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ARTICLES 1156-1170 AYALA LIFE ASSURANCE, INC vs. RAY BURTON DEVELOPMENT CORP. G.R. No. 163075 January 23, 2006 SANDOVAL-GUTIERREZ, J. FACTS: On December 22, 1995, petitioner Ayala Life Assurance and respondent Ray Burton Development Corporation entered into a Contract to Sell. Petitioner agreed to sell to respondent a parcel of land at Ayala Alabang Village, Muntinlupa City worth P93,005,000.00. The contract contains a stipulation for an Event of Default which provides that in case the purchaser (respondent) fails to pay any installment for any reason not attributable to the seller (petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid installment at two (2%) percent per month, computed from the date the amount became due until full payment thereof. And if such default continues for a period of six (6) months, the seller has the right to cancel the contract without need of court declaration by giving the purchaser a written notice of cancellation. In case of such cancellation, the seller shall return to the purchaser the amount he received, less penalties, unpaid charges and dues on the property. Respondent paid thirty (30%) down payment and the quarterly amortization, including the one that fell due on June 22, 1998. However, on August 12, 1998, respondent notified petitioner in writing that it will no longer continue to pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the immediate cancellation of the contract and for a refund of its previous payments as provided in the contract. Petitioner refused to cancel the contract to sell. It filed a complaint for specific performance against respondent, demanding the payment of the remaining unpaid quarterly installments in the total sum of P33,242,382.43, inclusive of interest and penalties. Respondent, in its answer, denied any further obligation to petitioner, asserting that on August 12, 1998, petitioner has been notified of respondents inability to pay the remaining installments. Respondent invoked the provisions for an Event of Default of the contract to sell providing for the refund to it of the amounts paid, less interest and the sum of 25% of all sums paid as liquidated damages. The trial court rendered a Decision holding that respondent transgressed the law in obvious bad faith, and ordered to pay petitioner the sum of P33,242,383.43 and upon full payment, petitioner shall execute the appropriate deed of absolute sale conveying and transferring full title and ownership of the parcel of land subject of the sale to and in favor of respondent. On appeal, the Court of Appeals rendered a Decision reversing the trial courts Decision. The Court of Appeals ruled that the parties transaction in question is in the nature of a contract to sell, as distinguished from a contract of sale. Under their contract, ownership of the land is retained by petitioner until respondent shall have fully paid the purchase price. Its failure to

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pay the price in full is not a breach of contract but merely an event that prevents petitioner from conveying the title to respondent. Under such a situation, a cause of action for specific performance does not arise. What should govern the parties relation are the provisions of their contract on the Event of Default stated earlier. ISSUE/S: (1) Whether or not respondents failure to pay the price in full is a breach of contract or merely an event that prevents petitioner from conveying the title to respondent. (2) Whether or not petitioner has the remedy of specific performance. NO. Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Thus, a cause of action for specific performance does not arise. The Decision of the Court of Appeals is affirmed. At the outset, it is significant to note that petitioner does not dispute that its transaction with respondent is a Contract to Sell. It bears stressing that the exact nature of the parties contract determines whether petitioner has the remedy of specific performance. Here, the questioned agreement clearly indicates that it is a contract to sell, not a contract of sale. Paragraph 4 of the contract provides: 4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property shall transfer to the PURCHASER upon payment of the balance of the Purchase Price and all expenses, penalties and other costs which shall be due and payable hereunder or which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the SELLERS rights, title and interest in and to the Property to the PURCHASER. Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract. In Rayos v. Court of Appeals, we held: x x x. Under the two contracts, the petitioners bound and obliged themselves to execute a deed of absolute sale over the property and transfer title thereon to the respondents after the

HELD:

RATIO:

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payment of the full purchase price of the property, inclusive of the quarterly installments due on the petitioners loan with the PSB: xxx Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code (Leano v. Court of Appeals, 369 SCRA 36 [2001]; Lacanilao v. Court of Appeals, 262 SCRA 486 [1996]). The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect (Agustin v. Court of Appeals, 186 SCRA 375 [1990]). The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant (Padilla v. Posadas, 328 SCRA 434 [2001]. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened (Rillo v. Court of Appeals, 274 SCRA 461 [1997]). (Underscoring supplied) Here, the provisions of the contract to sell categorically indicate that respondents default in the payment of the purchase price is considered merely as an event, the happening of which gives rise to the respective obligations of the parties mentioned therein, thus: 3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract: the PURCHASER fails to pay any installment on the balance, for any reason not attributable to the SELLER, on the date it is due, provided, however, that the SELLER shall have the right to charge the PURCHASER a late penalty interest on the said unpaid interest at the rate of 2% per month computed from the date the amount became due and payable until full payment thereof. 3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then be continuing for a period of six (6) months, the SELLER shall have the right to cancel this Contract without need of court declaration to that effect

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by giving the PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified herein by registered mail or personal delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate amount that the SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total amount paid as liquidated damages, and (iii) any unpaid charges and dues on the Property. Any amount to be refunded to the PURCHASER shall be collected by the PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such cancellation, the SELLER shall be free to dispose of the Property covered hereby as if this Contract had not been executed. Notice to the PURCHASER sent by registered mail or by personal delivery to its address stated in this Contract shall be considered as sufficient compliance with all requirements of notice for purposes of this Contract. SPS. FELIPE AND LETICIA CANNU vs. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION G.R. No. 139523 May 26, 2005 CHICO-NAZARIO, J. FACTS: Respondent spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173, 800.00 to purchase a house and lot located at Pulang Lupa, Las Pias. To secure payment, a real estate mortgage was constituted on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, National Home Mortgage Finance Corporation (NHMFC) purchased the mortgage loan of respondents-spouses from Fortune Savings & Loan Association for P173, 800.00. Petitioner Leticia Cannu agreed to buy the property for P120, 000.00 and to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty. Of the P120, 000.00, several payments were made leaving a balance of P45, 000.00. A Deed of Sale with Assumption of Mortgage Obligation was made and entered into by and between spouses Fernandina and Gil Galang and spouses Leticia and Felipe Cannu over the house and lot. Petitioners immediately took possession and occupied the house and lot. Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45, 000.00 or in the alternative to vacate the property in question, petitioners refused to do so. (1) Whether or not the breach of the obligation is substantial. (2) Whether or not respondent waived their right of rescission. (3) Whether or not there was substantial compliance with the obligation to pay the

ISSUE/S:

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monthly amortization with NHMFC. (4) Whether or not rescission is subsidiary. HELD: (1) YES. We consider this breach to be substantial. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid. In the case at bar, we find petitioners failure to pay the remaining balance of P45, 000.00 to be substantial. Taken together with the fact that the last payment made was on 28 November 1991, eighteen months before the respondent Fernandina Galang paid the outstanding balance of the mortgage loan with NHMFC, the intention of petitioners to renege on their obligation is utterly clear. Cannu failed to comply with her obligation to pay the monthly amortizations due on the mortgage. Also, the tender made by Cannu only after the filing of this case cannot be considered as an effective mode of payment. (2) NO. The fact that Galang accepted payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Galang accepted the installment payments as an accommodation to petitioners since they kept on promising they would pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price were not yet fully paid, Galang exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners stopped paying those respondents-spouses moved to exercise their right of rescission. (3) The petitioners were not religious in paying the amortization with the NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their payments covered only thirty months. This, indeed, constitutes another breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of the lack of approval by the NHMFC on account of petitioners non-submission of requirements in order to be considered as assignees/successors-in-interest over the property covered by the mortgage obligation. (4) NO. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 of the Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191.As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is the duty of the court to require the parties to surrender whatever they may have received from the other. The parties should be restored to their original situation. LALICON VS. NATIONAL HOUSING AUTHORITY

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G.R. No. 185440 July 13, 2011 ABAD, J. FACTS: On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro after which aTransfer Certificate of Title (TCT) was issued in their name. The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without the NHA's prior written consent. On November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the lot to their son, Victor Alfaro. He had a common-law wife, Cecilia, with whom he had two illegitimate daughters, Vicelet and VicelenLalicon. Ceciliahad a house built on the property and paid for the amortizations. After full payment of the loan on March 21, 1991 the NHA released the mortgage. Six days later on March 27 Victor transferred ownership of the land to his illegitimate daughters. On October 4, 1995, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents' title. The register of deeds issued a new TCT in his name. On December 14, 1995, Victor mortgaged the land to Marcela Chua, Rosa Sy, AmparoOng, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT and the issuance of a new TCT in Chua's name. On April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHA's 1980 sale of the land to the Alfaros, the latter's 1990 sale of the land to their son Victor, and the subsequent sale to Chua. On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed. The NHA and the Lalicons filed their respective appeals to the Court of Appeals (CA). On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared the TCT in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the land to the NHAbut the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property. ISSUE/S: (1) Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA. (2) Whether or not the NHA's right to rescind has prescribed.

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(3) Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission. CIAHDT HELD: (1) YES. The contract between the NHA and the Alfaros explicitly forbade the latter from selling the land within five years from the date of the release of the mortgage. The Alfaros sold the property to their son on November 1990 even before the NHA could release the mortgage in their favor on March 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract. (2) NO. The NHA sought to annul the Alfaros sale to their son because it violated the 5 year restriction in their contract. This violation falls under Art. 1191 and the applicable prescriptive period is provided in Art.1144, which states that it is 10 years from the time the right of action accrues. The NHA's right of action accrued on February 18, 1992 when it learned of the Alfaros sale of the property to their son. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. (3) NO. Since the 5 year prohibition against sale without the NHA's written consent was annotated on the property's title, the Lalicons very well knew that the Alfaros' sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition. As regards to Chua, she and the other mortgagees took the property from Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the annotated restriction on the property, that Victor had no right to mortgage the property to her considering that the Alfaros could not yet sell the same to him without the NHA's consent. Consequently, although Victor later sold the property to Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness of the illegality of Victor's acquisition of the property from the Alfaros. CATHAY PACIFIC AIRWAYS VS. SPOUSES VAZQUEZ G.R. No. 150843 March 14, 2003 DAVIDE, JR., C.J. FACTS: The respondent spouses, Dr. Daniel Vazquez and Maria Vazquez with two friends went to Hong Kong for pleasure and business. For their return to Manila, they were booked on a Cathay Pacific flight. Upon boarding, Dr. Vazquez presented his boarding pass to the ground stewardess, who inserted it into a computer at the gate. A prompt appeared on the computer indicating that there was a seat change from Business Class to First Class. The stewardess approached Dr. Vazquez and informed him that their accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would be improper for them as

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hosts to travel in First Class and their guests in Business Class. Moreover, they were to discuss business matters during the flight. He also toldthe stewardess that she could have other passengers transferred to the First Class section instead of them. The stewardess consulted her supervisor, who told her to handle the situation and to convince the respondents to accept the upgrade. She thenspoke to the spousesclaiming that the Business Class was fully booked, and since they were Marco Polo Club members, they had priority to be upgraded to First Class. Dr. Vazquez continued to refuse.The stewardess thenresponded that if they would not avail themselves of the privilege, then the spouses would not be allowed to board the plane. Eventually, after talking to his two friends, Dr. Vazquez gave in and proceeded to the First Class cabin. ISSUE/S: (1) Whether or not the seat accommodation upgrade of the respondentsis a breach in the contract of carriage. (2) Whether or not the respondents are entitled to damages. (1) YES. By insisting on the upgrade, Cathay breached its contract of carriage with the respondents. In other cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed reservation or the downgrading of a passengers seat accommodation to a lower class. In this case, what happened was the opposite. The respondents knew that as members of the Marco Polo Club, they had priority for upgrading of their seat accommodations at no extra cost when possible. But, just like other privileges, such priority could be waived. The respondents should have been consulted first if they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and accept an upgrade, since it would be a better accommodation. But, whatever their reason was, the respondents had every right to decline the upgrade and insist on the Business Class accommodation they had booked for. The privilege was clearly waived when they asked that other passengers be given the upgrade instead. It should not have been imposed on them over their vehement objection. (2) NO. It is a requisite that for the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner. The Court, however, was not convinced that the breach of contract was attended by fraud or bad faith. Bad faith and fraud are allegations of fact that demand clear and convincing proof. It is not persuaded by the respondents argument that the overbooking of the Business Class Section constituted bad faith on the part of Cathay. Regulations of the Civil Aeronautics Board provide that an overbooking that does not exceed 10% is not considered deliberate and therefore does not amount to bad faith. The respondents were not induced to agree to the upgrade through insidious words or deceitful machinations or through willful concealment of material facts. Upon boarding, they were informed that their accommodations were upgraded to First Class in view of them

HELD:

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being members of the Marco Polo Club. The stewardess was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. ARTICLES 1171-1173 JOSEPH SALUDAGA VS FAR EASTERN UNIVERSITY AND EDILBERTO C. DE JESUS IN HIS CAPACITY AS PRESIDENT OF FEU G.R. No. 179337 April 30, 2008 YNARES-SANTIAGO, J. FACTS: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University when he was shot by Alejandro Rosete, one of the security guards on duty at the school premises on August 18, 1996. The petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he has sustained. Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. The petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and atmosphere conducive to learning. The respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Galaxys President); to indemnify them for whatever would be adjudged in favor of petitioner. Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe and secure environment and an atmosphere conducive to learning. ISSUE/S: HELD: Whether or not FEU was negligent and such shooting qualifies as a fortuitous event. NO. It was negligence and such is not a fortuitous case.When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the schools academic requirements and observe its rules and regulations.

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Respondent FEU failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. It failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages as it was stated in Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. Respondent FEU is liable to petitioner for damages. However, FEU cannot be held liable for damages under Article 2180 of the Civil Code, which provides: The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions but also for those of persons for whom one is responsible, because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. It had no hand in selecting thesecurity guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client. RATIO: For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latters breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency.It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them. WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as the August 23, 2007 Resolution

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denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 9889483 finding respondent FEU liable for damages for breach of its obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with the following MODIFICATIONS: c a. Respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction; b. Respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00; c. The award of exemplary damages is DELETED. The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are likewise DISMISSED. Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial are ORDERED to jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts awarded to petitioner. MANILA ELECTRIC COMPANY VS MATILDE MACABAGDAL RAMOY, BIUENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN AND CYRENE PANADO G.R. No. 158911 March 4, 2008 AUSTRIA-MARTINEZ, J. FACTS: In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989 the Municipal Trial Court rendered judgment for MERALCO to demolish or remove the building and structure they built on the land of the plaintiff and vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting the immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon City.

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In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all the establishments which are considered under NPC property. In due time, the electric service connection of the plaintiffs was disconnected. During the ocular inspection ordered by the Court, it was found out that the residence of the plaintiffs-spouses was indeed outside the NPC property. ISSUE/S: (1) WON the Court of Appeals gravely erred when it found MERALCO negligent when it disconnected the subject electric supply service of the respondents. (2) WON the Court of Appeals gravely erred when it awarded moral and exemplary damages and attorneys fees against MERALCO under the circumstances that the latter acted in good faith in the disconnection of the electric services of the respondents. (1) NO. The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant to Articles 1170 and 1173 of the Civil Code. It was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. Verily, only upon finality of the said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property, thus, are not entitled to the services of MERALCO. (2) NO. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. This is contrary to public policy because, MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in the performance of its obligation. Thus, MERALCOs failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy is tantamount to bad faith. Leoncio Ramoy testified tha the suffered wounded feelings because of MERALCOs actions. Furthermore, due to the lack of power supply, the lessees of his four apartments on subject lot left the premises. Clearly, therefore Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. Nevertheless, Leoncio is the sole person entitled to moral damages as he is the only who testified on the witness stand of his wounded feelings. Pursuant to Article 2232 of the Civil Code, exemplary damages cannot be awarded as MERALCOs acts cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Since the Court does not deem it proper to award exemplary damages in this case then the CAs award of attorneys fees should likewise be deleted, as pursuant to Article 2208 of the Civil Code of which the grounds were not present. ARTICLE 1169 PANTALEON vs. AMERICAN EXPRESS INTERNATIONAL, INC. G.R. No. 174269 August 25, 2010

HELD:

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TINGA, J. FACTS: The petitioner, lawyer Polo Pantaleon, his wife, daughter and son joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. -The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the group had arrived late in the city, they failed to engage in any sight-seeing so they agreed that they would start early the next day to see the entire city before ending the tour.-The following day, the last day of the tour, the group arrived at the Coster Diamond House. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam.- While in the diamond house, led to the stores showroom to allow them to select items for purchase. Mrs. Pantaleon decided to buy a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation. Mrs. Pantaleon also selected for purchase a pendant and a chain, all of which totaled U.S. $13,826.00.-Pantaleon presented his American Express credit card together with his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from the store. The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.clearance took too long. At 9:40am, Pantaleon asked the store clerk to cancel the sale to avoid further delaying and inconveniencing the tour group. At around 10:00a.m, 30 minutes after the tour group was supposed to have left the store, Coster decided to release the items even without respondents approval of the purchase.-due to the delay, the city tour of Amsterdam was to be canceled due to lack of remaining time. The spouses Pantaleon allegedly offered their apologies but were met by their tourmates with stony silence and visible irritation. Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his nerves.-two instances similar to the Castor incident happened. Petitioners, after coming back to Manila, sent a letter demanding an apology for the "inconvenience, humiliation and embarrassment he and his family thereby suffered" for respondents refusal to provide credit authorization for the aforementioned purchases. Respondent, refused to give an apology, sent a letter stating among others that the delay in authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase pattern established." (1) Whether or not respondent committed a breach of its obligations. (2) Whether or not respondent is liable for damages. (1) There was a breach.-Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customers purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when

ISSUE/S: HELD:

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"youd know it when youd see it," and one hour appears to bean awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase.-the respondent has the right, if not the obligation, to verify whether the credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to make such transaction. The culpable failure of respondent herein is not the failure to timely approve petitioners purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably. Respondent should have promptly informed petitioner the reason for the delay, and duly advised him that resolving the same could take some time so that petitioners will know WON to continue with the purchases. (2) YES. Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the court should find that under the circumstances, such damages are due.-in this case, there was bad faith and unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of respondents Manila credit authorizer, Edgardo Jaurique. This, to the Courts mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract.-The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have consumed more than one hour to simply go over plaintiffs past credit history with defendant, his payment record and his credit and bank references, when all such data are already stored and readily available from its computer and the fact that there were no delinquencies in the plaintiffs account-It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative. In this case, it was sufficiently shown that the incident gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation to the petitioner. Amount should be commensurate to the loss or injury suffered. Petitioners original prayer for P5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by the trial court of P500,000.00 immoral damages more seemly. Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation. IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR G.R. No. 115129 February 12, 1997 BELLOSILLO, J.

!"#$%!%%&'%"!% %

FACTS:

ISSUE/S: HELD:

On the 19th of December the wife of Ignacio Barzaga died. She expressed her wish to be buried before Christmas to spare her family from keeping lonely vigil over her remains. Ignacio then set out to arrange for her interment on the 24th of December in obedience to her wife. He went out in the hardware store of the respondent AngelitoAlviar to inquire about certain materials to be used in the construction of a niche and also asked if the said materials could be delivered at once. On the following morning Ignacio Barzaga returned to the said hardware store to follow up his purchase and told the store employee to deliver it at the Memorial Cemetery in Dasmarinas Cavite. Marina Boncales, the storekeeper agreed to deliver the items at the designated place. The construction material did not arrive but Marina Boncales assured him that the trick already left the garage. After long hours of waiting he dismissed his labourer and proceeded to the police station and decided to cancel his transaction with the said hardware. On the 22rd of December he was able to buy material from another store. but he made up his mind to start his project the following morning. He knew that the niche would not be finish in time for the scheduled burial on the 24th. Igancio Barzagas wife was finally laid down two-and-a-half days behind the said schedule. Whether or not the CA erred in reversing the ruling of RTC that the respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to the petitioner YES. The Supreme Court sustains the RTCs decision in case at bench. Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. The law expressly provides in Article 1170 of the Civil Code that 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. It is evident in the case at bar that there was a specific time agreed upon for the delivery of materials to the cemetery. And it is not an acceptable justification that his truck had a flat tire for this is a foreseeable and the hardware owner should be ready at all times to meet the contingencies of this kind. This case is therefore one of Non-Performance of Reciprocal Obligation.

LORENZO SHIPPING CORP. vs. BJ MARTHEL INTERNATIONAL, INC., G.R. No. 145483 November 19, 2004 CHICO-NAZARIO, J. FACTS: Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express. Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is

!"#$%!&%&'%"!% %

also an importer and distributor of different brands of engines and spare parts. From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. (TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal Installment[s] not to exceed 90 days.) Petitioner thereafter issued to respondent Purchase Order No. 13839, dated 02 November 1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was cosigned by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued Purchase Order No. 14011, dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installment[s]." Like the purchase order of 02 November 1989, the second purchase order did not state the date of the cylinder liner's delivery. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared. Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale. Shortly thereafter, another demand letter dated 27 March 1991 was furnished petitioner by respondent's counsel requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees.Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff below) alleged that

!"#$%!'%&'%"!% %

despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages. Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners) alleging therein that "[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of obsolescence and deterioration" to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and compensatory damages were dismissed for insufficiency of evidence. Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals. ISSUE/S: Whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or not said contract was validly rescinded by petitioner. NO. The Court of Appeals held that respondent could not have incurred delay in the delivery of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of Article 1169 of the Civil Code which provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances. There is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party. WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April

HELD:

!"#$%!(%&'%"!% %

2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs. ANDRE T. ALMOCERA vs. JOHNNY ONG G.R. No. 170479 February 18, 2008 CHICO-NAZARIO, J. FACTS: Johnny Ong tried to acquire from Andre Almocera a townhome in No. 4 of Atrium Town Homes in Cebu City. As stated in the contract to sell the price of the unit was P3,400,000.00 pesos, for a 88 square meters with a three-storey building. Johnny Ong was able to pay the amount of P1,060,000.00. Prior to the full payment, Johnny Ong claims that Andre Almocera and the First Builders fraudulently concealed the fact that before and at the time of the perfection of the contract to sell, the property was mortgaged to Land Bank of the Philippines. On 13th of March 1999 the Lot 4-A covering the unit was advertised in the local tabloid for a public auction for foreclosure of mortgage. Andre Almocera asserts that on March 20, 1995, the First Builder Multi-Purpose Coop. Inc., borrowed money in the amount of P500,000.00 from Tommy Ong, Johnny Ongs brother. This amount was used to finance the documentation requirement of Land Bank of the Philippines for the funding of the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong the amount of P150,000.00 was given as additional partial payment. However, the particular unit was not yet identified. It was only on the 10th of January 1997 that Tommy Ong identified Unit No. 4 as the chosen unit and tendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose whichever unit he might decide to have. When the construction was already in full blast, Andre Almocera and the First Builder were informed by Tommy Ong that their final choice was Unit 5. It was only upon knowing that Andre Almocera and the First Builder will be selling Unit 4 to some other persons for P4million that plaintiff changed his choice from Unit 5 to Unit 4. Whether or not Almocera has incurred delay. NO. The Decision of Court of Appeals is hereby AFFIRMED by the Supreme Court on the grounds that: Andre Almocera and First Builders had the obligation to complete the townhouse unit within 6 months from signing the contract. Upon compliance therewith the obligation to pay P2,400,000.00 arises. Upon payment thereof, the townhouse

ISSUE/S: HELD:

!"#$%!)%&'%"!% %

shall be delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevant documents. (As stated in the Contract) The evidence adduced shows that Andre Almocera and FBMC failed to fulfill their obligation -- to complete and deliver the townhouse within the six-month period. Johnny Ong does not ask that ownership of townhouse be transferred to him but the amount or the down payment he had made be returned. Article 1169 of the Civil Code reads: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra judicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfils his obligation, delay by the other begins. This case at bench is a Reciprocal Obligation therefore; Andre Almocera and FBMC cannot insist that Johnny Ong should comply with his obligation. Where one of the parties to a contract did not perform the undertaking to which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the other party. MEGAWORLD GLOBUS ASIA, INC. vs. MILA S. TANSECO G.R. No. 181206 October 9, 2009 CARPIO-MORALES, J. FACTS: Megaworld and Tanseco entered into a Contract to Buy and Sell a condominium at a pre-selling project, The Salcedo Park. The purchase price was P16,802,037.32, the instalment payment of which was provided for in the Contract. xxx a balance of P2,520,305.63 shall be paid on October 31, 1998, the stipulated delivery date of the unit. xxx. A construction schedule was also provided in the contract: xxx shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project except delays due to acts of God, xxx or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part

!"#$%#*%&'%"!% %

of the SELLER. xxx In any event, all construction on or of the Project shall remain the property of the SELLER. Respondent paid all installments due up to January, 1998, leaving unpaid the balance pending delivery of the unit. However, Megaworld failed to deliver the unit on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. Three years later, Megaworld informed Tanseco that the unit was ready for inspection preparatory to delivery. Tanseco was demanding the return of P14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from the expiration of the six-month grace period and pointed out that none of the excepted causes of delay existed. Since her demend was unheard, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Board's (HLURB) a complaint against Megaworld for rescission of contract, refund of payment, and damages. In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover. ISSUE/S: HELD: Whether or not there was no delay on the part of petitioner Megaworld since there was no demand from respondent Tanseco. Article 1169 of the Civil Code provides: xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor. Moreover, Megaworld cannot avail itself of the benefits of Art. 1174 of the Civil Code 1997 Asian financial crisis cannot be generalized to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito. Megaworld's excuse for its delay does not thus lie.

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SOLAR HARVEST, INC. VS. DAVAO CORRUGATED CARTON CORP. G.R. No. 176868 July 26, 2010 NACHURA, J. FACTS: Petitioner Solar Harvest entered into an agreement with respondent Davao Corrugated for the purchase of corrugated carton boxes. On March 31, 1998, petitioner deposited full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand letter for reimbursement. On February 19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion, as agreed upon. On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. In respondents Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it had already completed production of the boxes, contrary to petitioners allegation. The RTC dismissed the petitioners complaint and respondents counterclaims. It ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive. Petitioner filed a notice of appeal with the CA which denied the appeal for lack of merit. Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the boxes to petitioner within 30 days from payment, as alleged in the Complaint. The appellate court held that petitioner failed to prove the parties agreement with respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two years, petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that the agreement was for respondent to deliver the boxes, respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. Even assuming that a demand had been previously made before filing the present case, petitioners claim for reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of contract. Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with such obligation. Petitioner insisting that the boxes had not been manufactured, admitted that he did not give respondent the authority to deliver the boxes. Whether or not respondent was guilty of breach of contract thereby giving the petitioner the right to rescind the contract and demand for reimbursement.

ISSUE/S:

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HELD:

The Court of Appeals Decision is affirmed. The Court finds that petitioner failed to establish a cause of action for rescission, the evidence having shown that respondent did not commit any breach of its contractual obligation. Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code, which reads: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law, which provides: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

RATIO:

!"#$%#"%&'%"!% %

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a follow-up upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioners witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation. Even assuming that a demand had been previously made before filing the present case, petitioners claim for reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of contract. CENTRAL BANK OF THE PHILIPPINES vs. CA G.R. No. L-45710 MAKASIAR, C.J. FACTS: April 28, 1965 - Island Savings Bank (ISB) approved the loan application for P80,000 of SulpicioTolentino, who, as a security for the loan, also executed a real estate mortgage over his 100-ha land. The approved loan application called for P80,000 loan, repayable in semi-annual installments for a period of 3 years, with 12% interest. May 22, 1965 a mere P17,000 partial release of the loan was made by ISB, and Tolentino and his wife Edita signed a promissory note for P17,000 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459. An advance interest for the P80,000 loan covering a 6-mo period amounting to P4,800was deducted from the partial release of P17,000, but this was refunded to Tolentino on July 23, 1965, after being informed by ISB that there was no fund yet available for the release of the P63,000 balance. Aug. 13, 1965 the Monetary Board of the Central Bank issued Resolution No. 1049, which prohibited ISB from making new loans and investments, after finding that it was suffering liquidity problems. June 14, 1968 the Monetary Board issued Resolution No. 967, which prohibited ISB from doing business in the Philippines, after finding that it failed to put up the required capital to restore its solvency. Aug. 1, 1968 ISB, in view of non-payment of the P17,000 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-ha land; and the sheriff

!"#$%#$%&'%"!% %

scheduled auction. Tolentino filed a petition with the CFI for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since ISB failed to deliver the P63,000 remaining balance of the loan, he is entitled to specific performance by ordering ISB to deliver it with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage. CFI issued a TRO enjoining ISB from continuing with the foreclosure of the mortgage, however, after finding Tolentinos petition unmeritorious, ordered the latter to pay ISB P17,000 plus legal interest and legal charges and lifting the TRO so the sheriff may proceed with the foreclosure. CA, on appeal by Tolentino, modified CFIs decision by affirming dismissal of Tolentinos petition for specific performance, but ruled that ISB can neither foreclose the mortgage nor collect the P17,000 loan. The SC ruled that parties, in the P80,000 loan agreement, undertook reciprocal obligations, wherein the obligation/promise of each party is the consideration for that of the other; and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169, CC). When Tolentino executed a real estate mortgage, he signified his willingness to pay the P80,000 loan, and from such date, the obligation of ISB to furnish the loan accrued. Thus, ISBs delay started on April 28, 1965 and lasted 3 years or when Resolution No. 967 was issued prohibiting ISB from doing further business which made it legally impossible from ISB to furnish the P63,000 of the loan. Resolution No. 1049 cannot interrupt the default of ISB in complying with its obligation to release the P63,000 balance because it merely prohibited ISB from making new loans and investments, not from releasing the balance of loan agreements previously contracted. The mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance; and the mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation, but instead, is taken as a breach of contract. The fact that Tolentino demanded and accepted the refund of the pre-deducted interest cannot be taken as a waiver of his right to collect the P63,000 balance. The act of ISB in asking for the advance interest was improper considering that only P17,000 out of the P80,000 loan was released. The alleged discovery by ISB of the overvaluation of the loan collateral cannot exempt it from complying with its obligation to furnish the entire P80,000 loan because bank officials/employees have the obligation to investigate the existence and valuation of the properties being offered as a loan security before approving the loan application. ISSUE/S: (1) Whether or not the action of Tolenitno for specific performance can prosper. (2) Whether or not Tolentino is liable to pay the P17,000 debt covered by the promissory note. (1) NO. Since ISB was in default under the agreement, Tolentino may choose between specific performance or rescission, but since ISB is now prohibited from

HELD:

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doing further business, the only remedy left is Rescission only for the P63,000 balance of the loan. (2) YES. The bank was deemed to have complied with its reciprocal obligation to furnish a P17,000 loan. The promissory note gave rise to Tolentinos reciprocal obligation to pay such loan when it falls due and his failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Art. 1191, CC). ISB has the right to rescind the promissory note, being the aggrieved party. Since both parties were in default in the performance of their reciprocal obligations, both are liable for damages. In case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equirably tempered by the courts (Art. 1192, CC). The liability of ISB for damages in not furnishing the entire loan is offset by the liability of Tolentino for damages (penalties and surcharges) for not paying his overdue P17,000 debt. Since Tolentino derived some benefit for his use of the P17,000, he should account for the interest thereon (interest was not included in the offsetting). ARTICLE 1174 TANGUILIG vs. CA G.R. No. 117190 January 2, 1997 FACTS: In 1987 petitioner Tanguilig proposed to respondent Herce Jr. to construct a windmill system for him, they agreed on the consideration of P60,000.00. Respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. In 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working

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condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. ISSUE/S: HELD: Whether or not the collapse of the windmill be attributed to Fortuitous Events which extinguishes the liability of Tanguilig. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. This Court has consistently held that 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, four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. ACE-AGRO DEVELOPMENT CORPORATION vs. COURT OF APPEALS and COSMOS BOTTLING CORPORATION G.R. NO. 119729 January 21, 1997 MENDOZA, J. FACTS: Respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks while petitioner Ace-Agro Corp had been cleaning the bottles and repairing wooden shells for Cosmos. Respondent contracted the services of other companies in view of the fact that petitioners capacity cannot cope with the demand of Cosmos. On April 25, 1990, fire broke out in the Cosmos plant and destroying the area where Ace-Agro did its work. Cosmos advised Ace-Agro that their contract was going to be terminated on account of the fire. This led employees to file a complaint for illegal dismissal. Petitioner sought reconsideration from respondent to avoid the workers being displaced. Respondent agreed on the condition that their work had to be done outside the company premises. Petitioner refused the offer claiming that they will incur additional cost if their work is relocated outside the premises of Cosmos. On November 7, 1990, private respondent advised petitioner that the latter could then

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resume its work inside the plant in accordance with its original contract with Cosmos. This time, petitioner rejected the offer citing that there was a pending labor case. Petitioner brought a case against private respondent for breach of contract and damages on the grounds that the termination of its contract was illegal and arbitrary. The RTC found Cosmos guilty of breach of contract and ordered it to pay damages to petitioner. The CA reversed the RTC decision after finding that it was petitioner which had refused to resume work, after failing to secure an extension of its contract. ISSUE/S: (1) Whether or not force majeure entitles petitioner an automatic extension of the contract? (2) Whether or not respondent Cosmos Corp commit a breach of contract? The petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion that the appealed decision is correct. When respondent tried to accommodate the request of the petitioner, the latter unjustifiably refused the offer. They stated that it had something to do with the NLRC case but that was not the real reason. The petitioner refused to resume work because it wanted an extension of the period of the contract beyond December 31, 1991 to make up for the period of inactivity. When the fire broke out, there resulted a suspension of the work as per agreement. But this suspension due to force majeure did not merit an automatic extension of the period of agreement. Petitioner claims that private respondent had a reason to want to terminate the contract. It wanted to give the business to a company that offered its services at a lower rate. But since the contract between petitioner and respondent did not prohibit the hiring by respondent of another service contractor, then respondent is not guilty of breach of contract.

HELD:

MONDRAGON LEISURE AND RESORTS CORPORATION vs. COURT OF APPEALS, ASIAN BANK CORPORATION, FAR EASTERN BANK AND TRUST COMPANY, AND UNITED COCONUT PLANTERS BANK G.R. NO. 154188 June 15, 2005 QUISIMBING, J. FACTS: On February 28, 2994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of what is now known as the Mimosa Leisure Estate. To help

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finance the project, petitioner entered into an Omnibus Loan and Security Agreement with respondent banks for a syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, the proceeds of the loan were to be released through advances evidenced by promissory notes to be executed by petitioner in favor of each lender bank, and to be paid within a six-year period from the date of initial advance inclusive of a one year and two quarters grace period. Petitioner, which had regularly paid the monthly interests due on the promissory notes until October 1998, thereafter failed to make payments. Consequently, written notices of default, acceleration of payment and demand letters were sent by the lenders to the petitioner. Then, respondents filed a complaint for the foreclosure of leasehold rights against petitioner. Petitioner moved for the dismissal of the complainant but was denied. ISSUE/S: HELD: Whether or not the respondents have a cause of action against petitioner. The appeal is denied. Under the foregoing provisions of the Agreement, petitioner may be validly declared in default for failure to pay the interest. As a consequence of default, the unpaid amount shall earn default interest, and the respondent banks have four alternative remedies without prejudice to the application of the provisions on collaterals and any other steps or action which may be adopted by the majority lender. The four remedies are alternative, with the right of choice given to the lenders, in this case the respondents. Under 1201 of the Civil Code, the choice shall produce no effect except from the time communicated. In the present case, we find that written notices were sent to the petitioner by the respondents. The notices clearly indicate respondents choice of remedy: to accelerate all payments payable under the loan agreement. It should be noted that the agreement also provides that the choice of remedy is without prejudice to the action on the collaterals. Thus, respondents could properly file an action for foreclosure of the leasehold rights to obtain payment for the amount demanded.

JUAN F. NAKPIL & SONS and JUAN F. NAKPIL vs. THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION G.R. No. L-47863 October 3, 1986 PARAS, J. FACTS: The Philippine Bar Association, the plaintiff and a civic-non-profit association, constructed an office building located at the corner of Aduana and Arzobispo Streets, Intramuros Manila. It was undertaken by the the United Construction, Inc. The project was approved by the plaintiff's board of directors and signed by its president Roman Ozaeta, a third party defendant. Other plans and specifications

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were prepared by defendants Juan F. Napkil & Sons. The completion of the building was on June 1966. However, an unfortunate event happened when on August 2, 1968 a massive earthquake hit Manila with the intensity of 7.3 which caused not only major damages to the building but also caused it to lean forward dangerously. And this led to the forced vacation of the tenants of the building. The building was shored up by United Construction, Inc. at the cost of P13,661.28 as temporary remedial measure. The Philippine Bar Association then instituted a case against United Construction, Inc. for damages due to its negligence with the construction of the building and recovery of damages arising from the partial collapse of the building because of the failure to follow the designs and plans from the architects. Defendant, UCC, then filed a third-party complaint against the architects, Nakpil & Sons, alleging that the said collapse was because of the flawed designs and defects and the failure of the contractors to follow the plans and specifications which caused the inability of the building to withstand the massive earthquake. UCC included included the President of PBA, Roman Ozaeta, as a third-party defendant for damages for also including the President of United Construction Co., Inc., Juan J. Carlos, as party defendant. Nakpil & Sons answer that the petitioners need not to change the defendants in their petition as UCC deviated from the plans which caused the damages to the building. Both parties appointed a commissioner, Mr. Andres O. Hizon, charged with the duty to give a report about the technical aspects of the case and to try the following issues presented: 1. Whether the damage sustained by the PBA building during the August 2. 1968 earthquake had been caused, directly or indirectly, by: (a) The inadequacies or defects in the plans and specifications prepared by third-party defendants; (b) The deviations, if any, made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained; (c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building; (d) The alleged failure to exercise the requisite degree of supervision expected of the architect, the contractor and/or the owner of the building; (e) An act of God or a fortuitous event; and (f) Any other cause not herein above specified.

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2. If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors, the degree or proportion in which each individual factor contributed to the damage sustained; 3. Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. The findings of his report concluded that indeed there were faults arising from the negligence of both defendants. Although the damage sustained by the PBA building was caused directly by the massive earthquake, the report stated that the defects in the plans and specifications prepared by third-party defendants' architects and the flawed design were also factors to consider which caused the major damages and that UCC deviated from the designs which aggravated the problem. The defendants then put up the Act of God defense. ISSUE: Whether or not the defendants are liable for the damages and collapse of the building due to a fortuitous event which is unforeseeable and inevitable even if their negligence is established. No, the defendants cannot validly invoke the Act of God defense. This is because of the report submitted by the appointed Commissioner which established their negligence. Acceptance of the building, after completion, does not imply waiver of any of the causes of action by reason of any defect. To exempt the obligor from its liability these requisites should first concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. The report of the Commissioner established that the defects that occurred to the building could be attributed to the act of man specifically that of the architects and the engineers as well as the builders. This was because of the fact that UCC deviated from the plans submitted by the architects and their failure to observe the required marksmanship in constructing the building as well as the required degree of supervision. Nakpil & Sons are also liable for the inadequacies and defect in their submitted plan and specifications. These circumstances are the proximate causes of the damages that the PBA building incurred. The costs are to be paid by the defendants amounting to 5M which includes all appreciable damages as well as indemnity plus 100,000php for the attorney's fee.

HELD:

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One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss. Submitted by: 1. ANACAY, Denise 2. CLAVERIA, Patrese 3. DELA PEA, Arahbea 4. MIGUEL, Vic 5. PASCUAL, Angela 6. QUIDIP, Noelen 7. RESURRECCION, Belzer 8. RET, Kierk 9. RODRIGUEZ, Mirella 10. TRINIDAD, Carla