seneca Hardware P276,000.00 in cash;he shall deliver possession of units 601 and 602, Phase I,Vermen Pines Condominiums (with total value ofP276,000.00) to Seneca Hardware; upon completion ofVermen Pines Condominiums Phase II, Seneca Hardwareshall be given option to transfer to similar units therein.As found by the appellate court and admitted byboth parties, Seneca Hardware had paid Vermen Realtythe amount of P110,151.75, and at the same time deliveredconstruction materials worth P219,727.00. Pendingcompletion of Phase II of the Vermen PinesCondominiums, Vermen Realty delivered to SenecaHardware units 601 and 602 at Phase I of the VermenPines Condominiums (Rollo, p. 28). In 1982, the VermenRealty repossessed unit 602. As a consequence of therepossession, the officers of the Seneca Hardwarecorporation had to rent another unit for their use whenthey went to Baguio on April 8, 1982.

In its reply the Vermen Realty corporation averredthat Room 602 was leased to another tenant becauseSeneca Hardware corporation had not paid anything forpurchase of the condominium unit. Vermen Realtycorporation demanded payment of P27,848.25representing the balance of the purchase price of Room601.

On June 21, 1985, Seneca Hardware filed acomplaint with the Regional Trial Court of Quezon City(Branch 92) for rescission of the OffsettingAgreement with damages. In said complaint, SenecaHardware alleged that Vermen Realty Vermen RealtyCorporation had stopped issuing purchase orders of

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construction materials after April, 1982, without validreason, thus resulting in the stoppage of deliveries ofconstruction materials on its (Seneca Hardware) part, inviolation of the Offsetting Agreement.After conducting hearings, the trial court rendereda decision dismissing the complaint and ordering theplaintiff (Seneca Hardware in this petition) to paydefendant (Vermen Realty in this petition) on itscounterclaim in the amount of P27,848.25 representingthe balance due on the purchase price of condominiumunit 601.

On appeal, respondent court reversed the trialcourt's decision as adverted to above.

ISSUE:Do the circumstances of the case warrantrescission of the Offsetting Agreement as prayed for bySeneca Hardware?

RULING:Yes. The Court ruled in favor of Seneca Hardware.There is no controversy that the provisions of theOffsetting Agreement are reciprocal in nature. Reciprocalobligations are those created or established at the sametime, out of the same cause, and which results in a mutualrelationship of creditor and debtor between parties. Inreciprocal obligations, the performance of one isconditioned on the simultaneous fulfillment of the otherobligation Under the agreement, Seneca Hardware shalldeliver to Vermen Realty construction materials. VermenRealty's obligation under the agreement is three-fold: heshall pay Seneca Hardware P276,000.00 in cash; he shalldeliver possession of units 601 and 602, Phase I, VermenPines Condominiums (with total value of P276,000.00) toSeneca Hardware; upon completion of Vermen PinesCondominiums Phase II, Seneca Hardware shall be givenoption to transfer to similar units therein.Article 1191 of the Civil Code provides the remedyof rescission in (more appropriately, the term is"resolution") in case of reciprocal obligations, where one ofthe obligors fails to comply with what is incumbent upon

17

him.

In the case at bar, Vermen Realty argues that itwas Seneca Hardware who failed to perform its obligationin the Offsetting Agreement.Seneca Hardware, on the other hand, points outthat the subject of the Offsetting Agreement is Phase II ofthe Vermen Pines Condominiums. It alleges that sinceconstruction of Phase II of the Vermen PinesCondominiums has failed to begin it has reason to movefor rescission of the Offsetting Agreement, as it cannotforever wait for the delivery of the condominium units toit.

It is evident from the facts of the case that SenecaHardware did not fail to fulfill its obligation in theOffsetting Agreement. The discontinuance of delivery ofconstruction materials to Vermen Realty stemmed fromthe failure of Vermen Realty to send purchase orders toSeneca Hardware.

The impossibility of fulfillment of the obligation onthe part of Vermen Realty necessitates resolution of thecontract for indeed, the non-fulfillment of the obligationaforementioned constitutes substantial breach of theOffsetting Agreement.

10. Cetus Development vs CA

FACTS:

Private respondents were the lessees of the premises originally owned by Susana Realty. The payments of the rentals were paid by them to a collector of the Susana Realty who went the premises monthly. Susana Realty, however, sold the property to petitioner Cetus Development, Inc. The private respondents then continued to pay their monthly rentals to a collector sent by the petitioner. In succeeding months, for three months, the private respondents failed to pay their rentals because no collector came. They then contacted the petitioner over the telephone as to where they should pay their rentals. The petitioner then told them that they would send a collector to collect the rentals. Private respondents waited but no collector came. Petitioner then sent a letter to each of the private respondents demanding that they vacate the subject premises and to pay their arrearages within 15 days from the receipt thereof. With this, private respondents immediately upon the receipt of such demand, tendered their payments which were accepted by the petitioner with the condition that the

18

acceptance was without prejudice to the filing of ejectment suit. For failure of the private respondents to vacate the premises as demanded, petitioner filed an ejectment suit against them.

ISSUE:

Whether or not there was a delay of payment by the private respondents to the petitioner considering that upon receipt of the demand letter, they immediately tendered their payments.

HELD:

No. There was no failure yet on the part of the private respondents to pay rents for three consecutive months. It has been duly established that it has been customary for private respondents to pay their rentals through a collector sent by the lessor.

Article 1169 of the Civil Code provides that those obliged to deliver or to do something incur in delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation.

The moment the petitioner extrajudicially demand the payment of the rentals, private respondents immediately answered their obligation by paying their arrearages of rentals to the petitioner.

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11. Tengco vs CA

TENGCO V. CA

PADILLA, J. / 1989Review on certiorari

FACTS:

1942, Tengco entered into a verbal lease agreement with Lutgarda Cifra over a house in Navotas which b e l o n g e d t o t h e l a tt e r . A s i d e f r o m t h e a m o u n t o f rentals, no other condition or term was agreed upon. The rentals were collected from Tengco by Lutgarda’s collector from time to time, with no fixed frequency.

1976, Cifra, Jr., claimed to be the owner the house in Navotas which was leased to Emilia Tengco. He filed an action to evict Tengco, from the said premises for heralleged failure to comply with the terms and conditions of the lease contract by failing and refusing to pay thes ti p u l a t e d r e n t a l s d e s p i t e r e p e a t e d d e m a n d s . J u d g m e n t w a s r e n d e r e d a g a i n s t T e n g c o . S h e h a s appealed, and raises the following issues:

ISSUES:

1.Is Cifra Jr. the real owner of the said property?2.Did Cifra Jr. actually delay acceptance of the rentals,therefore being guilty of

mora accipiendi?

3 . D o e s t h e p r i n c i p l e o f

laches

(see Notes) bar Cifra Jr.’saction?4.Does Cifra Jr. have a cause of action?

HELD and RATIO:

1.YES. Such was the finding of the lower court, and theSupreme Court will not dispute the findings, barringerrors of the lower court regarding facts. Such beingthe case, Tengco has not given sufficient proof that thelot she has leased is NOT the lot that Cifra Jr. claims toown. Further, she herself acknowledged his ownershipby paying him the rentals for the month of January.

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2 . N O . T h e n o n - a c c e p t a n c e o f t h e r e n t a l s i s j u s t i f i e d because they were tendered to someone who had noauthority to accept them in the first place due to achange in ownership. Tengco could have releasedherself from responsibility by judicial deposit of therentals, or actually paying them to Cifra Jr.

3 . N O . F o r laches

to apply, there should have been afailure on Tengco’s part to pay the rent AFTER Cifra Jr.demanded it, because it would only be at that point that Cifra Jr. would have a cause of action. Cifra Jr.demanded the rent only on August 23, 1976, then filed the current case 3 weeks later, September 16,1976,after a reasonable amount of time.

4.YES, as we see from the foregoing.

12. AEROSPACE CHEMICAL Vs CA

g.r.no. 108129 September 23, 1999

FACTS: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases.

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ISSUE: Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

RULING: Petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault."

On this score, we quote with approval the findings of the appellate court, thus: The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant.

13. Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos & Riverland, Inc.

Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos & Riverland, Inc. G.R. No. 1530004November 5, 2004

Facts:

Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002, as well as the April 12, 2002, Resolution of the Court of Appeals, The appellate court reversed the Decision, dated October 4, 1996, of the Regional Trial Court of Makati City, and likewise denied petitioner's Motion for Reconsideration.

On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. The pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the execution of

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this agreement and (b) The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two years from the execution of this agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3) Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement.

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ.

Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile.

On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on the part of petitioner in paying the balance of P13 million.

Issues:

a)W/N the CA committed reversible error when it awarded legal interest in favor of the respondents notwithstanding the fact that neither in the compromise agreement nor in the compromise of judgment by the judge provides for payment of interest to the respondent?

b)W/N the CA erred in awarding legal interest to the respondents although the obligation of the petitioner to the respondent is to pay a sum of money that had been converted into an obligation to pay in kind?

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c)W/N respondents are barred from demanding payment of interest by reason of the waiver provision in the compromise agreement, which became the law among the parties.

Held:

On October 4, 1996, the trial court rendered a Decision dismissing the respondents' complaint and ordering them to pay attorney's fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals.

The only issue to be resolved is whether the respondents are entitled to legal interest.

The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit. SO ORDERED.

Delay

Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it.

The petition lacks merit

In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims.

As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides that the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court

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of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED

14. Vazquez vs Ayala Corporation

Daniel Vasquez owns Conduit Development, Inc. In 1981, Vasquez enters into a Memorandum of Agreement (MOA) with Ayala Corporation wherein Ayala bought Conduit from Vasquez. Ayala committed to develop Conduit’s lands including 4 parcels of land adjacent to Vasquez’ retained land. Be it noted that these parcels of land were in the 3rd phase of Ayala’s development plan. Paragraph 5.15 of the MOA provides:

5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four developed lots next to the “Retained Area” at the prevailing market price at the time of the purchase.”

In 1990, Ayala was able to develop the said lots. (This was after some slump, and some litigation between Conduit’s former contractor (GP construction) and GP’s subcontractor (Lancer Builders).) Ayala then offered to sell the 4 parcels of land to Vasquez at P6.5k/sq. m. which was the market price in 1990. Vasquez refused the offer. Vasquez contended that the purchase price should be P460/sq. m. which was themarket price in 1981 (time of purchase). Ayala then lowered the purchase price to P5k/sq. m. but Vasquez refused again. Instead he made a counter offer to buy the lots at P2k/sq. m. This time, Ayala refused.

ISSUE: Whether or not Paragraph 5.15 of the MOA is an option contract or right of first refusal.

HELD: No. The said paragraph is a mere right of first refusal. Although the paragraph has a definite object, i.e., the sale of the 4 lots, the period within which they will be offered for sale to Vasquez and, necessarily, the price for which the subject lots will be sold are not specified. The phrase “at the prevailing market price at the time of the purchase” connotes that there is no definite period within which Ayala is bound to reserve the subject lots for Vasquez to exercise his privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.

Further, paragraph 5.15 was inserted into the MOA to give Vasquez the first crack to buy the subject lots at the price which Ayala would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration.

15. Abella vs Francisco

25

Republic of the Philippines

SUPREME COURT

ManilaEN BANC

G.R. No. L-32336 December 20, 1930 JULIO C. ABELLA,

plaintiff-appellant,vs.

GUILLERMO B. FRANCISCO,

defendant-appellee.

Antonio T. Carrascoso, Jr. for appellant.Camus and Delgado for appellee.

AVANCEÑA,

C.J.:

Defendant Guillermo B. Francisco purchased fromthe Government on installments, lots 937 to 945 of the Tala Estate in Novaliches, Caloocan, Rizal. Hewas in arrears for some of these installments. Onthe 31st of October, 1928, he signed the followingdocument:MANILA,

October 31, 1928

Received from Mr. Julio C. Abella the amountof five hundred pesos (P500), payment onaccount of lots Nos. 937, 938, 939, 940, 941,942, 943, 924, and 945 of the Tala Estate,barrio of Novaliches, Caloocan, Rizal,containing an area of about 221 hectares, atthe rate of one hundred pesos (P100) perhectare, the balance being due on or beforethe fifteenth day of December, 1928,extendible fifteen days thereafter. (Sgd.) G.B. FRANCISCO — P500 — Phone 67125.After having made this agreement, the plaintiff proposed the sale of these lots at a higher price toGeorge C. Sellner, collecting P10,000 on accountthereof on December 29, 1928.Besides the P500 which, according to the instrumentquoted above, the plaintiff paid, he made anotherpayment of P415.31 on November 13, 1928, upondemand made by the defendant. On December 27thof the same year, the defendant, being in theProvince of Cebu, wrote to Roman Mabanta of thisCity of Manila, attaching a power of attorneyauthorizing him to sign in behalf of the defendant allthe documents required by the Bureau of Lands forthe transfer of the lots to the plaintiff. In that letterthe defendant instructed Roman Mabanta, in theevent that the plaintiff failed to pay the remainderof the selling price, to inform him that the optionwould be considered cancelled, and to return to himthe amount of P915.31 already delivered. On January 3, 1929, Mabanta notified the plaintiff thathe had received the power of attorney to sign thedeed of conveyance of the lots to him, and that hewas willing to execute the proper deed of sale uponpayment of the balance due. The plaintiff asked fora few days' time, but Mabanta, following theinstructions he had received from the defendant,only gave him until the 5th of that month. Theplaintiff did not pay the rest of the price on

26

the 5thof January, but on the 9th of the month attemptedto do so; Mabanta, however, refused to accept it,and gave him to understand that he regarded thecontract as rescinded. On the same day, Mabantareturned by check the sum of P915.31 which theplaintiff had paid. The plaintiff brought this action to compel thedefendant to execute the deed of sale of the lots inquestion, upon receipt of the balance of the price,and asks that he be judicially declared the owner of said lots and that the defendant be ordered todeliver them to him. The court below absolved the defendant from thecomplaint, and the plaintiff appealed.

lawphi1>net

In rendering that judgment, the court relied on thefact that the plaintiff had failed to pay the price of the lots within the stipulated time; and that sincethe contract between plaintiff and defendant was anoption for the purchase of the lots, time was anessential element in it.It is to be noted that in the document signed by thedefendant, the 15th of December was fixed as thedate, extendible for fifteen days, for the payment bythe plaintiff of the balance of the selling price. It hasbeen admitted that the plaintiff did not offer tocomplete the payment until January 9, 1929. Hecontends that Mabanta, as attorney-in-fact for thedefendant in this transaction, granted him anextension of time until the 9th of January. ButMabanta has stated that he only extended the timeuntil the 5th of that month. Mabanta's testimony onthis point is corroborated by that of Paz Vicente andby the plaintiff's own admission to Narciso Javierthat his option to purchase those lots expired on January 5, 1929.In holding that the period was an essential elementof the transaction between plaintiff and defendant,the trial court considered that the contract inquestion was an option for the purchase of the lots,and that in an agreement of this nature the period isdeemed essential. The opinion of the court isdivided upon the question of whether theagreement was an option or a sale, but evensupposing it was a sale, the court holds that timewas an essential element in the transaction. Thedefendant wanted to sell those lots to the plaintiff inorder to pay off certain obligations which fell due inthe month of December, 1928. The time fixed forthe payment of the price was therefore essential forthe defendant, and this view is borne out by hisletter to his representative Mabanta instructing himto consider the contract rescinded if the price wasnot completed in time. In accordance with article1124 of the Civil Code, the defendant is entitled toresolve the contract for failure to pay the pricewithin the time specified.

16. Dela Cruz vs Legaspi

DELA CRUZ v. LEGASPI AND SAMPEROYG.R. No. L-8024 November 29, 1955Bengzon, J.

Doctrine:Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum.

Facts:Plaintiff sued defendant Legaspi to compel delivery of the parcel of land sold to plaintiff. The complaint

27

alleged the defendant’s refusal to accept payment of the purchase price of P450 undue retention of the realty.

The defendants alleged that before the document of sale was made, the plaintiff agreed to pay the defendants the price right after the document is executed that very day but after the document was signed and ratified by the Notary Public and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay. They asserted that for lack of consideration and for deceit, the document of said should be annulled.

Issue:Whether or not the contract of sale is void on the ground that it lacks consideration

Held:No. It cannot be denied that when the document was signed the cause or consideration existed: P450. The document specifically said so. Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4

Phil. 650; Puato vs. Mendoza, 64 Phil, 457). The situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants as he previously promised, there was default on his part at most, and defendants’ right was to demand interest — legal interest —.

17. Claudina Vda. De Villaruel vs Manila Motor Co

CLAUDINA VDA. DE VILLARUEL, ET AL. VS. MANILA MOTOR CO., INC. 

104 PHIL. 926

 

FACTS:

            ON MAY 31, 1940, THE PLAINTIFFS VILLARUEL AND DEFENDANT MANILA MOTOR CO. INC. ENTERED INTO A CONTRACT WHEREBY THE DEFENDANT AGREED TO LEASE PLAINTIFFS BUILDING PREMISES.

ON OCTOBER 31, 1940, THE LEASED PREMISES WERE PLACED IN THE POSSESSION OF THE DEFENDANT UNTIL THE INVASION OF 1941. THE JAPANESE MILITARY OCCUPIED AND USED THE PROPERTY LEASED AS PART OF THEIR QUARTERS FROM JUNE, 1942 TO MARCH, 1945, IN WHICH NO PAYMENT OF RENTALS WERE MADE. UPON THE LIBERATION OF THE SAID CITY, THE AMERICAN FORCES OCCUPIED THE SAME BUILDINGS THAT WERE VACATED BY THE JAPANESE. WHEN THE UNITED STATES GAVE UP THE OCCUPANCY OF THE PREMISES, DEFENDANT DECIDED TO EXERCISE THEIR OPTION TO RENEW THE CONTRACT, IN WHICH THEY AGREED. HOWEVER, BEFORE RESUMING THE COLLECTION OF RENTALS, DR. ALFREDO VILLARUEL UPON ADVICE DEMANDED PAYMENT OF RENTALS CORRESPONDING TO THE TIME THE JAPANESE MILITARY OCCUPIED THE LEASED PREMISES, BUT THE DEFENDANT REFUSED TO PAY. AS A RESULT PLAINTIFF GAVE NOTICE SEEKING THE RESCISSION OF THE CONTRACT AND THE PAYMENT OF RENTALS FROM JUNE, 1942 TO MARCH, 1945; THIS WAS REJECTED BY THE DEFENDANT. DESPITE THE FACT THE DEFENDANT UNDER NEW BRANCH MANAGER PAID TO PLAINTIFF THE SUM OF P350 FOR THE

28

RENT, THE PLAINTIFF STILL DEMANDED FOR RENTS IN ARREARS AND FOR THE RESCISSION OF THE CONTRACT OF LEASE. THE PLAINTIFF COMMENCED AN ACTION BEFORE THE CFC OF NEG. OCCIDENTAL AGAINST DEFENDANT COMPANY. DURING THE PENDENCY OF THE CASE, THE LEASED BUILDING WAS BURNED DOWN. BECAUSE OF THE OCCURRENCE, PLAINTIFFS DEMANDED REIMBURSEMENT FROM THE DEFENDANTS, BUT HAVING BEEN REFUSED, THEY FILED A SUPPLEMENTAL COMPLAINT TO INCLUDE A 3RD CAUSE OF ACTION, THE RECOVERY OF THE VALUE OF THE BURNED BUILDING. THE TRIAL COURT RENDERED JUDGMENT IN FAVOR OF THE PLAINTIFF. HENCE THE DEFENDANTS APPEAL.

 

ISSUE:

            IS MANILA MOTOR CO. INC. LIABLE FOR THE LOSS OF THE LEASED PREMISES?

 

RULING:

            NO. CLEARLY, THE LESSOR'S INSISTENCE UPON COLLECTING THE OCCUPATION RENTALS FOR 1942-1945 WAS UNWARRANTED IN LAW. HENCE, THEIR REFUSAL TO ACCEPT THE CURRENT RENTALS WITHOUT QUALIFICATION PLACED THEM IN DEFAULT (MORA CREDITORIS OR ACCIPIENDI) WITH THE RESULT THAT THEREAFTER, THEY HAD TO BEAR ALL SUPERVENING RISKS OF ACCIDENTAL INJURY OR DESTRUCTION OF THE LEASED PREMISES. WHILE NOT EXPRESSLY DECLARED BY THE CODE OF 1889, THIS RESULT IS CLEARLY INFERABLE FROM THE NATURE AND EFFECTS OF MORA.

            IN OTHER WORDS, THE ONLY EFFECT OF THE FAILURE TO CONSIGN THE RENTALS IN COURT WAS THAT THE OBLIGATION TO PAY THEM SUBSISTED AND THE LESSEE REMAINED LIABLE FOR THE AMOUNT OF THE UNPAID CONTRACT RENT, CORRESPONDING TO THE PERIOD FROM JULY TO NOVEMBER, 1946; IT BEING UNDISPUTED THAT, FROM DECEMBER 1946 UP TO MARCH 2, 1948, WHEN THE COMMERCIAL BUILDINGS WERE BURNED, THE DEFENDANTS-APPELLANTS HAVE PAID THE CONTRACT RENTALS AT THE RATE OF P350 PER MONTH. BUT THE FAILURE TO CONSIGN DID NOT ERADICATE THE DEFAULT (MORA) OF THE LESSORS NOR THE RISK OF LOSS THAT LAY UPON THEM.

18. Central Bank of the Philippines v. CA, 139 SCRA 46 (1985)

TOLENTINO MADE A LOAN FROM ISLAND SAVINGS BANK SECURED BY A MORTGAGE. THE BANK DID NOT RELEASE THE WHOLE AMOUNT BUT ONLY A PORTION THEREOF. LATER, THE BANK EXPERIENCED LIQUIDITY PROBLEMS AND THE MONETARY BOARD OF CENTRAL BANK PROHIBITED IT FROM MAKING NEW LOANS AND MUCH LATER, FROM DOING BUSINESS IN THE PHILIPPINES. THEREAFTER, THE ACTING SUPERINTENDENT OF CENTRAL BANK TOOK CHARGE OF ITS ASSETS. UPON EXPIRATION OF THE LOAN TERM, THE BANK FILED EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGE. WAS THERE A PERFECTED CONTRACT OF LOAN WHEN ONLY A PORTION OF THE AMOUNT WAS DELIVERED?

THE SUPREME COURT HELD THAT THERE WAS ONLY PARTIAL DELIVERY. AS SUCH, THE CONTRACT IS DEEMED PERFECT ONLY IN SO FAR AS WHAT HAS BEEN DELIVERED. THE MORTGAGE CANNOT BE ENTIRELY FORECLOSED, EXCEPT FOR UP TO THE AMOUNT OF THE ACTUAL AMOUNT RELEASED, BUT THE BANK CAN RECOVER THE INTEREST OF THE PARTIAL LOAN. TOLENTINO CANNOT ANYMORE DEMAND THE

29

REMAINING AMOUNT OF THE LOAN FROM THE BANK BECAUSE HE DEFAULTED ON HIS PAYMENT. HIS LIABILITY OFFSETS THE LIABILITY OF THE BANK TO HIM.

19. Woodhouse vs Halili

Facts: The Plaintiff entered into an agreement with the defendant for the establishment of a partnership for bottling and distribution of Mission soft drinks. Before the partnership was actually established the defendant required the plaintiff to secure an exclusive franchise for the said venture. In behalf of the said partnership and uponobtaining the said exclusive franchise the defendant stipulated to pay the plaintiff 30% of the profits. The plaintiff sought to obtain the said exclusive franchise but was only given a temporary one, subject only to 30 days. The parties then proceeded with the signing of the agreement. The partnership was still not initiated, only the agreement to work with each other, with the plaintiff as manager and the defendant as financer, was established.

Together the two parties went to the US to formally sign the contract of franchise with Mission Dry Corporation. The defendant then found out about the temporary franchise right given to the plaintiff, different from the exclusive franchise rights they stipulated in their contract.

When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next month, the pay was decreased to P 1,000 and the car was withdrawn from him.

The plaintiff demanded the execution of the partnership, but the defendant excused himself, saying that there was no hurry to do so. The Court of First Instance ordered the defendant to render an accounting of the profits and to pay the plaintiff 15% of such amount. It also held that execution of the contract of partnership cannot be enforced upon the defendant and that fraud as alleged by the defendant was also not proved. Hence the present action.

Issues:

(1) Whether the representation of the plaintiff in saying that he had exclusive franchise rights rather than the actual temporary right he possessed invalidated the contract

30

(2) Whether the court may compel the defendant to execute the contract of partnership between the parties

(3) What will be the amount of damages to be paid to the plaintiff?

Held: The Decision of the Court of First Instance is affirmed with modification.

Fraud was undoubtedly employed by the plaintiff to secure the consent of the defendant to enter into the contract with him by representing himself as holder of exclusive franchise rights when in fact he only holds a temporary franchise right good for 30 days. The fraud employed was not such as to render the contract null and void but only such as to hold the plaintiff liable for damages. Such fraud is merely incidental (dolo incidental) and not the causal fraud (dolo causante) that is detrimental to a contract. It does not invalidate the contract since fraud was only employed to secure the 30% stipulated share from the partnership.

The parties cannot be compelled to enter into a contract ofpartnership. The law recognizes the liberty of an individual to do or not to do an act. The action falls within Acto Personalisimo (a very personal act) which courts may not compel compliance.

The 15% that the Trial court ordered the defendant to pay the plaintiff is deemed to be the appropriate and reasonable. Such amount was the spontaneous reaction of the defendant upon knowledge of the misrepresentation of the plaintiff and amounts to the virtual modification of their contract.

20. Gutierrez vs Gutierrez

Gutierrez vs Gutierrez (1931)

Facts:

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attemptingto pass each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas. Thediver of the car is an 18 y/o boy, son of the car’s owners. It was found by the trial court that both the boyand the driver of the autobus were negligent by which neither of them were willing to slow up and give theright of way to the other. Plaintiff is the passenger of the bus who as a result of the incident fractured hisright leg to his damage and prejudice. Thus, plaintiff sued the boy, his parents as

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owners of the car, thebus driver and its owner for damages. The trial court ruled in favor of plaintiff.Hence, this appeal.

Issue:

How should civil liability be imposed upon parties in the case at bar?

Held:

The case is dealing with the civil liability of parties for obligations which arise from fault or negligence.For the boy, it is his father who is liable (based on culpa aquiliana) to the plaintiff because of the followingconditions; first, the car was of general use of the family, second, the boy was authorized or designatedby his father to run the car, third, at the time of the collision the car is used for the purpose not of thechild’s pleasure but that of the other members of the car owner’s family members. The theory of the law isthat the running of the machine by a child to carry other members of the family is within the scope of theowner’s business, so that he is liable for the negligence of the child because of the relationship of master and servant.For the chauffer and the bus owner (based on culpa contractual), their liability rests upon the contract (thesafety that is assured by the operator upon the passenger) whereas that degree of care expected fromthe chauffer is lacking.

21. Vazquez vs Borja

In January 1932, Francisco De Borja entered into a contract of sale with the NVSD (Natividad-Vasquez Sabani Development Co., Inc.). The subject of the sale was 4,000 cavans of rice valued at Php2.10 per cavan. On behalf of the company, the contract was executed by Antonio Vasquez as the company’s acting president. NVSD. only delivered 2,488 cavans and failed and refused despite demand to deliver the rest hence De Borja incurred damages (apparently, NVSD was insolvent). He then sue Vasquez for payment of damages.

ISSUE: Whether or not Vasquez is liable for damages.

HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja contracted with. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf.

The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation’s contract, its non fulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable.

JUSTICE PARAS Dissenting :

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Vasquez as president of NVSD is liable for damages. Vasquez, as acting president and manager of NVSD, and with full knowledge of the then insolvent status of his company, agreed to sell to De Borja 4,000 cavans of palay. Further, NVSD was soon thereafter dissolved.

22. De Guia vs MERALCO

MANUEL DE GUIA, plaintiff-appellant, vs.THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant.

Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for 

plaintiff-appellant.Lawrence and Ross for defendant-appellant.

STREET, J.:

This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of First Instance of the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest and costs, as damages incurred by him in consequence of physical injuries sustained while riding on one of the defendant's car.

The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-car line in Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock p.m., of the date mentioned, the plaintiff Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the line with the intention of coming to the city. At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle of the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track, ran for a short distance along the macadam filling, which was flush with the rails, and struck a concrete post at the left of the tract. The post was shattered; and as the car stopped the plaintiff was thrown against the door with some violence, receiving bruises and possibly certain internal injuries, the extent of which is a subject of dispute.

The trial court found that the motorman of the derailed car was negligent in having maintained too rapid a speed. This inference appears to be based chiefly upon the results of the shock, involving the shattering of the post and the bending of the kingpost of the car. It is insisted for the defendant company that the derailment was due to the presence of a stone, somewhat larger than a goose egg, which had become accidentally lodged between the rails at the juncture of the switch and which was unobserved by the motorman. In this view the derailment of the car is supposed to be due to casus fortuitos and not chargeable to the negligence of the motorman.

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Even supposing that the derailment of the car was due to the accidental presence of such a stone as suggested, we do not think that the existence of negligence is disproved. The motorman says that upon approaching the switch he reduced the electrical energy to the point that the car barely entered the switch under its own momentum, and this operation was repeated as he passed out. Upon getting again on the straight tract he put the control successively at points one, two, three and lastly at point four. At the moment when the control was placed at point four he perceived that the rear wheels were derailed and applied the brake; but at the same instant the car struck the post, some 40 meters distant from the exit of the switch. One of the defendant's witnesses stated in court that the rate of a car propelled by electricity with the control at point "four" should be about five or 6 miles per hour. There was some other evidence to the effect that the car was behind schedule time and that it was being driven after leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. This inference is rendered more tenable by the circumstance that the car was practically empty. On the whole, we are of the opinion that the finding of negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence; not so much because of excessive speed as because of the distance which the car was allowed to run with the front wheels of the rear truck derailed. It seems to us than an experienced and attentive motorman should have discovered that something was wrong and would have stopped before he had driven the car over the entire distance from the point where the wheels left the track to the place where the post was struck.

The conclusion being accepted that there was negligence on the part of the motorman in driving the car, it results that the company is liable for the damage resulting to the plaintiff as a consequence of that negligence. The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to convey him for hire. The relation between the parties was, therefore, of a contractual nature, and the duty of the carrier is to be determined with reference to the principles of contract law, that is, the company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care which, under the circumstances, is required by law and custom applicable to the case (art. 1258, Civil Code). Upon failure to comply with that obligation the company incurred the liability defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compañia Transatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.)

From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself of the last paragraph of article 1903 of the Civil Code, since that provision has reference to liability incurred by negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore irrelevant for the defendant company to prove, as it did, that the company had exercised due care in the selection and instruction of the motorman who was in charge of its car and that he was in fact an experienced and reliable servant.

At this point, however, it should be observed that although in case like this the defendant must answer for the consequences of the negligence of its employee, the court has the power to moderate liability according to the circumstances of the case (art. 1103, Civ. Code): Furthermore, we think it obvious that an employer who has in fact displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in good faith, within the meaning of article 1107 of the same Code.

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Construing these two provisions together, applying them to the facts of this case, it results that the defendant's liability is limited to such damages as might, at the time of the accident, have been reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff and which were in fact a necessary result of those injuries. There is nothing novel in this proposition, since both the civil and the common law are agreed upon the point that the damages ordinarily recoverable for the breach of a contractual obligation, against a person who has acted in good faith, are such as can reasonably be foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP. Agustinos Recoletos (39 Phil., 587), we said: "The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties."

This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this point the trial judge found that, as a result of the physical and nervous derangement resulting from the accident, Dr. De Guia was unable properly to attend to his professional labors for three months and suspended his practice for that period. It was also proved by the testimony of the plaintiff that his customary income, as a physician, was about P300 per month. The trial judge accordingly allowed P900, as damages for loss of professional earnings. This allowance is attacked upon appeal by the defendant as excessive both as to the period and rate of allowance. Upon examining the evidence we fell disinclined to disturb this part of the judgment, though it must be conceded that the estimate of the trial judge on this point was liberal enough to the plaintiff.

Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost by reason of his inability to accept a position as district health officer in Occidental Negros. It appears in this connection that Mr. Alunan, representative from Occidental Negros, had asked Dr. Montinola, who supposedly had the authority to make the appointment, to nominate the plaintiff to such position. The job was supposed to be good for two years, with a salary of P1,600 per annum, and possibility of outside practice worth P350. Accepting these suggestions as true, it is evident that the damages thus incurred are too speculative to be the basis of recovery in a civil action. This element of damages must therefore be eliminated. It goes without saying that damage of this character could not, at the time of the accident, have been foreseen by the delinquent party as a probable consequence of the injury inflicted — a circumstance which makes applicable article 1107 of the Civil Code, as already expounded.

The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which we momentarily pass for discussion further on, since the controversy on this point can be more readily understood in connection with the question raised by the plaintiff's appeal.

The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in question ascend to the amount of P40,000. Of this amount the sum of P10,000 is supposed to represent the cost of medical treatment and other expenses incident to the plaintiff's cure, while the remainder (P30,000) represents the damage resulting from the character of his injuries, which are supposedly such as to incapacitate him for the exercise of the medical profession in the future. In support of these claims the plaintiff introduced evidence, consisting of his own testimony and that of numerous medical experts,

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tending to show that as a result of the injuries in question he had developed infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, it being claimed that these manifestations of disorder rendered him liable to a host of other dangerous diseases, such as pleuresy, tuberculosis, pneumonia, and pulmonary gangrene, and that restoration to health could only be accomplished, if at all, after long years of complete repose. The trial judge did not take these pretensions very seriously, and, as already stated, limited the damages to the three items of professional earnings, expenses of medical treatment, and the loss of the appointment as medical treatment, and the loss of the appointment as medical inspector in Occidental Negros. As the appeal of the plaintiff opens the whole case upon the question of damages, it is desirable to present a somewhat fuller statement than that already given with respect to extent and character of the injuries in question.

The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left part of his chest struck against the door causing him to fall. In falling, the plaintiff says, his head struck one of the seats and he became unconscious. He was presently taken to his home which was only a short distance away, where he was seen at about 10 o'clock p. m., by a physician in the employment of the defendant company. This physician says that the plaintiff was then walking about and apparently suffering somewhat from bruises on his chest. He said nothing about his head being injured and refused to go to a hospital. Later, during the same night Dr. Carmelo Basa was called in to see the plaintiff. This physician says that he found Doctor De Guia lying in bed and complaining of a severe pain in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a manifestation no doubt due to the effects of the bruises received in his side. The next day Doctor De Guia went into Manila to consult another physician, Doctor Miciano, and during the course of a few weeks he called into consultation other doctors who were introduced as witnesses in his behalf at the trial of this case. According to the testimony of these witnesses, as well as that of the plaintiff himself, the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous degree.

Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's injuries, considered in their physical effects, were trivial and that the attendant nervous derangement, with its complicated train of ailments, was merely simulated.

Upon this question the opposing medical experts ventilated a considerable mass of professional learning with reference to the nature and effects of the baffling disease known as traumatic neurosis, or traumatic hysteria — a topic which has been the occasion of much controversy in actions of this character in the tribunals of Europe and America. The subject is one of considerable interest from a medico-legal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of its voluminous literature. It is enough to say that in our opinion the plaintiff's case for large damages in respect to his supposed incapacitation for future professional practice is not made out. Of course in this jurisdiction damages can not be assessed in favor of the plaintiff as compensation for the physical or mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep. 287); and the evidence relating to the injuries, both external and internal, received by him must be examined chiefly in its

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bearing upon his material welfare, that is, in its results upon his earning capacity and the expenses incurred in restoration to the usual condition of health.

The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing in the situation a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the aid of his own professional knowledge, supplemented by suggestions obtained from his professional friends and associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true value the symptoms of disorder which he developed. The trial court was in our opinion fully justified in rejecting the exaggerated estimate of damages thus created.

We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the expense incurred for medical service. In this connection Doctor Montes testified that he was first called to see the plaintiff upon September 14, 1915, when he found him suffering from traumatic neurosis. Three months later he was called upon to treat the same patient for an acute catarrhal condition, involving disturbance in the pulmonary region. The treatment for this malady was successful after two months, but at the end of six months the same trouble recurred and required further treatment. In October of the year 1916, or more than a year after the accident in question occurred, Doctor Montes was called in consultation with Doctor Guerrero to make an examination of the plaintiff. Doctor Montes says that his charges altogether for services rendered to the plaintiff amount to P350, of which the sum of P200 had been paid by the plaintiff upon bills rendered from time to time. This physician speaks in the most general terms with respect to the times and extent of the services rendered; and it is by no means clear that those services which were rendered many months, or year, after the accident had in fact any necessary or legitimate relation to the injuries received by the plaintiff. In view of the vagueness and uncertainty of the testimony relating to Doctor Montes' services, we are of the opinion that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent of the plaintiff's obligation with respect to treatment for said injuries.

With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of the opinion that they are not a proper subject of recovery in this action; and this for more than one reason. In the first place, it does not appear that said physicians have in fact made charges for those services with the intention of imposing obligations on the plaintiff to pay for them. On the contrary it would seem that said services were gratuitously rendered out of courtesy to the plaintiff as a member of the medical profession. The suggestions made on the stand by these physicians to the effect that their services were worth the amounts stated by them are not sufficient to proved that the plaintiff had incurred the obligation to pay those amounts. In the second place, we are convinced that in employing so many physicians the plaintiff must have had in view of the successful promotion of the issue of this lawsuit rather than the bona fide purpose of effecting the cure of his injuries. In order to constitute a proper element of recovery in an action of this character, the medical service for which reimbursement is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition. It can not be permitted that a litigant should retain an unusual and unnecessary number of professional experts with a view to the successful

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promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred. His claim for medical services must be limited to such expenditures as were reasonably suited to the case.

The second error assigned in the brief of the defendant company presents a question of practice which, though not vital to the solution of this case, is of sufficient general importance to merit notice. It appears that four of the physicians examined as witnesses for the plaintiff had made written statements at various dates certifying the results of their respective examinations into the condition of the plaintiff. When these witnesses were examined in court the identified their respective signatures to these certificates and the trial judge, over the defendant's objection, admitted the documents as primary evidence in the case. This was undoubtedly erroneous. A document of this character is not primary evidence in any sense, since it is fundamentally of a hearsay nature; and the only legitimate use to which one of these certificates could be put, as evidence for the plaintiff, was to allow the physician who issued it to refer thereto to refresh his memory upon details which he might have forgotten. In Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover damages for personal injury, it appeared that a physician, who had been sent by one of the parties to examine the plaintiff, had made at the time a written memorandum of the results of the examination; and it was proposed to introduce this document in evidence at the trial. It was excluded by the trial judge, and it was held upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the memory, and no impeachment of the memorandum on cross-examination; and the document was clearly incompetent as evidence in chief."

It results from the foregoing that the judgment appealed from must be modified by reducing the amount of the recovery to eleven hundred pesos (1,100), with legal interest from November 8, 1916. As thus modified the judgment is affirmed, without any special pronouncement as to costs of this instance. So ordered.

Arellano, C.J., Torres, Araullo, Malcolm and Avanceña, JJ., concur.

23. US VS. BARIAS

US v. Barias

Facts:

On November 2, 1911, defendant Segundo Barias, a motorman for the Manila Electric Railroad and Light Company, was driving his car along Rizal Avenue and stopped at an intersection to take on some passengers. He looked backward, presumably to be sure that all passengers were aboard, and then started the car. At that moment, Fermina Jose, a 3-year old child, walked or ran in front of the car. She was knocked down and dragged at some distance to death. Defendant knew nothing of this until his return, when he was informed of what happened. He was charged and found guilty of homicide resulting from reckless negligence.

Issue:

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Whether the evidence shows such carelessness or want of ordinary care on the part of the defendant as to amount to reckless negligence

Held:

Negligence is want of the care required by the circumstances. It is a relative or comparative, not an absolute, term and its application depends upon the situation of the parties and the degree of care and vigilance which the circumstances reasonably require. Where the danger is great, a high degree of care is necessary, and the failure to observe it is a want of ordinary care under the circumstances.

The evidence shows that the thoroughfare on which the incident occurred was a public street in a densely populated section of the city. The hour was six in the morning, or about the time when the residents of such streets begin to move about. Under such conditions a motorman of an electric street car was clearly charged with a high degree of diligence in the performance of his duties. He was bound to know and to recognize that any negligence on his part in observing the track over which he was running his car might result in fatal accidents. He had no right to assume that the track before his car was clear. It was his duty to satisfy himself of that fact by keeping a sharp lookout, and to do everything in his power to avoid the danger which is necessarily incident to the operation of heavy street cars on public thoroughfares in populous sections of the city. At times, it might be highly proper and prudent for him to glance back before again setting his car in motion, to satisfy himself that he understood correctly a signal to go forward or that all the passengers had safely alighted or gotten on board. But we do insist that before setting his car again in motion, it was his duty to satisfy himself that the track was clear, and, for that purpose, to look and to see the track just in front of his car. This the defendant did not do, and the result of his negligence was the death of the child.

We hold that the reasons of public policy which impose upon street car companies and their employees the duty of exercising the utmost degree of diligence in securing the safety of passengers, apply with equal force to the duty of avoiding the infliction of injuries upon pedestrians and others on the public streets and thoroughfares over which these companies are authorized to run their cars. And while, in a criminal case, the courts will require proof of the guilt of the company or its employees beyond a reasonable doubt, nevertheless the care or diligence required of the company and its employees is the same in both cases, and the only question to be determined is whether the proofs shows beyond a reasonable doubt that the failure to exercise such care or diligence was the cause of the accident, and that the defendant was guilty thereof.

Standing erect, at the position he would ordinarily assume while the car is in motion, the eye of the average motorman might just miss seeing the top of the head of a child, about three years old, standing or walking close up to the front of the car. But it is also very evident that by inclining the head and shoulders forward very slightly, and glancing in front of the car, a person in the position of a motorman could not fail to see a child on the track immediately in front of his car; and we hold that it is the manifest duty of a motorman, who is about to start his car on a public thoroughfare in a thickly-settled district, to satisfy himself that the track is clear immediately in front of his car, and to incline his body slightly forward, if that be necessary, in order to bring the whole track within his line of vision. Of

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course, this may not be, and usually is not necessary when the car is in motion, but we think that it is required by the dictates of the most ordinary prudence in starting from a standstill.

24. Sarmiento vs Sps. Luis & Rose Sun-Cabrido

SARMIENTO V CABRIDOCORONA, J.; APRIL 9, 2003G.R. NO. 141258

FACTS: SOMETIME IN APRIL, 1994, TOMASA SARMIENTO WAS ASKED BY DRA. VIRGINIA LAO TO FIND SOMEONE TO RESET A PAIR OF DIAMOND EARRINGS INTO TWO GOLD RINGS.

SARMIENTO SENT TITA PAYAG WITH THE PAIR TO DINGDING’S JEWELRY SHOP, OWNED AND MANAGED BY SPOUSES LUIS AND ROSE CABRIDO, AND ACCEPTED THE JOB ORDER FOR PHP400.00.

SARMIENTO PROVIDED 12 GRAMS OF GOLD FOR CRAFTING THE RING SETTINGS, AND THREE DAYSLATER, PAYAG DELIVERED TO THE SHOP ONE OF THE EARRINGS (WORTH .33 CARAT, ALMOST PERFECT IN CUT AND CLARITY).

MA. LOURDES SUNTRIED TO DISMOUNT THE DIAMOND FROM THE ORIGINAL SETTING.

SHE FAILED AND ASKED ZENON SANTOS TO DO IT. SANTOS USED A PAIR OF PLIERS TO TWIST THE SETTING AND IN THE PROCESS, BROKE THE GEM.

SARMIENTO ASKED THE CABRIDOS TO REPLACE THE DIAMOND WITH THE SAME SIZE AND QUALITY, BUT THEY REFUSED, FORCING THE FORMER TO BUY A REPLACEMENT HERSELF WORTH PHP 30,000.00.

SARMIENTO FILED A COMPLAINT FOR DAMAGES AGAINST THE CABRIDOS AND SUN.

DEFENSE: ROSE CABRIDO DENIED TRANSACTION WITH PAYAG. MARILOU AND SANTOS DENIED BEING EMPLOYEES OF THE SHOP.

MTC OF TAGBILARAN RULED IN FAVOR OF SARMIENTO.

RTC HOWEVER REVERSED THE DECISION, THE REVERSAL OF WHICH WAS AFFIRMED BY THE CA.

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ISSUES:

WHETHER OR NOT SANTOS AND SUN ARE EMPLOYEES OF THE CABRIDOS

WHETHER OR NOT THERE WAS AN OBLIGATION ASSUMED BY THE RESPONDENTS UNDER THE CONTRACT OF SERVICE

HELD: YES. YES! PETITION GRANTED. CA DECISION REVERSED AND SET ASIDE. CABRIDOS ORDERED TO PAY PHP 30,000.00 AS ACTUAL DAMAGES AND PHP 10,000.00 AS MORAL DAMAGES.

RATIO: FACTS SHOW THAT SANTOS HAS BEEN WORKING AT THE SHOP AS A GOLDSMITH FOR 6MONTHS. PAYAG ALSO TESTIFIED THAT SHE HAD TRANSACTED AT LEAST 10 TIMES BEFORE IN THE SHOP, ALWAYS THROUGH SUN. EVIDENCE PROVE THAT BOTH ARE EMPLOYED AT THE SHOP TO PERFORM ACTIVITIES NECESSARY OR DESIRABLE IN ITS BUSINESS. SC WAS INCLINED TO AGREE WITH THE MTC’S GIVING CREDENCE TO SARMIENTO’S CONTENTIONS SINCE THEY HAD THE OPPORTUNITY TO OBSERVE THE BEHAVIOR AND DEMEANOR OF THE WITNESSES AND THE RESPONDENTS’ INCONSISTENT POSITION IMPUGNS THEIR CREDIBILITY (FIRST, THEY DENIED EXISTENCE OF ANY TRANSACTION, BUT THEYCHANGED AND ACKNOWLEDGED THE TRANSACTION, BUT DENIED THAT DISMOUNTING THE DIAMOND FROM THE ORIGINAL SETTING IS NOT PART OF IT).SUN EXPRESSED NO RESERVATION REGARDING THE DISMOUNTING OF THE DIAMOND WHICH IS AN INTEGRAL PART OF THE JOB ORDER. SUN EXAMINED IT, TRIED TO DISMOUNT IT HERSELF AND GAVE THE TASK TO SANTOS. ACTING LIKE THAT, SHE CANNOT DENY THE OBLIGATION OF THE SHOP TO RESET THE PAIR OF EARRINGS. CONSIDERING THE ESTABLISHED FACTS…OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW B/W CONTRACTING PARTIES. 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. THE FAULT OR NEGLIGENCE OF THE OBLIGOR CONSISTS IN THE OMISSION OF THAT DILIGENCE WHICH IS REQUIRED BY THE NATURE OF THE OBLIGATION AND CORRESPONDS WITH THE CIRCUMSTANCES OF THE PERSONS, OF THE TIME AND OF THE PLACE.SANTOS CLEARLY ACTED WITH NEGLIGENCE. HE SHOULD HAVE USED A MINIATURE WIRE SAW INSTEAD OF PLIERS IN DISMOUNTING THE DIAMOND. THE SHOP FALIDE TO PERFORM ITS OBLIGATION WITH THE ORDINARY DILIGENCE REQUIRED BY THE CIRCUMSTANCES.RES IPSA LOQUITOR (HIS NEGLIGENCE IN USING THE WRONG EQUIPMENT) MORAL DAMAGES WERE ALSO AWARDED SINCE MDS CAN BE AWARDED IN A BREACH OF CONTRACT IF THERE IS PROOF THAT THE DEFENDANTS ACTED WITH BAD FAITH OR GUILTY OF GROSS NEGLIGENCE OR IN WANTON DISREGARD OF HIS CONTRACTUAL OBLIGATION. SANTOS HAD 40 YEARS OF EXPERIENCE AS A GOLDSMITH AND SHOULD HAVE KNOWN HE WAS USING THE WRONG EQUIPMENT WHICH ENTAILED AN UNNECESSARY RISK OF BREAKAGE, BUT HE WENT ON ANYWAY.

BASIS FOR AWARD OF ATTORNEY FEES NEGATED. RESPONDENTS HAD AN HONEST BELIEF THAT THEY WERE NOT RESPONSIBLE, WHICH IS WHY THEY REFUSED TO PAY.

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25. Crisostomo vs CA

RECENT JURISPRUDENCE – MERCANTILE LAW U.S.T. Law Review, Volume XLVIII, January – December 2004 ESTELA L. CRISOSTOMO v. COURT OF APPEALS and CARAVAN TRAVEL AND TOURS INTERNATIONAL, INC. G.R. No. 138334, 25 August 2003, First Division (Ynares-Santiago, J.) A travel agency is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondent’s services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. Petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing, and accommodation in a tour dubbed “Jewels of Europe”. A 5% discount on the total cost of P74,322.70 which included the airfare was given to the petitioner. The booking fee was also waived because petitioner’s niece, Meriam Menor, was respondent’s ticketing manager. On June 12, 1991, Menor went to her aunt’s residence to deliver petitioner’s travel documents and plane tickets. In return, petitioner gave the full payment for the package tour. Menor then told her to be at the NAIA on Saturday, June 15, 1991, two hours before her flight on board British Airways. Without checking her travel documents, petitioner went to NAIA and to her dismay, she discovered that the flight she was supposed to take had already departed the previous day. She learned that her plane ticket was for the flight scheduled on June 14, 1991. She called up Menor to complain and Menor suggested upon petitioner to take another tour – “British Pageant”. Petitioner was asked anew to pay US$785.00. Petitioner gave respondent US$300 as partial payment and commenced the trip. ISSUE: Whether or not respondent Caravan did not observe the standard of care required of a common carrier when it informed the petitioner wrongly of the flight schedule. HELD: The petition was denied for lack of merit. The decision of the Court of Appeals was affirmed. A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, affecting their services to the public. It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent did RECENT JURISPRUDENCE – MERCANTILE LAW U.S.T. Law Review, Volume XLVIII, January – December 2004 not undertake to transport petitioner from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. Respondent’s services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. The standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. It is clear that respondent performed its prestation under the contract as well as everything else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioners, it became incumbent

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upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details regarding the trip.

26. Chavez vs Gonzales

FRANCISCO CHAVEZ, vs. RAUL M. GONZALESFacts:The case originates from events that occurred a year after the 2004 national and local elections. On June 5, 2005, Press Secretary Ignacio Bunye told reporters that the opposition was planning to release an audiotape of a mobile phone conversation allegedly between the President of the Philippines, Gloria Macapagal Arroyo, and a high-ranking official of the Commission on Elections (COMELEC) which was audiotaped allegedly through wire-tapping. On June 8, 2005, respondent Department of Justice (DOJ) Secretary Raul Gonzales warned reporters that those who had copies of the compact disc (CD) and those broadcasting or publishing its contents could be held liable under the Anti-Wiretapping Act.. In another press briefing, Secretary Gonzales ordered the National Bureau of Investigation (NBI) to go after media organizations "found to have caused the spread, the playing and the printing of the contents of a tape" of an alleged wiretapped conversation involving the President about fixing votes in the 2004 national elections. Issue: Is the warning to media in not airing the “hello Garci” tapes a case of prior restraint?Ruling:Yes. The Court holds that it is not decisive that the press statements made by respondents were not reduced in or followed up with formal orders or circulars. It is sufficient that the press statements were made by respondents while in the exercise of their official functions. Any act done, such as a speech uttered, for and on behalf of the government in an official capacity is covered by the rule on prior restraint. The concept of an "act" does not limit itself to acts already converted to a formal order or official circular. Otherwise, the non formalization of an act into an official order or circular will result in the easy circumvention of the prohibition on prior restraint. The press statements at bar are acts that should be struck down as they constitute impermissible forms of prior restraints on the right to free speech and press.

27. Telefast Communications vs Castro

FACTS:

SOFIA CROUCH WAS IN THE PHILIPPINES FOR VACATION WHEN HER MOTHER DIED. ONTHAT SAME DAY, SHE ADDDRESSED A TELEGRAMANNOUNCING HER MOTHER’S DEATH TO IGNACIO CASTRO, SR AT 685, WANDA, SCOTTSBURG, INDIANA, USA. THE DEFENDANTS, AFTER RECEIVING THE REQUIRED FEES AND CHARGES, ACCEPTED THE TELEGRAM FOR TRANSMISSION.

THE HUSBAND AND THE CHILDREN OF THE DECEASED WHO WERE ALL RESIDING IN THE US NEVER RECEIVED THE TELEGRAM. SOFIA CROUCH WAS THE ONLY ONE PRESENT DURING THE INTERNMENT.

SOFIA AND THE OTHER PLAINTIFFS THEN FILED AN ACTION TO RECOVER DAMAGES ARISING FROM THE BREACH OF CONTRACT AGAINST THE DEFENDANTS. THE ONLY DEFENSE OF THE DEFENDANTS WAS THAT, THE FAILURE WAS DUE TO “THE TECHNICAL AND ATMOSPHERIC FACTORS BEYOND ITS CONTROL”.

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HOWEVER NO EVIDENCE APPEARED ON RECORD THAT THE DEFENDANT EVER MAKE ANY ATTEMPT TO ADVISE SOFIA AS TO WHY THEY COULD NOT TRANSMIT THE TELEGRAM.

ISSUE:

WHETHER OR NOT THE PETITIONER ARE LIABLE FOR DAMAGES FOR THEIR FAILURE TO TRANSMIT THE TELEGRAM.

WHETHER OR NOT THE PETITIONERS SHOULD ONLY LIABLE FOR ACTUAL OR QUANTIFIED DAMAGES.

RULING:

YES. TELEFAST COMMUNICATIONS/PHIL. WIRELESS INC ARE LIABLE TO INDEMNIFY THE RESPONDENTS FOR DAMAGES THEY HAVE SUFFERED FROM THE FAILURE OF  THE PLAINTIFFS ON TRANSMITTING THE TEEGRAM.

THE DEFENDANT SOFIA CROUCH AND THE PLAINTIFFS ENTERED INTO A CONTRACT WHEREBY THE PLAINTIFFS SHALL SEND THE RESPONDENTS MESSAGE OVERSEAS BY TELEGRAM, AFTER PAYING THE REQUIRED FEES. THE DEFENDANT HAS PERFORMED HER PART IN THE OBLIGATION. HOWEVER, THE PLAINTIFFS FAILED TO DO THEIR PART. PETITONER THEREFORE WAS GUILTY OF CONTRAVENING ITS OBLIGATION AND IS LIABLE FOR DAMAGES PURSUANT TO THE PROVISIONS OF ART 1170  AND ART. 2176 OF THE CIVIL CODE.

NO. THE PETITIONERS LIABILITY ARE NOT LIMITED TO ACTUAL OR QUANTIFIED DAMAGES.

PURSUANT TO ART. 2217 OF THE CIVIL CODE, THE PETITIONERS ARE LIABLE TO INDMENIFY THE RESPONDENTS FOR THE MORAL DAMAGES THEY HAD SUFFERED. THE PETITIONERS ACT OR OMISSIONWAS THE PRECISE CAUSE OF THE SUFFERINGS THAT THE RESPONDENTS HAVE TO UNDERGO. RESPONDENTS SOFIA CROUCH SHALL BE AWARDED WITH P16 000 AS COMPENSATORY DAMAGES. EACH OF THE RESPONDENTS SHALL BE AWARDED WITH P10 000 AS MORAL DAMAGES AND P1 000 AS EXEMPLARY DAMAGES.

28. PSBA vs CA

Philippine School of Business Administration vs. CA [205 SCRA 729 GR No. 84698. February 4, 1942]

Post under case digests, Civil Law at Tuesday, March 20, 2012 Posted by Schizophrenic Mind

Facts: Carlitos Bautista was stabbed while on the second floorpremises of the schools by assailants who were not members of the schools academic community. This prompted the parents of the deceased to file a suit in the RTC of Manila for damages against PSBA and its corporate officers.

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The defendant schools (now petitioner) sought to have the suit dismissed on the ground of no cause of action and not within the scope of the provision of Art 2180 since it is an academic institution. The trial court overruled the petitioner’s contention and its decision was later affirmed by the appellate court.

Issue: Whether the decision of the appellate court primarily anchored on the law of quasi-delicts is valid.

Held: Although the Supreme Court agreed to the decision of theCourt of Appeals to deny the petition of motion to dismiss by the PSBA, they do not agree to the premises of the appellate court’s ruling.

Art 2180, in conjunction with Art 2176 of the civil code establishesthe rule of in loco parentis, they can not be held liable to the acts of Calito’s assailants which were not students of the PSBA and because of the contractual relationship.

The school and the students, upon registration established a contract between them, resulting in bilateral obligations. The institution of learning must provide their students with an atmosphere that promotes or assists its primary undertaking of imparting knowledge, and maintain peace and order within itspremises.

The SC dismissed the petition and the case was remanded to the trail court to determine if the school neglected its obligation to perform based on the contractual relation of them and the students.

29. Amadora vs CA

Facts: A few days before graduation, Alfredo Amadora was shot and killed when his classmate, Pablito Daffron fired a gun in theauditorium of their school. Daffon was convicted of homicide thru reckless imprudence. Additionally, petitioners, filed a civil action for damages under Article 2180 of the Civil Code against the Colegio de San Jose-Recoletos, its rector the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other students, through their respective parents. The

complaint against the students was later dropped.

Issue: Whether or not the school may be held liable for the acts of its students.

Held: As long as it can be shown that the student is in the schoolpremises in pursuance of a legitimate

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student objective, in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student constitutes.

Teachers shall be liable for the acts of their students. As long as the defendant can show that he had taken the necessary precautions to prevent the injury, he can exonerate himself from liability. 

30. Arrieta vs National Rice and Corn Corporation 10 SCRA 79

Arrieta vs. National Rice & Corn Corporation (NARIC) GR L-15645, 31 January 1964 En Banc, Regala (J) Facts: On 19 May 1952, Paz and Vitaliado Arrieta participated in the public bidding called by NARIC for the Negotiable Instruments Law, 2004 ( 1 )Digests (Berne Guerrero) supply of 20,000 metric tons of Burmese rice. Ad her bid of $203 per metric ton was the lowest, she was awarded the contract for the same. As a result of the delay in the opening of the letter of credit by NARIC, the allocation of Arrieta’s supplier in Rangoon was cancelled and the 5% deposit amounting to an equivalent of P200,000 was forfeited. Arrieta endeavored but failed to restore the cancelled Burmese rice allocation, and thus offered Thailand rice instead. Such offer was rejected by NARIC. Subsequently, Arrieta sent a letter to NARIC, demanding compensation for the damages caused her in the sum of US$286,000 representing unrealized profit. The demand having been rejected, she instituted the case.

Issue: Whether the rate of exchange to be applied in the conversion is that prevailing at the time of breach, or at the time the obligation was incurred, or on the promulgation of the decision.

Held: As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement to pay an obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public policy (RA 529), and the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. Herein, the rate of exchange to be applied is that of 1 July 1952, when the contract was executed.

31. Magat vs Medialdea

G.R. No. L-37120 April 20, 1983

VICTORINO D. MAGAT, petitioner, vs.HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents.

Sinesio S. Vergara for petitioner.

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Eladio B. Samson for respondents.

ESCOLIN, J.:

Put to test in this petition for review on certiorari is the sufficiency of the averments contained in the complaint for alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in Civil Case No. 17827 of the Court of First Instance of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, which complaint was dismissed for failure to state a cause of action.

The pertinent allegations in the complaint, subject of inquiry, are as follows: 1

3. That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines;

4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on how best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay, Philippines, and because of the experience of the plaintiff in connection with his various, contracts with the U.S. Navy, Subic Bay, Philippines, and his goodwill already established with the Naval personnel of Subic Bay, Philippines, especially in providing the U.S. Navy with needed materials or goods on time as specified by the U.S. Navy, be they of local origin or imported either from the United States or from Japan, the said Isidro Q. Aligada approached the plaintiff herein in behalf of the defendant and proposed to import from Japan thru the plaintiff herein or thru plaintiff's Japanese business associates, all taximeters and radio transceivers needed by the defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;

5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with the assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines, the plaintiff's assistance in this matter having been given to the defendant gratis et amore;

6. That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein to the effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, a copy of which is hereto attached marked as Annex 'A' and made an integral part of this complaint, wherein the plaintiff quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by the plaintiff to the defendant to be delivered sixty to ninety [60-90] days after receipt of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities;

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7. That the plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant the items specified in Annex 'A', as well as the terms and conditions of said offer, as shown by the signed conformity of the defendant appearing on Annex 'A' which was duly delivered by the defendant's agent to the plaintiff herein, whereupon all that the plaintiff had to do in the meantime was to await advice from the defendant as to the radio frequency to be assigned by the proper authorities to the defendant;

8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his signed conformity appearing in Annex 'A' hereof as well as the letter dated October 4, 1972, of his agent aforementioned which is attached hereto and marked as Annex 'B' and made an integral part of this complaint, and in order that plaintiff's promised delivery would not be delayed, the plaintiff herein took steps to advise the Japanese entity entrusted with the manufacture of the items listed in Annex 'A' to the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with regards to radio frequency would follow as soon as same is received by the plaintiff from the defendant;

9. That in his letter dated October 6, 1972, a copy of which is hereto attached marked as Annex 'C', the defendant advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed with the plaintiff herein, which fact was duly communicated to the plaintiff by the defendant's aforementioned agent;

10. That by his letter dated October 7, 1972, addressed to the plaintiff by the defendant's agent, a copy of which is hereto attached and marked as Annex 'D', defendant's agent qualified defendant's instructions contained in his letter of October 6, 1972 [Annex 'C'] in the sense that plaintiff herein should proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit;

11. That it being normal business practice in case of foreign importation that the buyer opens a letter of credit in favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a letter of credit by the defendant;

12. That the defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods ordered by him;

13. That it has come to the knowledge of the plaintiff herein that the defendant has been operating his taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs, he impliedly laid the blame for the delay upon the plaintiff herein, thus destroying the reputation of the plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts business;

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14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, copy attached marked as Annex 'E', to ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff herein or whether he desired to have the contract between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand;

15. That the defendant herein entered into a contract with the plaintiff herein as set forth in Annex 'A' without the least intention of faithfully complying with his obligation is thereunder, but he did so only in order to obtain the concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the expense and prejudice of third parties such as the plaintiff herein;

16. That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff will suffer the following damages:

[a] As the radio transceivers ordered by the defendant are now in the hands of the plaintiff's Japanese representative, the plaintiff will have to pay for them, thus he will have to suffer as total loss to him the amount of P523,938.98 (converting the amount of $77,620.59 to pesos at the rate of P6.75 to the dollar) as said radio transceivers were purposely made or manufactured solely for the use of the defendant herein and cannot possibly be marketed by the plaintiff herein to the general public;

[b] The amount of P 52,393.89 or 10% of the purchase price by way of loss of expected profits from the transaction or contract between plaintiff and the defendant;

[c] Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business dealings with Japanese firms, thereby resulting also in loss of possible profits in the future which plaintiff assess at no less than P200,000.00;

[d] That in view of the defendant's bad faith in inducing plaintiff to enter into the contract with him as set forth hereinabove, defendant should be assessed by his Honorable Court in favor of the plaintiff the sum of P200,000.00 as moral and exemplary damages;

[e] That in view of the defendant's fault and to protect his interests, plaintiff herein is constrained to retain the services of counsel with whom he agreed to pay by way of attorney's fees the sum of P50,000.00".

Respondent Guerrero filed a motion to dismiss said complaint for lack of cause of action, which ground is propounded by respondent's counsel thus: 2

... it is clear that plaintiff was merely anticipating his loss or damage which might result from the alleged failure of defendant to comply with the terms of the alleged contract. Hence, plaintiff's right of recovery under his cause of action is premised not on any loss or damage actually suffered by him but on a non-existing loss or damage which he is expecting to incur in the near future. Plaintiff's right therefore under his cause of action is not yet fixed or vested.

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Inasmuch as there is no other allegation in the present Complaint wherein the same could be maintained against defendant, the present Complaint should be dismissed for its failure to state a cause of action against defendant.

The respondent judge, over petitioner's opposition, issued a minute order dismissing the complaint as follows: 3

Acting upon the 'Motion to Dismiss' filed by the defendant, through counsel, dated June 7, 1973, as well as the opposition thereto filed by the plaintiff, through counsel, dated June 14, 1973, for the reasons therein alleged, this Court hereby grants said motion and, as prayed for, the complaint in the above-entitled case is dismissed.

SO ORDERED.

Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency of the case of action can only be determined on the basis of the facts alleged in the complaint 4 ; that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom5 ; and that, admitting the facts as alleged, whether or not the Court can render a valid judgment against the defendant upon said facts in accordance with the prayer in the complaint 6.

After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaints recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain [paragraph 8 of the Complaint], private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him [paragraphs 11 & 12 of the Complaint], and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit: [1] the existence of a legal right to the plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. 7

Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law.

Article 1170 of the Civil Code provides:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof are liable for damages.

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The phrase "in any manner contravene the tenor" of the obligation includes any ilicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. 8

The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain [lucro cesante] 9. If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the non-performance of the obligation 10.

The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. To Our mind, the complaint sufficiently alleges bad faith on the part of the defendant.

In fine, We hold that on the basis of the facts alleged in the complaint, the court could render a valid judgment in accordance with the prayer thereof.

ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case ordered remanded to the court of origin for further proceedings. No costs.

SO ORDERED.

32. TANGUILIG VS CA

JACINTO TANGUILIG DOING BUSINESS UNDER THE NAME AND STYLE J.M.T. ENGINEERING AND GENERAL MERCHANDISING VS COURT OF APPEALS AND VICENTE HERCE JR.

G.R.NO. 125994 29JUNE2001

FACTS OF THE CASE:

HERCE CONTRACTED TANGUILIG TO CONSTRUCT A WINDMILL SYSTEM FOR HIM, FOR CONSIDERATION OF 60,000.00. PURSUANT TO THE AGREEMENT HERCE PAID THE DOWNPAYMENT OF 30,000.00 AND INSTALLMENT OF 15,000.00 LEAVING A 15,000.00 BALANCE. 

HERCE REFUSED TO PAY THE BALANCE BECAUSE HE HAD ALREADY PAID THIS AMOUNT TO SPGMI WHICH CONSTRUCTED A DEEP WELL TO WHICH THE WINDMILL SYSTEM WAS TO BE CONNECTED SINCE THE DEEPWELL, AND ASSUMING THAT HE OWED THE 15,000.00 THIS SHOULD BE OFFSET BY THE DEFECTS IN THE WINDMILL SYSTEM WHICH CAUSED THE STRUCTURE TO COLLAPSE AFTER STRONG WINDS HIT THEIR PLACE. ACCORDING TO TANGUILIG, THE 60,000.00 CONSIDERATION IS ONLY FOR THE CONSTRUCTION OF THE WINDMILL AND THE CONSTRUCTION OF THE DEEPWELL WAS NOT PART OF IT. THE COLLAPSE OF THE WINDMILL CANNOT BE ATTRIBUTED TO HIM AS WELL, SINCE HE DELIVERED IT IN GOOD AND WORKING CONDITION AND HERCE ACCEPTED IT WITHOUT PROTEST. HERCE CONTESTED THAT THE COLLAPSE IS ATTRIBUTABLE TO A TYPHOON, A FORCE MAJEURE THAT RELIEVED HIM OF LIABILITY. 

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THE RTC RULED IN FAVOR OF TANGUILIG, BUT THIS DECISION WAS OVERTURNED BY THE COURT OF APPEALS WHICH RULED IN FAVOR OF HERCE

ISSUES OF THE CASE:

CAN THE COLLAPSE OF THE WINDMILL BE ATTRIBUTED TO FORCE MAJEURE? THUS, EXTINGUISHING THE LIABILITY OF TANGUILIG?

- YES, IN ORDER FOR A PARTY TO CLAIM EXEMPTION FROM LIABILITY BY REASON OF FORTUITOUS EVENT UNDER ART 1174 OF THE CIVIL CODE THE EVENT SHOULD BE THE SOLE AND PROXIMATE CAUSE OF THE LOSS OR DESTRUCTION OF THE OBJECT OF THE CONTRACT.- IN NAKPIL VS. COURT OF APPEALS, THE S.C. HELD THAT 4 REQUISITES MUST CONCUR THAT THERE MUST BE A (A) THE CAUSE OF THE BREACH OF THE OBLIGATION MUST BE INDEPENDENT OF THE WILL OF DEBTOR (B) THE EVENT MUST BE EITHER UNFORESEEABLE OR UNAVOIDABLE; (C) THE EVENT BE SUCH TO RENDER IT IMPOSSIBLE FOR THE DEBTOR TO FULFILL HIS OBLIGATION IN A NORMAL MANNER; AND (D) THE DEBTOR MUST BE FREE FROM ANY PARTICIPATION IN OR AGGRAVATION OF THE INJURY TO THE CREDITOR.- TANGUILIG MERELY STATED THAT THERE WAS A STRONG WIND, AND A STRONG WIND IN THIS CASE IS NOT FORTUITOUS, IT WAS NOT UNFORESEEABLE NOR UNAVOIDABLE, PLACES WITH STRONG WINDS ARE THE PERFECT LOCATIONS TO PUT UP A WINDMILL, SINCE IT NEEDS STRONG WINDS FOR IT TO WORK.

HELD:

WHEREFORE, THE APPEALED DECISION IS MODIFIED. RESPONDENT VICENTE HERCE JR. IS DIRECTED TO PAY PETITIONER JACINTO M. TANGUILIG THE BALANCE OF P15,000.00 WITH INTEREST AT THE LEGAL RATE FROM THE DATE OF THE FILING OF THE COMPLAINT. IN RETURN, PETITIONER IS ORDERED TO "RECONSTRUCT SUBJECT DEFECTIVE WINDMILL SYSTEM, IN ACCORDANCE WITH THE ONE-YEAR GUARANTY" AND TO COMPLETE THE SAME WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION.

OBLIGATIONS AND CONTRACTS TERMS:

FORTUITOUS EVENTS- REFERS TO AN OCCURRENCE OR HAPPENING WHICH COULD NOT BE FORESEEN, OR EVEN IF FORESEEN, IS INEVITABLE. IT IS NECESSARY THAT THE OBLIGOR IS FREE FROM NEGLIGENCE. FORTUITOUS EVENTS MAY BE PRODUCED BY TWO (2) GENERAL CAUSES: (1) BY NATURE, SUCH AS BUT NOT LIMITED TO, EARTHQUAKES, STORMS, FLOODS, EPIDEMICS, FIRES, AND (2) BY THE ACT OF MAN, SUCH AS BUT NOT LIMITED TO, ARMED INVASION, ATTACK BY BANDITS, GOVERNMENTAL PROHIBITIONS, ROBBERY, PROVIDED THAT THEY HAVE THE FORCE OF AN IMPOSITION WHICH THE CONTRACTOR OR SUPPLIER COULD NOT HAVE RESISTED.

33. Geraldez vs CA

Facts: An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against private respondentKenstar Travel Corporation. Sometime in October 1989, Petitioner came to know about private respondent from numerous advertisements in newspapers of general circulation

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regarding toursin Europe. She then contacted private respondent by phone and the latter sent its representative, who gave her the brochure for the tour and later discussed its highlights. The European tours offered were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22-day tour of Europe for S2,990.00. She paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores. Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that, contrary to what was stated in the brochure, there was no European tour manager for their group of tourists, the hotels in which she and the group stayed were not first-class, the UGC Leather Factory which was specifically added as a highlight of the tour was not visited, and the Filipino lady tour guide by private respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first time.

Issue: Whether or not the respondent company committed fraud in order for the petitioner to enter into the contract.

Held: This fraud or dolo, which is present or employed at the time of birth or perfection of a contract, may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those, which are not serious in character and without which the other party would still have entered into the contract. Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some particular or accident of the obligations. The effects of dolo causante are the nullity of the contract and the indemnification of damages, and dolo incidente also obliges the person employing it to pay damages.

In either case, whether private respondent has committed dolo causante or dolo incidente by making misrepresentations in its contracts with petitioner and other members of the tour group, whichdeceptions became patent in the light of after-events when, contrary to its representations, it employed an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.

34. Eastern Shipping Lines vs CA

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

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234 SCRA 78

FACTS

Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as 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 excepted 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 an 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.

ISSUE

(1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether 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.

HELD

(1) 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 damaes 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 executor, 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.

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The interest due shall be 12% PA to be computed fro default, J or EJD.

(2) 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 EJ but when such certainty cannot be so reasonably established at the time the demand is made, the interest shll 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.

35. CRISMINA GARMENTS, INC. VS. COURT OF APPEAL AND NORMA SIAPNO

FACTS:

PETITIONER CONTRACTED THE SERVICES OF THE RESPONDENT, TO SEW FOR THE PETITIONER OF 20,762 PIECES OF ASSORTED GIRLS DENIMS TO THE AMOUNT OF P76,410.00.

AT FIRST, THE RESPONDENT WAS TOLD THAT THE SEWING OF SOME OF THE PANTS WAS DEFECTIVE. SHE OFFERED TO TAKE DELIVERY OF THE DEFECTIVE PANTS. HOWEVER, SHE WAS LATER TOLD BY [PETITIONER]'S REPRESENTATIVE THAT THE GOODS WERE ALREADY GOOD. SHE WAS TOLD TO JUST RETURN FOR HER CHECK OF P76,410.00. HOWEVER, THE PETITIONER FAILED TO PAY HER THE AFORESAID AMOUNT. THIS PROMPTED HER TO HIRE THE SERVICES OF COUNSEL WHO, ON NOVEMBER 12, 1979, WROTE A LETTER TO THE PETITIONER DEMANDING PAYMENT OF THE AFORESAID AMOUNT WITHIN TEN DAYS FROM RECEIPT THEREOF. ON FEBRUARY 7, 1990, THE PETITIONER'S VICE-PRESIDENT-COMPTROLLER, WROTE A LETTER TO RESPONDENT'S COUNSEL, AVERRING, INTER ALIA, THAT THE PAIRS OF JEANS SEWN BY HER, NUMBERING 6,164 PAIRS, WERE DEFECTIVE AND THAT SHE WAS LIABLE TO THE PETITIONER FOR THE AMOUNT OF P49,925.51 WHICH WAS THE VALUE OF THE DAMAGED PAIRS OF DENIM PANTS AND DEMANDED REFUND OF THE AFORESAID AMOUNT.

ISSUE: WHETHER OR NOT IT IS PROPER TO IMPOSE INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM FOR AN OBLIGATION THAT DOES NOT INVOLVE A LOAN OR FORBEARANCE OF MONEY IN THE ABSENCE OF STIPULATION OF THE PARTIES.

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HELD: BECAUSE THE AMOUNT DUE IN THIS CASE AROSE FROM A CONTRACT FOR A PIECE OFWORK, NOT FROM A LOAN OR FORBEARANCE OF MONEY, THE LEGAL INTEREST OF SIX PERCENT (6%) PER ANNUM SHOULD BE APPLIED. FURTHERMORE, SINCE THE AMOUNT OF THE DEMAND COULD BE ESTABLISHED WITH CERTAINTY WHEN THE COMPLAINT WAS FILED, THE SIX PERCENT (6%) INTEREST SHOULD BE COMPUTED FROM THE FILING OF THE SAID COMPLAINT. BUT AFTER THE JUDGMENT BECOMES FINAL AND EXECUTORY UNTIL THE OBLIGATION IS SATISFIED, THE INTEREST SHOULD BE RECKONED AT TWELVE PERCENT (12%) PER YEAR.

36. KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC., respondents.

D E C I S I O N

PANGANIBAN, J.:

What is the nature of a bill of lading? When does a bill of lading become binding on a consignee? Will an alleged overshipment justify the consignee’s refusal to receive the goods described in the bill of lading? When may interest be computed on unpaid demurrage charges?

Statement of the Case

These are the main questions raised in this petition assailing the Decision[1] of the Court of Appeals[2] promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision[3] dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said RTC decision reads:

“WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff and against Defendant, ordering the Defendant to pay plaintiff:

1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the extrajudicial demand until fully paid;

2. A sum equivalent to ten (10%) percent of the total amount due as Attorney’s fees and litigation expenses.

Send copy to respective counsel of the parties.

SO ORDERED.”[4]

The Facts

The factual antecedents of this case as found by the Court of Appeals are as follows:

“Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed

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container, Container No. SEAU 67523, containing seventy-six bales of “unsorted waste paper” for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued by the plaintiff.

On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container during the “free time” period or grace period. The said shipment remained inside the plaintiff’s container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and damages.

In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the merchandise; that the cause of action should be against the shipper which contracted the plaintiff’s services and not against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits).”

As previously mentioned, the RTC found petitioner liable for demurrage, attorney’s fees and expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner’s contention that there was overshipment, (3) ruling that petitioner’s recourse was against the shipper, and (4) computing legal interest from date of extrajudicial demand.[5]

Respondent Court of Appeals denied the appeal and affirmed the lower court’s decision in toto. In a subsequent resolution,[6] it also denied the petitioner’s motion for reconsideration.

Hence, this petition for review.[7]

The Issues

In its memorandum, petitioner submits the following issues:

“I. Whether or not petitioner had accepted the bill of lading;

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II. Whether or not the award of the sum of P67,340.00 to private respondent was proper;

III. Whether or not petitioner was correct in not accepting the overshipment;

IV. Whether or not the award of legal interest from the date of private respondent’s extrajudicial demand was proper;”[8]

In the main, the case revolves around the question of whether petitioner was bound by the bill of lading. We shall, thus, discuss the above four issues as they intertwine with this main question.

The Court’s Ruling

The petition is partly meritorious. We affirm petitioner’s liability for demurrage, but modify the interest rate thereon.

Main Issue: Liability Under the Bill of Lading

A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations.[9] A “bill of lading delivered and accepted constitutes the contract of carriage even though not signed,”[10] because the “(a)cceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice.”[11] In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract.[12]

In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts found petitioner liable. The aforementioned section of the bill of lading reads:

“17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper’s failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper’s failure to supply information or otherwise to comply with all laws, regulations and requirements of law in

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connection with the goods of from any other act or omission of the shipper or consignee:” (Underscoring supplied.)

Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its consent thereto. Although petitioner admits “physical acceptance” of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the terms and conditions printed therein.[13] Petitioner cites as support the “Notice of Refused or On Hand Freight” it received on November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 29, 1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing “that its acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading” and “could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank laws.”[14] Petitioner further argues that the demurrage “was a consequence of the shipper’s mistake” of shipping more than what was bought. The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-à-vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment.[15]

Petitioner Bound by the Bill of Lading

We are not persuaded. Petitioner admits that it “received the bill of lading immediately after the arrival of the shipment”[16] on July 8, 1982.[17] Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from any term or stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that it could not accept the shipment. Petitioner’s inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioner’s inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper’s failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the “banks” to the shipper.[18] The letter merely proved petitioner’s refusal to pick up the cargo, not its rejection of the bill of lading.

Petitioner’s reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by private respondent to petitioner in November 1982, or four months after petitioner received the bill of lading. If the notice has any legal significance at all, it is to highlight petitioner’s prolonged failure to object to the bill of lading. Contrary to petitioner’s contention, the notice and the letter support – not belie – the findings of the two lower courts that the bill of lading was impliedly accepted by petitioner.

As aptly stated by Respondent Court of Appeals:

“In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of lading from the shipper. Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading without

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interposing any objection as to its contents. This raises the presumption that (herein petitioner) agreed to the entries and stipulations imposed therein.

Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact, before notifying (herein private respondent) of the ‘wrong shipment.’ It was only on January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months (herein private respondent never knew the reason for (herein petitioner’s) refusal to discharge the shipment.

After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally bringing the matter to (herein private respondent’s attention. The most logical reaction in such a case would be to immediately verify the matter with the other parties involved. In this case, however, (herein petitioner) unreasonably detained (herein private respondent’s) vessel to the latter’s prejudice.”[19]

Petitioner’s attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible,[20] cannot defeat the petitioner’s contractual obligation and liability under the bill of lading.

In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner’s memorandum before this Court. Clearly, we cannot now entertain an issue raised for the very first time on appeal, in deference to the well-settled doctrine that “(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.”[21]

In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private respondent’s vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to the former.

In The Apollon,[22] Justice Story made the following relevant comment on the nature of demurrage:

“In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship’s expenses, wear and tear, and common employment.”[23]

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Amount of Demurrage Charges

Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint, private respondent made no demand for the sum of P67,340. Moreover, private respondent’s loss and prevention manager, Loi Gillera, demanded P50,260, but its counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800.

Petitioner’s position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court.[24] Besides such factual finding is supported by the extant evidence.[25] The apparent discrepancy was a result of the variance of the dates when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his letter dated April 24, 1983,[26] private respondent’s counsel demanded payment of only P37,800, the additional demurrage incurred by petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:

“Q Now, after you sent this letter, do you know what happened?

A Defendant continued to refuse to take delivery of the shipment and the shipment stayed at the port for a longer period.

Q So, what happened to the shipment?

A The shipment incurred additional demurrage charges which amounted to P67,340.00 as of November 22, 1983 or more than a year after - almost a year after the shipment arrived at the port.

Q So, what did you do?

A We requested our collection agency to pursue the collection of this amount.”[27]

Bill of Lading Separate from

Other Letter of Credit Arrangements

In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. “Few things are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual separation.”[28] A transaction involving the purchase of goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter.

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the

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issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit,[29] neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-à-vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner’s obligation to private respondent arising from the contract of transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the container. The contract of carriage was under the arrangement known as “Shipper’s Load And Count,” and the shipper was solely responsible for the loading of the container while the carrier was oblivious to the contents of the shipment. Petitioner’s remedy in case of overshipment lies against the seller/shipper, not against the carrier.

Payment of Interest

Petitioner posits that it “first knew” of the demurrage claim of P67,340 only when it received, by summons, private respondent’s complaint. Hence, interest may not be allowed to run from the date of private respondent’s extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, “there was no demand for interest.”[30] We agree.

Jurisprudence teaches us:

“2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.”[31]

The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total amount demanded cannot be deemed to have been established with reasonable certainty until the trial court rendered its judgment. Indeed, “(u)nliquidated damages

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or claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof.”[32] Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court’s decision. And in accordance with Philippine Natonal Bank[33] and Eastern Shipping,[34] the rate of twelve percent per annum shall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction.

Finally, the Court notes that the matter of attorney’s fees was taken up only in the dispositive portion of the trial court’s decision. This falls short of the settled requirement that the text of the decision should state the reason for the award of attorney’s fees, for without such justification, its award would be a “conclusion without a premise, its basis being improperly left to speculation and conjecture.”[35]

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney’s fees is DELETED.

SO ORDERED.

Keng Hua Paper Products vs. CA; Bill of lading separate from other letter of credit arrangements In Keng Hua Paper Products v. Court of Appeals, the Court held that a bill of lading was separate from the Other Letter of Credit arrangements. Therein, the contract of carriage, as stipulated in the bill of lading, must be treated independently of the contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate the obligation arising from the contract of transportation.

37. SECURITY BANK AND TRUST COMPANY VS. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO AND LEILA VENTURA,

FACTS OF THE CASE:ON APRIL 27, 1983, PRIVATE RESPONDENT MAGTANGGOL EUSEBIO EXECUTED 3 PROMISSORY NOTES FROM DIFFERENT DATES IN FAVOR OF PETITIONER SECURITY BANK AND TRUST CO. (SBTC) IN THE AMOUNTS OF 100,000, 100,000, AND 65,000. RESPONDENT BOUND HIMSELF TO PAY THE SAID AMOUNTS IN SIX (6) MONTHLY INSTALLMENTS PLUS 23% INTEREST PER ANNUM.ON ALL THE ABOVEMENTIONED PROMISSORY NOTES, PRIVATE RESPONDENT LEILA VENTURA HAD SIGNED AS CO-MAKER. UPON MATURITY THERE WERE STILL PRINCIPAL BALANCE REMAINING ON THE NOTES. EUSEBIO REFUSED TO PAY THE

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BALANCE PAYABLE, SO SBTC FILED A COLLECTION CASE AGAINST HIM. THE RTC RENDERED A JUDGMENT IN FAVOR OF SBTC, ALTHOUGH THE RATE OF INTEREST IMPOSED BY THE RTC WAS 12% P.A. INSTEAD OF THE AGREED UPON 23% P.A. THE COURT DENIED THE MOTION FILED BY SBTC TO APPLY THE 23% P.A. INSTEAD OF THE 12% P.A.

ISSUES OF THE CASE:

DID THE RTC ERR IN USING 12% INSTEAD OF THE 23% AS AGREED UPON BY THE PARTIES? 

- YES, THE RATE OF INTEREST WAS AGREED UPON BY THE PARTIES FREELY. SIGNIFICANTLY, RESPONDENT DID NOT QUESTION THAT RATE.- P.D. NO. 1684 AND C.B. CIRCULAR NO. 905 NO MORE THAN ALLOW CONTRACTING PARTIES TO STIPULATE FREELY REGARDING ANY SUBSEQUENT ADJUSTMENT IN THE INTEREST RATE THAT SHALL ACCRUE ON A LOAN OR FORBEARANCE OF MONEY, GOODS OR CREDITS.- 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.- THE 12% SHALL BE APPLIED FOR OBLIGATIONS ARISING FROM LOANS, OR FORBEARANCE OF MONEY IN THE ABSENCE OF EXPRESS STIPULATIONS

HELD:IN VIEW OF THE FOREGOING, THE DECISION OF THE RESPONDENT COURT A QUO, IS HEREBY AFFIRMED WITH THE MODIFICATION THAT THE RATE OF INTEREST THAT SHOULD BE IMPOSED BE 23% PER ANNUM.

OBLIGATIONS AND CONTRACTS TERMS:PROMISSORY NOTE - A WRITTEN DOCUMENT IN WHICH A BORROWER AGREES (PROMISES) TO PAY BACK MONEY TO A LENDER ACCORDING TO SPECIFIED TERMS. A WRITTEN PROMISE TO PAY A CERTAIN SUM OF MONEY, AT A FUTURE TIME, UNCONDITIONALLY.

A PROMISSORY NOTE DIFFERS FROM A MERE ACKNOWLEDGMENT OF DEBT, WITHOUT ANY PROMISE TO PAY, AS WHEN THE DEBTOR GIVES HIS CREDITOR AN I 0 U. IN ITS FORM IT USUALLY CONTAINS A PROMISE TO PAY, AT A TIME THEREIN EXPRESSED, A SUM OF MONEY TO A CERTAIN PERSON THEREIN NAMED, OR TO HIS ORDER, FOR VALUE RECEIVED. IT IS DATED AND SIGNED BY THE MAKER. IT IS NEVER UNDER SEAL.

HE WHO MAKES THE PROMISE IS CALLED THE MAKER, AND HE TO WHOM IT IS MADE IS THE PAYEE.

38. JOSE ALMEDA VS. COURT OF APPEALS,

Posted by Pius Morados on November 7, 2011

GR # 121013 July 16 1998(Remedial Law, Appeal)

FACTS: Petitioner Jose Almeda filed a notice of appeal which was disapproved by the trial court due to it being filed five (5) days late beyond the reglementary period and subsequently denied of motion for reconsideration. Respondent court dismissed the petition contending that the requirement regarding

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perfection of an appeal was not only mandatory but jurisdictional such that the petitioner’s failure to comply therewith had the effect of rendering the judgment final. Subsequently, petitioner motions for reconsideration and is denied. Also, it was found that there was lack of merit in the petitioner’s reason for the late filing of the notice of appeal.

ISSUE: Whether or not failure to comply with the requirement regarding perfection of an appeal within reglementary period would render a judgment final and executory.

HELD: Yes, the period to appeal is prescribed not only by the Rules of Court but also by statute, particularly Sec 39 of BP 129, which provides:

Sec.39. Appeals. The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment, or decision appealed from…

The right to appeal is a statutory right and one who seeks to avail of it must strictly comply with the statutes or rules as they are considered indispensable interdictions against needless delays and for an orderly discharge of judicial business. Due to petitioner’s negligence of failing to perfect his appeal, there is no recourse but to deny the petition thus making the judgment of the trial court final and executory.

39. FIRST METRO INVESTMENT CORP. VS ESTE DEL SOL MOUNTAIN RESERVE INC.

FACTS:

Petitioner FMIC granted respondent a loan of Seven Million Three Hundred Eighty Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction of a sports complex at Montalban, Rizal. Respondent also executed, as provided for by the Loan Agreement, an Underwriting Agreement with underwriting fee, annual supervision fee and consultancy fee with Consultancy Agreement for four (4) years, coinciding with the term of the loan. The said fees were deducted from the first release of loan. Respondent failed to meet the schedule of repayment. Petitioner instituted an instant collection suit. The trial court rendered its decision in favor of petitioner. The Court of Appeals reversed the decision of the trial court in favor of herein respondents after its factual findings and conclusion.

ISSUE:

Whether or not the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the usurious interest charged by the petitioner.

RULING:

YES. In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest. “Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The stipulated penalties, liquidated damages and attorney’s fees, excessive, iniquitous and

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unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. Hence, the instant petition was denied and the assailed decision of the appellate court is affirmed.