Obli cases.docx

Article 1172

RCPI VS. CA/August 29, 1986/MMAndoy

Facts: Loreto Dionela alleges that the defamatory words on the telegram sent to him by the operator RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI) not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know said defamatory words.

Telegram:176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY WIRE ARRIVAL OF CHECK FER LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER 115 PM SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO (p. 19, Annex "A")

RCPI claims, as its defense, that the additional words in Tagalog were not intended for plaintiff and were included in the original telegram unintentionally. Dionela filed for damages and was granted by the trial court and was affirmed by the Court of Appeals the liability of RCPI company employer. RCPI now comes to the Supreme Court alleging that the CA erred in holding that RCPI should answer directly and primarily for the civil liability arising from the criminal action of its employees.

Issue: W/N RCPI is directly and primarily liable to Loreto Dionela for damages.

Held: Yes. The action for damages was filed directly against RCPI not as an employer subsidiarily liable under the provisions of Art. 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of action of Dionela is based on Articles 19 and 20 of the New Civil Code as well as on petitioner's breach of contract thru the negligence of its own employees. Also, Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender.

There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent.As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the general public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury. WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.

PSBA vs Court of Appeals / December 3, 2012 / JAstillo

FACTS: A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now Court of Appeals justice) Regina Ordoñez-Benitez, for damages against the said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his assailants were not members of the school's academic community but were elements from outside the school.Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners by resigning from his position in the school.

Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article.

ISSUE: Whether or Not PSBA is liable for damages under 2176 or 2180.

HELD: Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently, in Amadora vs. Court of Appeals. 6 In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of he educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material situation does not exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable.However, does the appellate court's failure to consider such material facts mean the exculpation of the petitioners from liability? It does not necessarily follow.

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.

Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied.

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WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court.

Picart vs Smith/ March 15, 1918/ LBenjaminFacts:In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the sum of P31,000, as damages alleged to have been caused by an automobile driven by the defendant.The occurrence which gave rise to the institution of this action took place on December 12, 1912, on the Carlatan Bridge, at San Fernando, La Union. The plaintiff was riding on his pony over said bridge. Before he had gotten half way across, the defendant approached from the opposite direction in an automobile. As the defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man on horseback before him was not observing the rule of the road.The plaintiff, it appears, saw the automobile coming and heard the warning signals. However, being perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. He says that the reason he did this was that he thought he did not have sufficient time to get over to the other side. The bridge is shown to have a length of about 75 meters and a width of 4.80 meters. As the automobile approached, the defendant guided it toward his left, that being the proper side of the road for the machine. In so doing the defendant assumed that the horseman would move to the other side. The pony had not as yet exhibited fright, and the rider had made no sign for the automobile to stop. Seeing that the pony was apparently quiet, the defendant, instead of veering to the right while yet some distance away or slowing down, continued to approach directly toward the horse without diminution of speed. When he had gotten quite near, there being then no possibility of the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it as then standing; but in so doing the automobile passed in such close proximity to the animal that it became frightened and turned its body across the bridge with its head toward the railing. In so doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse fell and its rider was thrown off with some violence. From the evidence adduced in the case we believe that when the accident occurred the free space where the pony stood between the automobile and the railing of the bridge was probably less than one and one half meters. As a result of its injuries the horse died. The plaintiff received contusions which caused temporary unconsciousness and required medical attention for several days.Issue: whether otnot the defendant in amnuevering his car in the manner aboved was guilty of negligence such as gives rise to a civil obligation to repair the damage done.

Rulings: As the defendant started across the bridge, he had the right to assume that the horse and the rider would pass over to the proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of situation occurred while the automobile was yet some distance away; and from this moment it was not longer within the power of the plaintiff to escape being run down by going

to a place of greater safety. The control of the situation had then passed entirely to the defendant; and it was his duty either to bring his car to an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. He was, we think, deceived into doing this by the fact that the horse had not yet exhibited fright. But in view of the known nature of horses, there was an appreciable risk that, if the animal in question was unacquainted with automobiles, he might get exited and jump under the conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, in our opinion, negligent in the eye of the law.

The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case. Abstract speculations cannot here be of much value but this much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or known to them.

Applying this test to the conduct of the defendant in the present case we think that negligence is clearly established. A prudent man, placed in the position of the defendant, would in our opinion, have recognized that the course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the horse and the rider as reasonable consequence of that course. Under these circumstances the law imposed on the defendant the duty to guard against the threatened harm.It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was also negligent; and in such case the problem always is to discover which agent is immediately and directly responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF APPEALS and RORY W. LIM/ March 1996/ LJCanadaArt. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103)

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· On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private respondent’s account at the said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding receipt which contained the assailed provision, to wit:

“AGREEMENTxxx xxx xxx

In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of message by telegraph or cable companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.”

· Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable Bank checks [2] to his suppliers in different amounts as payment for the merchandise that he obtained from them. When the checks were presented for payment, five of them bounced for insufficiency of funds,[3] while the remaining three were held overnight for lack of funds upon presentment.[4]

· Consequent to the dishonor of these checks, Equitable Bank charged and collected the total amount of P1, 100.00 from private respondent. The dishonor of the checks came to private respondent’s attention only on April 2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the dishonor of the checks he issued.

· Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact, petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the purchase of the telegraphic transfer on March 13,1986.

· Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting damage that he suffered due to petitioner’s failure to make the timely transfer of fundswhich led to the dishonor of his checks.

· In a letter dated April 23, 1986, PCIB’s Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic transfer on time as a result of their mistake in using the control number twice and the petitioner bank’s failure to request confirmation and act positively on the disposition of the said telegraphic transfer.[5]

· Nevertheless, petitioner refused to heed private respondent’s demand prompting the latter to file a complaint for damages with the RTC. è In his complaint, private respondent alleged that as a result of petitioner’s total disregard and gross violation of its contractual obligation to remit and deliver the sum of (P200,000.00 to Equitable Banking Corporation, Cagayan de Oro Branch, private

respondent’s checks were dishonored for insufficient funds thereby causing his business and credit standing to suffer considerably for which petitioner should be ordered to pay damages.

· Answering the complaint, petitioner denied any liability to private respondent and interposed as special and affirmative defense the lack of privity between it and private respondent as it was not private respondent himself who purchased the telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the stipulation in the telegraphic transfer application/form receipt[8] which provides:

“x x x. In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors or delays in the transmission of message by telegraph or cable companies or by correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.”

· RTC - held petitioner liable for breach of contract and struck down the aforecited provision found in petitioner’s telegraphic transfer application form/receipt exempting it from any liability and declared the same to be invalid and unenforceable. As found by the trial court, the provision amounted to a contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in all its application forms without giving any opportunity to the applicants to question the same and express their conformity thereto.[

· CA - respondent court affirmed with modifications the judgment of the trial court .

ISSUE: WON the stipulation embodied in the standard application form/receipt furnished by petitioner for the purchase of a telegraphic transfer which relieves it of any liability resulting from loss caused by errors or delays in the course of the discharge of its services is valid.

HELD:

- Petitioner è mainly argues that even assuming that the disputed provision is a contract of adhesion, such fact alone does not make it invalid because this type of contract is not absolutely prohibited. Moreover, the terms thereof are expressed clearly, leaving no room for doubt, and both contracting parties understood and had full knowledge of the same.

- Private respondent è however contends that the agreement providing non-liability on petitioner’s part in case of loss caused by errors or delays despite its recklessness and negligence is void for being contrary to public policy and interest.

- (in case ma discuss) A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify.

(additional about contract of adhesion) è One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto,[17] giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.[18] Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.[19] It is equally important to stress, though, that the Court is not precluded

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from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be ignored for being obviously too one-sided

- On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for being subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.[21] And when it has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of the contract, or one whose stature is such that he is expected to be more prudent and cautious with respect to his transactions, such party cannot later on be heard to complain for being ignorant or having been forced into merely consenting to the contract.[22]

- The factual backdrop of the instant case, however, militates against applying the aforestated pronouncements. That petitioner failed to discharge its obligation to transmit private respondent’s telegraphic transfer on time in accordance with their agreement is already a settled matter as the same is no longer disputed in this petition. Neither is the finding of respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the performance of its obligation, being contested by petitioner. Perforce, we are bound by these factual considerations.

- BAD FAITH

Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its wrongful acts on account of the assailed provision exempting it from any liability. In Geraldez vs. Court of Appeals,[23] it was unequivocally declared that notwithstanding the enforceability of a contractual limitation, responsibility arising from a fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that “[a]ny person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.” Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not binding and will not be enforced.[24]

- The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code states:

“ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

- xxx xxx xxx

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.”

- Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. [25] The use of telegraphic transfers have now become commonplace among businessmen because it facilitates commercial transactions. Any attempt to completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the award of moral[26] and exemplary damages were proper.

- But notwithstanding petitioner’s liability for the resulting loss and damage to private respondent, we find the amount of moral damages adjudged by respondent court in the sum of P400,000.00 exorbitant. Bearing in mind that moral damages are awarded, not to penalize the wrongdoer, but rather to compensate the claimant for the injuries that he may have suffered,[27] we believe that an award of Two Hundred Thousand Pesos (P200,000.00) is reasonable under the circumstances.

- WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision is hereby AFFIRMED.

DM Consuji v. CA/ 2001/ PCanada

PHILIPPINE AIRLINES, INC. vs. COURT OF APPEALS, JUDY AMOR, JANE GAMIL, minors GIAN CARLO AMOR represented by ATTY. OWEN AMOR, and CARLO BENITEZ represented by JOSEPHINE BENITEZ/ CClimaco This is a complaint for damages against petitioner due to the latter’s failure to honor repondents' confirmed tickets. Facts:Private respondent Judy Amor purchased three confirmed plane tickets for her and her infant son, Gian Carlo Amor as well as her sister Jane Gamil for the May 8, 1988, 7:10 a.m. flight bound for Manila from defendant’s branch office in Legaspi City. Judy Amor, a dentist and a member of the Board of Directors of the Sorsogon Dental Association, was scheduled to attend the National Convention of the Philippine Dental Association from May 8 to 14, 1988 at the Philippine International Convention Center. On May 8, 1988, Judy with Gian, Jane and minor Carlo Benitez, nephew of Judy and Jane, arrived at the Legaspi Airport at 6:20 a.m. for PR 178. Carlo Benitez was supposed to use the confirmed ticket of a certain Dra. Emily Chua.They were accompanied by Atty. Owen Amor and the latter’s cousin, Salvador Gonzales who fell in line at the check-in counter with four persons ahead of him and three persons behind him[6] while plaintiff Judy went to the office of the station manager to request that minor plaintiff Carlo Benitez be allowed to use the ticket of Dra. Chua.While waiting for his turn, Gonzales was asked by Lloyd Fojas, the check-in clerk on duty, to approach the counter. Fojas wrote something on the tickets which Gonzales later read as “late check-in 7:05”. When Gonzales’ turn came, Fojas gave him the tickets of private respondents Judy, Jane and Gian and told him to proceed to the cashier to make arrangements.

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Salvador then went to Atty. Amor and told him about the situation. Atty. Amor pleaded with Fojas, pointing out that it is only 6:45 a.m., but the latter did not even look at him or utter any word. Atty. Amor then tried to plead with Delfin Canonizado and George Carranza, employees of petitioner, but still to no avail. Private respondents were not able to board said flight. The plane left at 7:30 a.m., twenty minutes behind the original schedule. Private respondents went to the bus terminals hoping to catch a ride for Manila. Finding none, they went back to the airport and tried to catch an afternoon flight.Unfortunately, the 2:30 p.m. flight, PR 278, was cancelled due to “aircraft situation”.Private respondents were told to wait for the 5:30 p.m. flight, PR 180. They checked-in their bags and were told to hand in their tickets. Later, a PAL employee at the check-in counter called out the name of private respondent minor Carlo Benitez. Plaintiff Judy approached the counter and was told by the PAL personnel that they cannot be accommodated. Fojas who was also at the counter then removed the boarding passes inserted in private respondents’ tickets as well as the tags from their luggages. Manuel Baltazar, a former Acting Manager of petitioner in Legaspi City in May 1988, testified that based on his investigation, the private respondents, although confirmed passengers, were not able to board PR 178 in the morning of May 8, 1988 because there were “go-show” or “waitlisted” and non-revenue passengers who were accommodated in said flight. He also noted that there was overbooking for PR 178. On the other hand, petitioner contends that private respondents are not entitled to their claim for damages because they were late in checking-in for PR 178; and that they were only chance or waitlisted passengers for PR 180 and were not accommodated because all confirmed passengers of the flight had checked-in. In support thereof, petitioner presented Lloyd Fojas, who testified, as follows: In the morning of May 8, 1988, he was on duty at the check-in counter of the Legaspi Airport. He was the one who attended to the tickets of private respondents which were tendered by Salvador Gonzales at 7:05 a.m. when the counter was already closed. The clock at the check-in counter showed that it was already 7:05 and so he told Gonzales that they are already late and wrote “late check-in, 7:05” on private respondents’ tickets. The flight was scheduled to leave at 7:10 a.m. and checking-in is allowed only until 30 minutes before departure time. At the time private respondents went to the check-in counter, passengers were already leaving the pre-departure area and going towards the plane and there were no more passengers in the check-in area, not even waitlisted passengers. The baggages of the passengers have been loaded in the aircraft. Gonzales left and later came back with Atty. Amor who pleaded that plaintiffs be accommodated in the flight. He told Atty. Amor to go to his supervisor to re-book the tickets because there were no more boarding passes and it was already time for boarding the plane. Atty. Amor then left the counter. On cross-examination, Fojas testified that he did not know how many waitlisted or non-revenue passengers were accommodated or issued boarding passes in the 7:00 a. m. and in the afternoon flight of May 8, 1988. After trial, the RTC rendered judgment upholding the evidence presented by private respondents, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered: (a) ordering the defendant to reimburse the plaintiffs the amount of P1,171.60 representing the purchase price of the four (4) plane tickets; (b) condemning the defendant to pay plaintiffs Judy Amor and Jane Gamil the amount of P250,000.00 each as moral damages, P200,000.00 as exemplary damages, plus P100,000.00 as actual damages; (c) for the defendant to pay plaintiffs the amount of P30,000.00 as attorney’s fees, plus P500.00 for every appearance, or a total of P10,500.00 for 21 actual appearance (sic) in court, P2,000.00 as incidental litigation expenses, and to pay the cost of the suit. SO ORDERED. Aggrieved, petitioner appealed to the Court of Appeals (CA for brevity) which affirmed the judgment of the trial court in toto and denied petitioner’s motion for reconsideration. Hence, the present petition of PAL, raising the following issues: Issues: WHETHER PRIVATE RESPONDENTS WERE LATE CHECKED-IN PASSENGERS AND WHETHER THE FAILURE OF AN AIRLINE TO ACCOMMODATE A PASSENGER WHO CHECKED IN LATE IS ACTIONABLE SO AS TO ENTITLE THEM TO DAMAGES. Held:In support of the first issue, petitioner argues: (1) While ordinarily, the findings of the CA are accepted as conclusive by this Court, there are instances when the Court may make its own findings such as when the appellate court based its findings on speculation, surmises or conjectures. The appellate court erroneously gave too much reliance on the testimony of Baltazar who is a disgruntled former employee and relative of private respondent Amor. He was not present at the time of the incident. Baltazar merely interpreted the flight manifest and made a lot of speculations which is undeserving of attention and merit. (2) Its employees are adequately trained and service oriented that they would not dare violate company rules and regulations. They are aware of the drastic consequences that may befall them as what happened to Baltazar. (3) As to PR 180, private respondents were merely waitlisted in said flight hence it was known to them that their accommodation in said flight was dependent upon the failure of any confirmed passenger to check-in within the regulation check-in time. Unfortunately for them, all the confirmed passengers on PR 180 checked-in on time. In its Reply, petitioner reiterates its earlier points and questions once more the credibility of private respondents’ witnesses, particularly Atty. Owen Amor, Salvador Gonzales and Manuel Baltazar who are related to the respondents by blood or affinity. In their Rejoinder, private respondents aver that the findings of facts of the courts a quo were based not only on the testimonies of their witnesses but also on petitioner’s own employee, Lloyd Fojas, who testified that there were non-revenue, go-show and waitlisted

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passengers who were accommodated in PR 178. They reiterate their position that where there is a question regarding the credibility of witnesses, the findings of trial courts are generally not disturbed by appellate courts. Finally, as to the damages awarded, private respondents claim that there was substantial basis in awarding such amounts. Evidently, in resolving the two issues raised in the present petition, it is inevitable and most crucial that we first determine the question whether or not the CA erred in upholding the RTC ruling that private respondents were late in checking-in. Both issues call for a review of the factual findings of the lower courts. As to the first issue: Whether or not private respondents checked-in on time for PR 178. The determination of this issue is necessary because it is expressly stipulated in the airline tickets issued to private respondents that PAL will consider the reserved seat cancelled if the passenger fails to check-in at least thirty minutes before the published departure time. After a careful review of the records, we find no reason to disturb the affirmance by the CA of the findings of the trial court that the private respondents have checked-in on time; that they reached the airport at 6:20 a.m., based on the testimonies of private respondent Judy Amor, and witnesses Salvador Gonzales and Atty. Owen Amor who were consistent in their declarations on the witness stand and corroborated one another’s statements; and that the testimony of petitioner’s lone witness, Lloyd Fojas is not sufficient to overcome private respondents’ evidence. We have repeatedly held that the truth is established not by the number of witnesses but by the quality of their testimonies. In the present case, it cannot be said that the quality of the testimony of petitioner’s lone witness is greater than those of the private respondents. Fojas testified that when respondents went to the check-in counter, there were no more persons in that area since all the passengers already boarded the plane. However, the testimonies of Manuel Baltazar and Judy Amor together with the manifest, Exhibits “E”, “E-1” and “E-2”, point to the fact that many passengers were not able to board said flight, including confirmed passengers, because of overbooking. It is well established that findings of trial courts on the credibility of witnesses is entitled to great respect and will not be disturbed on appeal except on very strong and cogent grounds. Petitioner failed to demonstrate that the trial court committed any error in upholding the testimonies of private respondents’ witnesses. We find that the CA committed no reversible error in sustaining the findings of facts of the trial court. Private respondents who had confirmed tickets for PR 178 were bumped-off in favor of non-revenue passengers. Witness Manuel Baltazar, a former Acting Manager of petitioner, evaluated the manifest for PR 178 and found that there were non-revenue passengers allowed to go on board. He specifically identified the family of Labanda, a certain Mr. Luz, petitioner’s former branch manager, and, a certain Mr. Moyo. Although petitioner had every opportunity to refute such testimony, it failed to present any countervailing evidence. Instead, petitioner merely focused on assailing the credibility of Baltazar on the ground that he was a disgruntled employee and a relative of private respondents. Apart from the bare allegations in petitioner’s pleadings, no evidence was ever presented in court to substantiate its claim that Baltazar was a

disgruntled employee that impelled him to testify against petitioner. As to his relationship with private respondents, this Court has repeatedly held that a witness’ relationship to the victim does not automatically affect the veracity of his or her testimony. While this principle is often applied in criminal cases, we deem that the same principle may apply in this case, albeit civil in nature. If a witness’ relationship with a party does not ipso facto render him a biased witness in criminal cases where the quantum of evidence required is proof beyond reasonable doubt, there is no reason why the same principle should not apply in civil cases where the quantum of evidence is only preponderance of evidence. As aptly observed by the CA which we hereby adopt: Ironically for the defendant, aside from appellant’s assumption that Baltazar could be a disgruntled former employee of their company and could be biased (which same reason could be attributed to Lloyd Fojas) due to a distant relationship with the plaintiff, it offered no proof or evidence to rebut, demean and contradict the substance of the testimony of Baltazar on the crucial point that plaintiffs-appellees were bumped off to accommodate non-revenue, waitlisted or go-show passengers. On this fact alone, defendant’s position weakens while credibly establishing that indeed plaintiffs arrived at the airport on time to check-in for Flight PR 178. Further emphasis must be made that Lloyd Fojas even affirmed in court that he can not recall how many PR 178 boarding passes he had at the check-in counter because management has authority to accommodate in any flight and correspondingly issue boarding passes to non-revenue passengers. The CA likewise correctly concluded that there was overbooking in the morning flight on the basis of the testimony of private respondents’ witness Manuel Baltazar. In fine, the findings of fact of the trial court, as sustained by the CA, have to be respected. As we have consistently held, trial courts enjoy the unique advantage of observing at close range the demeanor, deportment and conduct of witnesses as they give their testimonies. Thus, assignment to declarations on the witness stand is best done by them who, unlike appellate magistrates, can weigh firsthand the testimony of a witness. We find no justifiable reason that warrants the award of P100,000.00 as actual damages in favor of all private respondents. Article 2199 of the Civil Code, provides that actual or compensatory damages may only be given for such pecuniary loss suffered by him as he has duly proved. We explained in Chan vs. Maceda[41] that: …A court cannot rely on speculations, conjectures or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. All that was proved by herein private respondents was the amount of the purchase price of the plane tickets of private respondents Judy, Jane and Gian Carlo. Only said amounts should therefore be considered in awarding actual damages. As borne by the records, private respondent Judy Amor paid P466.00 each for her ticket and that of Jane; while she paid P46.60 for her infant Gian Carlo. The amount of actual damages should therefore be reduced to P978.60,

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payable to private respondent Judy Amor. Nevertheless, we hold that private respondent Judy Amor is entitled to moral damages. In a number of cases, we have pronounced that air carriage is a business possessed with special qualities. In Singson vs. Court of Appeals,[50] we explained that: A contract of air carriage is a peculiar one. Imbued with public interest, common carriers are required by law to carry passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard for all the circumstances. A contract to transport passengers is quite different in kind and degree from any other contractual relation. And this because its business is mainly with the traveling public. It invites people to avail of the comforts and advantages it offers. The contract of carriage, therefore, generates a relation attended with a public duty. Failure of the carrier to observe this high degree of care and extraordinary diligence renders it liable for any damage that may be sustained by its passengers. As the lower courts have found, evidence positively show that petitioner has accommodated waitlisted and non-revenue passengers and had overbooked more than what is allowed by law, to the prejudice of private respondents who had confirmed tickets. Overbooking amounts to bad faith and therefore petitioner is liable to pay moral damages to respondent Judy Amor. Considering all the foregoing, we deem that the award of P250,000.00 as moral damages in favor of private respondent Judy Amor is exorbitant. Where the damages awarded are far too excessive compared to the actual losses sustained by the aggrieved party, the same should be reduced to a more reasonable amount of P100,000.00 to be sufficient, just and reasonable. We consider the award of actual damages in favor of private respondent Jane Gamil to be inappropriate considering the testimony of Judy Amor that she was the one who paid for the tickets.Likewise, the appellate court erred in sustaining the award of moral damages in favor of Jane Gamil as she never testified in court. It has been held that where the plaintiff fails to take the witness stand and testify as to his social humiliation, wounded feelings and anxiety, moral damages cannot be recovered”. Consequently, private respondent Jane Gamil, not being entitled to actual and moral damages, is not entitled to exemplary damages. The award of exemplary damages in favor of private respondent Judy Amor is warranted in this case. Waitlisted and non-revenue passengers were accommodated while private respondent Judy Amor who had fully paid her fare and was a confirmed passenger was unduly deprived of enplaning. Petitioner was guilty of overbooking its flight to the prejudice of its confirmed passengers. This practice cannot be countenanced especially considering that the business of air carriage is imbued with public character. We have ruled that where in breaching the contract of carriage, the airline is shown to have acted in bad faith, as in this case,the award of exemplary damages in addition to moral and actual damages is proper.However, as in the matter of the moral damages awarded by the trial court, we consider the amount of P200,000.00 as exemplary damages to be far too excessive. The amount of P25,000.00 is just and proper. We find the award of attorney’s fees in this case to be in order since

it is well settled that the same may be awarded when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. WHEREFORE, we affirm the decision of the Court of Appeals with the following MODIFICATIONS: 1. Petitioner is ordered to pay private respondent Judy Amor the amount of P978.60 as and for actual damages; P100,000.00 as moral damages; P25,000.00 as exemplary damages; and attorney’s fees in the amount of P30,000.00 plus P500.00 for every appearance of private respondent’s lawyer, or a total of P10,500.00 for 21 actual appearances in court; P2,000.00 as incidental litigation expenses; and costs of suit. 2. The claim for damages of private respondent Jane Gamil is DENIED for lack of evidence. 3. The complaint of private respondent Carlo Benitez is DISMISSED for lack of cause of action. No pronouncement as to costs.

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN vs. MARJORIE NAVIDAD/ February 6, 2003/ MMANDOY

FACTS: Nicanor Navidad, then drunk, entered the EDSA LRT station after purchasing a “token”(representing payment of the fare). While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached him. A misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously. The widow of Nicanor, Marjorie Navidad, along with her children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. Trial court ruled in favor Navidad’s wife and against the defendants Prudent Security and Junelito Escartin . LRTA and Rodolfo Roman were dismissed for lack of merit. CA held LRTA and Roman liable, hence the petition.

ISSUE: W/N there was a perfected contract of carriage between Navidad and LRTA

HELD: YES. A contract of carriage was deemed created from the moment Navidad paid the fare at the LRT station and entered the premises of the latter,entitling Navidad to all the rights and protection under a contractual relation, and that the appellate court had correctly held LRTA and Roman liable for the death of Navidad in failing to exercise extraordinary diligence imposed upon a common carrier.

The law requires common carriers to carry passengers safely using the utmost diligence of very cautious persons with due regard for all circumstances. Such duty of a common carrier to provide safety to its passengers so obligates it not only during the course of the trip but for so long as the passengers are within its premises and where

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they ought to be in pursuance to the contract of carriage. The statutory provisions render a common carrier liable for death of or injury to passengers (a) through the negligence or wilful acts of its employees or b) on account of wilful acts or negligence of other passengers or of strangers if the common carrier’s employees through the exercise of due diligence could have prevented or stopped the act or omission. In case of such death or injury, a carrier is presumed to have been at fault or been negligent, and by simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to force majeure. In the absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners, according to the appellate court, have failed to show, the presumption would be that it has been at fault, an exception from the general rule that negligence must be proved.The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage.A contractual obligation can be breached by tort and when the same act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply.There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault or negligence.

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but only in that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is absolved from liability. No costs.

Philamcare v CA & Trinos/March 18, 2002/ KDelaCruz Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for

another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente. She asked for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against petitioners. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente. Petitioner’s motion for reconsideration was denied. Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code does not apply. Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health. Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. In addition, petitioner also required the applicant for authorization to inquire about the applicant’s medical history.

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Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. Issue (1): W/N the healthcare agreement between Ernani Trinos and Philamcare is an insurance contract.Held (1): YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer’s promise, the insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Issue (2): W/N failure to disclose or misrepresentation of any material information by the member in the application will invalidate the contract.Held (2): Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether

intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, Although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Issue (3): W/N rescission can be exercised after the commencement of an action on the contract.

Held (3): NO. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract.17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on

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which cancellation is based.None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract – the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. Issue (4): W/N the membership of the late Ernani Trinos is now incontestable.Held (4): YES. Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial court: (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Issue (5): W/N the argument of petitioner regarding the legality of the private respondent's relationship with the late Ernani Trinos is material to the subject contract.Held (5): The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians. WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.

Article 1173

Air France vs Carrascoso/ RDilangalen(A case when culpa aquiliana may arise even when there is a pre-existing contract between the parties.)

This is a petition for review by certiorari of a decision of the CA. Carrascoso, a civil engineer, was a member of a group of pilgrims that left for Lourdes from Manila. On March 28, 1958, Carrascoso was issued a first class round trip airplane ticket from Manila to Rome. Thereby from Manila to Bangkok, he traveled in first class. But in Bangkok, he was forced to vacate his first class seat because there was a white man who had a better right to the seat.

Carrascoso filed for moral damages, averring in his complaint the contract of carriage between Air France and himself. Air France claims that to authorize an award for moral damages there must be an averment of fraud or bad faith, upon which Carrascoso’s complaint is silent.

CA ruled in favor of Carrascoso, hence this petition.

ISSUE: W/N CA erred in holding petitioner liable for damages due to the respondent-plaintiff Carrascoso.

HELD: The Supreme Court ruled in affirmative, upholding the decision of the CA.

Carrascoso was issued, and paid for a first class ticket without any reservation whatever. There was a contract to furnish(or supply) respondent-plaintiff a first class passage; and said contract was breached when petitioner Air France failed to furnish first class transportation at Bangkok. There was bad faith when Carrascoso was compelled to leave his first class accommodation berth after he was already seated, and from which he was placed to take a seat instead in the tourist class—the reason which he suffered inconvenience and humiliation, causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting therefore in moral damages.

The inference of bad faith is there. Bad faith contemplates a “state of mind” affirmatively operating with furtive (secretive) design or with some motive of self-interest or ill-will or for ulterior (hidden) purposes. For the willful malevolent act of petitioner’s manager, the petitioner and his employer MUST answer.

The contract of air carriage generates a relation attended with a public duty. Neglect of malfeasance of the carrier’s employees could give for an action for damages. Petitioner’s contract with Carrascoso in one attended with public duty. The stress of Carrasco’s action is placed upon his wrongful expulsion (throwing out). This is a violation of public duty by the petitioner, a case of quasi-delict.

NOTA BENE (note well J): Here there is a contract of carriage between the parties and such contract was breached by Air France when it wrongfully forced Carrascoso to vacate the first class seat which he paid for. The wrongful expulsion is independent of the breach since even without the contract, such wrongful expulsion may still make Air France liable for damages. In other words, the wrongful expulsion is in itself a tort.

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BAUTISTA vs. MANGALDAN RURAL BANK, INC / 1994 /Lenriquez

FACTS: Plaintiff Cristeta Bautista mortgaged her conjugal share of 1/2 of the land covered by TCT No. 1507 for P2,000.00 to defendant Mangaldan Rural Bank on December 1975. The inscription at the back of the title specifically states that only 1/2 portion of the subject land is mortgaged. The said mortgage was foreclosed extra-judicially, on 18 April 1978, for failure of plaintiff to pay the principal obligation and the other charges with the defendant as the highest bidder. After the plaintiff failed to redeem the mortgaged property within the reglementary period, ownership over the whole parcel of land instead of the 1/2 portion which was mortgaged, was consolidated in the name of defendant bank. Consequently, OCT No. 1507 was cancelled and TCT No. 130847 was issued in the name of the defendant Bank.Defendant bank, on 18 December 1979, sold for and in consideration of the sum of P3,385.00 and executed a deed of absolute sale over the whole property covered by TCT No. 130847 in favor of its co-defendant Fred Rodriguez.

Plaintiffs filed a complaint on 23 June 1980 and amended it on 20 September 1980 against herein defendants for the annulment and/or cancellation of the following: 1) deed of absolute sale dated 18 July 1979; 2) entry no. 492278 on OCT No. 1507; 3) consolidation of ownership dated 18 July 1979; 4) entry no. 592279 on OCT No. No. 1507; 5) TCT No. 130847; and 6) deed of sale dated 18 December 1979.

After trial, the court a quo ruled in favor of plaintiffs against defendants and annulled the following documents to the extent of one-half pro-indiviso of the land subject thereof: a) deed of absolute sale dated 18 July 1979 ; b) Consolidation of Ownership dated 18 July 1979; c) TCT No. 130847 issued on 25 July 1979 ; d) deed of absolute sale dated 18 December 1979 ; and e) TCT No. 132467 issued on 27 December 1979 . Defendants were also ordered to jointly and severally place plaintiffs in possession of one-half pro-indiviso of the parcel of land subject of the complaint. Defendants were, likewise, ordered to pay plaintiffs damages in the sum of P5,000.00; attorney's fees in the sum of P11,750.00 and the litigation expenses in the sum of P5,000.00 and to pay double costs.

Private respondents appealed the lower court's decision to respondent appellate court. As earlier stated, the respondent court reversed the lower court's decision in regard to its awards, decreeing as follows:

WHEREFORE, in view of all the foregoing, the awards of damages in favor of plaintiffs-appellees in the amount of P5,000.00; attorney's fees of P11,750.00 and litigation expenses in the sum of P5,000.00 are hereby SET ASIDE.

Hence, this petition for review.

ISSUE: WON the petitioners are entitled to recover damages as well as attorney's fees as a result of the admitted mistake of respondent bank in selling the entire lot, instead of only-half thereof, to respondent Efren Rodriguez.

HELD: Yes. In the present case, we find that the respondent court not only gravely abused its discretion but also misapprehension the facts when it set aside the lower court's awards for damages and attorney's fees in favor of petitioners. There is merit in petitioners

contention that respondent rural bank and its manager, Dr. Vicente Jimenez, committed gross negligence when they allowed the consolidation in the bank's name of the entire property in question and later on sold the entire property to respondent Efren Rodriguez. All the documents starting with the deed of mortgage, the foreclosure of the mortgage, the consolidation of ownership in the bank's name, and finally the sale of the property to Rodriguez, were authored by the bank's personnel and signed by Dr. Jimenez.

Prudence dictates that a person signing a document in his official capacity (as bank manager in this case) must closely read and meticulously study the contents of the said document affixing his signature thereon. A bank is not without a legal staff or lawyer who prepares documents concerning its business. The mistake committed by the bank's staff, which was admitted by respondent Jimenez, was not a slight or minor infraction. It deprived petitioners of their property which could ultimately result in their ejectment therefrom. Moreover, the bank's manager, Dr. Jimenez, could not even explain why the mistake occurred.

In the present case, we believe that moral damages are proper for there can be no doubt that petitioners must have suffered sleepless nights, serious anxiety and wounded feelings upon learning that they had lost the remaining one-half of their property on which their house is built due to the negligence of respondent bank.

The respondent appellate court, after its recital of the circumstances leading to the filing of the complaint oddly found that respondent rural bank did not commit negligence, and declared that Article 20 of the Civil Code, providing that: "Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same," is not applicable in the present case because the causes of action of the plaintiffs (petitioners) are contractual in nature.

It is evident that the complaint in this case was not for breach of contract between petitioners and private respondents. It was for the annulment and cancellation of titles and/or documents where petitioners are not parties therein.

Article 20 of the Civil Code is a cannon of conduct which every person must observe in his relation with another. The initial carelessness of the rural bank in consolidating the ownership of the entire property instead of only one-half thereof in its name, its sale of the entire property to respondent Efren Rodriguez, and the lack of promptness to rectify the mistake after its discovery, constitute after its discovery, constitute gross negligence and bad faith. These were sufficiently established by the evidence. Indeed, the bank and its manager were grossly negligent in handling the business transaction involved herein and later showing bad faith by refusing to rectify the wrong done to petitioners.

As for Rodriguez, it is, however, the Court's view that he was himself a victim of the bank's gross negligence before he was apprised of the mistake. From this viewpoint, the Court believes that he should not be imposed exemplary damages.

For the mental anguish, sleepless nights and serious anxiety suffered by the petitioners, respondent are liable jointly and severally for moral damages which the Court believes should be raised to

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P10,000.00. To serve as deterrent for respondent bank from repeating similar acts, this Court likewise awards exemplary damages against it in the sum of P10,000.00.

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. The trial court's decision is reinstated with the above-mentioned modifications. Costs against private respondents.

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. vs. PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., / May 8, 2009/ LFordan

FACTS Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods were to be transported by it to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private respondent McGee& Co. Inc. (McGee), the underwriting manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no longer had commercial value.5

Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43 be made. A check for the recommended amount was sent to Del Monte Produce; the latter then issued a subrogation receipt6 to Phoenix and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October 1999, held that the only participation of Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the direction and supervision of the ship’s officers, who would not have accepted the cargoes on board the vessel and signed the foreman’s report unless they were properly arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it

had loaded and stowed them. Moreover, citing the survey report, it was found by the RTC that the cargoes were damaged on account of a typhoon which M/V Mistrau had encountered during the voyage. It was further held that Phoenix and McGee had no cause of action against Mindanao Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the complaint and awarded the counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual damages and P100,000.00 as attorney’s fees.9 The actual damages were awarded as reimbursement for the expenses incurred by Mindanao Terminal’s lawyer in attending the hearings in the case wherein he had to travel all the way from Metro Manila to Davao City.Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest from the filing of the complaint until fully paid and attorney’s fees of 20% of the claim."11 It sustained Phoenix’s and McGee’s argument that the damage in the cargoes was the result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and stowing the cargoes. It further held that even with the absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26 February 200414 resolution. Hence, the present petition for review.

ISSUE/SWhether it was careless and negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for damages;

RULINGNo, in the present case, Mindanao terminal, as stevedore, was only charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouse for it does not store goods for profit.

To resolve the petition, three questions have to be answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the same extraordinary degree of diligence in the conduct of its business as required by law for common carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of diligence required by law of a stevedoring company.We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising from the negligent and careless

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loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort.17In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract18 . In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be observed in the performance of an obligation then that which is expected of a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring company which was charged with the loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring company or one who is charged only with the loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of diligence than that required of a good father of a family. We therefore conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes. The case ofSumma Insurance Corporation v. CA, which involved the issue of whether an arrastre operator is legally liable for the loss of a shipment in its custody and the extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to the custody of the private respondent, the exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's checker and a representative of private respondent. When Semirara inspected the shipment at house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court observed:x x x The relationship therefore between the consignee and the arrastre operator must be examined. This relationship is much akin to that existing between the consignee or owner of shipped goods

and the common carrier, or that between a depositor and a warehouseman[22 ]. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over to the party entitled to their possession. (Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel.1avvphi1It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private respondent in the Summa case was performing arrastre function. In the present case, Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes would not have a far reaching public ramification as that of a common carrier and a warehouseman; the public is adequately protected by our laws on contract and on quasi-delict. The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients.In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence preponderates the party having the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must fail.261avvphi1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of Appeals did not make any new findings of fact when it reversed the decision of the trial court. The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard.30

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It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s hold, prepared by Del Monte Produce and the officers of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the ship officers. The vessel’s officer would order the closing of the hatches only if the loading was done correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on board the vessel if they were not properly arranged and tightly secured to withstand the voyage in open seas. They would order the stevedore to rectify any error in its loading and stowing. A foreman’s report, as proof of work done on board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey report,36 found that the cause of the damage was improper stowage37 due to the manner the cargoes were arranged such that there were no spaces between cartons, the use of cardboards as support system, and the use of small rope to tie the cartons together but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their Comment38 before us, the latter is merely a stevedoring company which was tasked by Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel. In other words, the work of the stevedore was under the supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it was because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and bruise in extensive extent. Even the deposition of Byeong was not supported by the conclusion in the survey report that:CAUSE OF DAMAGEx x xFrom the above facts and our survey results, we are of the opinion that damage occurred aboard the carrying vessel during sea transit, being caused by ship’s heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October, 1994 as described in the sea protest.40

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition is in order.However, the Court finds no basis for the award of attorney’s fees in favor of petitioner.l None of the circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not an unfounded civil action against the plaintiff as there is no showing that it was instituted for the mere purpose of vexation or injury. It is

not sound public policy to set a premium to the right to litigate where such right is exercised in good faith, even if erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages to Mindanao Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is no showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of expenditures.42

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is hereby REINSTATED MINUS the awards of P100,000.00 as attorney’s fees and P83,945.80 as actual damages.SO ORDERED.

Solidbank Corp/Metropolitan Bank & Trust Comp v. Spouses Tan/ 2007/ Galias

FACTSOn December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner ten checks worth P455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias and kept the original copy for petitioner.Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate

copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.

Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the amount of the check but it refused, hence, they filed a case for collection of a sum of money in the RTC of Manila, Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it

Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna

RUling of the TRIAL COURT:

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Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in support of their respective contentions, and after taking into consideration all the circumstances of the case, this Court believes that the loss of Metrobank Check No. 403954 in the sum of P250,000.00 was due to the fault of [petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in law that evidence willfully suppressed would be adverse if produced.

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to pay the sum of P250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed until satisfied; P25,000.00 moral damages; P25,000.00 exemplary damages plus 20% of the amount due [respondents] as and for attorney’s fees. With costs.

ISSUEWhether or not there was a failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently unless they prove that they observe extraordinary diligence

RULINGIn one case, the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a forged check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a family in keeping with their responsibility to exercise the necessary care and prudence in handling their clients’ money.

THE SC find no compelling reason to disallow the application of the provisions on common carriers to this case if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity and performance, and utmost assiduousness as well.

Article 1174

Yobido v CA/ 17Oct1997/1174/ NGumba

Facts: On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers.

On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney’s fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito.

On August 29, 1991, the lower court rendered a decision dismissing the action for lack of merit. On the issue of whether or not the tire blowout was acaso fortuito, it found that “the falling of the bus to the cliff was a result of no other outside factor than the tire blow-out.”… As such, the court added, the tire blowout was “a caso fortuito which is completely an extraordinary circumstance independent of the will” of the defendants who should be relieved of “whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article 1174[4] of the Civil Code.”

CA reversed the lower court’s decision.

Issue: WON tire blowout that caused the death of Tito Tumboy was a caso fortuito.

Held: SC affirmed CA decision. In view of the foregoing, petitioners’ contention that they should be exempt from liability because the tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfil his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.

Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days’ use. Be that as it may, it is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages.

Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing evidence, petitioners are hereby held liable for damages. Article 1764 in relation to Article 2206 of the Civil Code prescribes the amount of at least three thousand pesos as damages for the death of a passenger. Under prevailing jurisprudence, the award of damages under Article 2206 has been increased to fifty thousand pesos (P50,000.00).

NAPOCOR V CA/August 1998/CIncio

Facts: On July 22, 1979, a convoy of four (4) dump trucks owned by the National Power Corporation (NPC) left Marawi city bound for Iligan city. Unfortunately, enroute to its destination, one of the trucks with plate no. RFT-9-6-673 driven by a certain Gavino Ilumba figured in a head-on-collision with a Toyota Tamaraw. The incident

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resulted in the death of three (3) persons riding in the Toyota Tamaraw, as well as physical injuries to seventeen other passengers.On June 10, 1980, the heirs of the victims filed a complaint for damages against National Power Corporation (NPC) and PHESCO Incorporated (PHESCO) before the then Court of First Instance of Lanao del Norte, Marawi City.

When defendant PHESCO filed its answer to the complaint it contended that it was not the owner of the dump truck which collided with the Toyota Tamaraw but NPC. Moreover, it asserted that it was merely a contractor of NPC with the main duty of supplying workers and technicians for the latter’s projects.

On the other hand, NPC denied any liability and countered that the driver of the dump truck was the employee of PHESCO.

The trial court rendered a decision dated July 25, 1988 absolving NPC of any liability. Ordering PHESCO, Inc. and Gavino Ilumba to pay jointly and severally the plaintiffs.

Dissatisfied, PHESCO appealed to the Court of Appeals, which on November 10, 1994 reversed the trial court’s judgment. We quote the pertinent portion of the decision:“A ‘labor only’ contractor is considered merely as an agent of the employer (Deferia vs. National Labor Relations Commission, 194 SCRA 525). A finding that a contractor is a ‘labor only’ contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employees of the ‘labor only’ contractor (Industrial Timer Corporation vs. National Labor Relations Commission, 202 SCRA 465). So, even if Phesco hired driver Gavino Ilumba, as Phesco is admittedly a ‘labor only’ contractor of Napocor, the statute itself establishes an employer-employee relationship between the employer (Napocor) and the employee (driver Ilumba) of the labor only contractor (Phesco). (Ecal vs. National Labor Relations Commission, 195 SCRA 224).

Consequently, we hold Phesco not liable for the tort of driver Gavino Ilumba, as there was no employment relationship between Phesco and driver Gavino Ilumba. Under Article 2180 of the Civil Code, to hold the employer liable for torts committed by his employees within the scope of their assigned task, there must exist an employer-employee relationship. (Martin vs. Court of Appeals, 205 SCRA 591).

WHEREFORE, we REVERSE the appealed decision. In lieu thereof, the Court renders judgment sentencing defendant National Power Corporation to pay plaintiffs.

Chagrined by the sudden turnaround, NPC filed a motion for reconsideration of said decision which was, however, denied on February 9, 1995. Hence, this petition.

Issue: As between NPC and PHESCO, who is the employer of Ilumba, driver of the dumptruck which figured in the accident and which should, therefore, would be liable for damages to the victims.

Held: As earlier stated, NPC denies that the driver of the dump truck was its employee. It alleges that it did not have the power of selection and dismissal nor the power of control over Ilumba. PHESCO, meanwhile, argues that it merely acted as a “recruiter” of the necessary workers for and in behalf of NPC.

Before we decide who is the employer of Ilumba, it is evidently necessary to ascertain the contractual relationship between NPC and PHESCO. Was the relationship one of employer and job (independent) contractor or one of employer and “labor only” contractor?

Job (independent) contracting is present if the following conditions are met: (a) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and (b) the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business Absent these requisites, what exists is a “labor only” contract under which the person acting as contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers in the same manner and to the same extent as if they had been directly employed by him. Taking into consideration the above distinction and the provisions of the “Memorandum of Understanding” entered into by PHESCO and NPC, we are convinced that PHESCO was engaged in “labor only” contracting.

Likewise, the manning schedule and pay scale of the workers hired by PHESCO were subject to confirmation by NPC. Then too, it cannot be ignored that if PHESCO enters into any sub-contract or lease, again NPC’s concurrence is needed. Another consideration is that even in the procurement of tools and equipment that will be used by PHESCO, NPC’s favorable recommendation is still necessary.In sum, NPC’s control over PHESCO in matters concerning the performance of the latter’s work is evident. It is enough that NPC has the right to wield such power to be considered as the employer. Under this factual milieu, there is no doubt that PHESCO was engaged in “labor-only” contracting vis-à-vis NPC and as such, it is considered merely an agent of the latter. In labor-only contracting, an employer-employee relationship between the principal employer and the employees of the “labor-only” contractor is created. Accordingly, the principal employer is responsible to the employees of the “labor-only” contractor as if such employees had been directly employed by the principal employer. Since PHESCO is only a “labor-only”contractor, the workers it supplied to NPC, including the driver of the ill-fated truck, should be considered as employees of NPC.

NPC maintains that even assuming that a“labor only” contract exists between it and PHESCO, its liability will not extend to third persons who are injured due to the tortious acts of the employee of the “labor-only” contractor. Stated otherwise, its liability shall only be limited to violations of the Labor Code and not quasi-delicts.

To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the Omnibus Rules Implementing the Labor Code which reads:“(b) Labor only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.”

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NPC posits the theory that its liability is limited only to compliance with the substantive labor provisions on working conditions, rest periods, and wages and shall not extend to liabilities suffered by third parties, viz.:The same can not be expanded to cover liabilities for damages to third persons resulting from the employees’ tortious acts under Article 2180 of the Civil Code.” The reliance is misplaced. It bears stressing that the action was premised on the recovery of damages as a result of quasi-delict against both NPC and PHESCO, hence, it is the Civil Code and not the Labor Code which is the applicable law in resolving this case.The ruling in Cuison v. Norton & Harrison Co., finds applicability in the instant case, viz.:

“It is well to repeat that under the civil law an employer is only liable for the negligence of his employees in the discharge of their respective duties. Here Ora was a contractor, but it does not necessarily follow that he was an independent contractor. The reason for this distinction is that the employer retained the power of directing and controlling the work. The chauffeur and the two persons on the truck were the employees of Ora, the contractor, but Ora, the contractor, was an employee of Norton & Harrison Co., charged with the duty of directing the loading and transportation of the lumber. And it was the negligence in loading the lumber and the use of minors on the truck which caused the death of the unfortunate boy. On the facts and the law, Ora was not an independent contractor, but was the servant of the defendant, and for his negligence defendant was responsible.”

Article 2180 of the Civil Code and not the Labor Code will determine the liability of NPC in a civil suit for damages instituted by an injured person for any negligent act of the employees of the “labor only” contractor. With respect to the liability of NPC as the direct employer, Article 2180 of the Civil Code explicitly provides:“Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.”

In this regard, NPC’s liability is direct, primary and solidary with PHESCO and the driver.

WHEREFORE, in view of the foregoing, the assailed decision of the Court of Appeals dated November 10, 1994 and its accompanying resolution dated February 9, 1995 are AFFIRMED without prejudice to the right of NPC to demand from PHESCO and Ilumba reimbursement of the damages it would be adjudged to pay to complainants. No costs.

RCPI v. VERCHEZ/ January 2006/ KJavier

FACTS

January 21, 1991: Editha Hebron Verchez was confined at the Sorsogon Hospital. Her daughter Grace Verchez-Infante immediately sent a telegram through RCPI Sorsogon Branch to her sister, Zenaida Verchez-Catibog in Quezon City asking for financial help.

After 3 days: Grace sent another telegram to Zenaida thru the JRS Delivery Service, reprimanding her for not sending financial aid. Zenaida went to Sorsogon immediately after receiving the letter.

January 30, 1991: Zenaida brought her mother Editha to Veterans Memorial Hosp in Quezon.

Feb 15, 1991 (after 25 days): The RCPI telegram was finally delivered to Zenaida.

March: They demanded explanation from RCPI Manager and the reply was due to the occurrence of radio link connecting the points of communication encountered radio noise and interferences such that subject telegram did not initially registered in the receiving teleprinter machine.. occurence was beyond control and foresight of RCPI.

July: They demanded conference with RCPI on a certain date and time but no rep from the latter showed up.

April 17, 1992: Editha died. Alfonso, Editha's husband, along with daughters filed an action for damages against RCPI.

TRIAL COURT: In favor of Verchez'. CA: Affirmed. HELD

In favor of Verchez'.

Quasi-contract -

Article 1170 of the Civil Code 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 for damages.

Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his “expectation interest,” which is his interest in having the benefit of his bargain by being put in good a position as he would have been in had the contract been performed, or his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good position as he would have been in had the contract not been made; or his “restitution interest” which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances , like proof of his exercise of due diligence . . . or of the attendance of fortuitous event, to excuse him from his ensuing liability.

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for RCPI to deliver it.

Force Majeure -

RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the transmission and/or reception of the telegraphic message. Additionally, its messenger

17Obli-Con 2012-2013 Atty. Espejo Uno - Manresa

claimed he could not locate the address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.

For the defense of force majeure to prosper, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has filed to take steps to forestall the possible adverse consequences of such a loss. One’s negligence may have oncurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a persons’ participation – whether by active intervention, neglect or failure to act – the whole occurrence is humanized and removed from the rules applicable to acts of God.

Article 1174 of the Civil Code states: No person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the cause of injury or loss.

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible time, it should have at least informed Grace for the non-transmission and the non-delivery so that the she could have taken steps to remedy the situation. But it did not. There lies the fault or negligence.

In an earlier case also involving RCPI, this Court held:

Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it should exercise due negligence to ascertain that messages are delivered to the persons at the given address and should provide a system (or EVERY REASONABLE EFFORT) whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the mail.

People depend on telecommunications companies in times of deep emotional stress or pressing financial needs. Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important business transactions, and notices of conferences or meetings; it is incumbent upon them to exercise a greater amount of care and concern than that shown in this case.

RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of moral damages.

RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption.

For breach of contract then, RCPI is liable to Grace for damages.

Real v Belo/January 2007/JMacacua

FACTS:Petitioner Virginia Real owned and operated the Wasabe Fastfood stall located at the Food Center of the Philippine Women's University (PWU) along Taft Avenue, Malate, Manila. Sisenando H. Belo (respondent) owned and operated the BS Masters fastfood stall, also located at the Food Center of PWU.

Around 7:00 o'clock in the morning of January 25, 1996, a fire broke out at petitioner's Wasabe Fastfood stall. The fire spread and gutted other fastfood stalls in the area, including respondent's stall. An investigation on the cause of the fire by Fire Investigator SFO1 Arnel C. Pinca (Pinca) revealed that the fire broke out due to the leaking fumes coming from the Liquefied Petroleum Gas (LPG) stove and tank installed at petitioner's stall. For the loss of his fastfood stall due to the fire, respondent demanded compensation from petitioner. However, petitioner refused to accede to respondent's demand.

Hence, respondent filed a complaint for damages against petitioner before the Metropolitan Trial Court, Branch 24, Manila (MeTC), docketed as Civil Case No. 152822.Respondent alleged that petitioner failed to exercise due diligence in the upkeep and maintenance of her cooking equipments, as well as the selection and supervision of her employees; that petitioner's negligence was the proximate cause of the fire that gutted the fastfood stalls.

In her Answer dated September 23, 1996, petitioner denied liability on the grounds that the fire was a fortuitous event and that she exercised due diligence in the selection and supervision of her employees. The MeTC held that the investigation conducted by the appropriate authority revealed that the fire broke out due to the leaking fumes coming from the LPG stove and tank installed at petitioner's fastfood stall; that factual circumstances did not show any sign of interference by any force of nature to infer that the fire occurred due to fortuitous event; that the petitioner failed to exercise due diligence, precaution, and vigilance in the conduct of her business, particularly, in maintaining the safety of her cooking equipment as well as in the selection and supervision of her employees.

Dissatisfied, petitioner filed an appeal with the Regional Trial Court, Branch 43, Manila .In its Order dated April 12, 2000, the RTC denied petitioner's Motion for Reconsideration.

ISSUE:Whether the herein petitioner could be held liable for damages as a result of the fire that razed not only her own food kiosk but also the adjacent foodstalls at the Food Center premises of the Philippine Women's University, including that of the respondent.

RULING: Yes. Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected occurrence must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.It is established by evidence that the fire originated from leaking fumes from the LPG stove and tank installed at petitioner's fastfood stall and her employees failed to prevent the fire from spreading and destroying the other fastfood stalls, including respondent's

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fastfood stall. Such circumstances do not support petitioner's theory of fortuitous event.The Civil Code provides:Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. x x xArt. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.

x x x xThe owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

x x x xThe responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.Whenever an employee's negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.

In this case, petitioner not only failed to show that she submitted proof that the LPG stove and tank in her fastfood stall were maintained in good condition and periodically checked for defects but she also failed to submit proof that she exercised the diligence of a good father of a family in the selection and supervision of her employees. For failing to prove care and diligence in the maintenance of her cooking equipment and in the selection and supervision of her employees, the necessary inference was that petitioner had been negligent.

Phil. Realty and Holding v. Ley Const. and Dev. Corp./ June 13, 2011/ AMartinez

Article 1175

MEDEL vs CA/ November 1998/ MMetilla

FACTS: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced by several promissory notes agreeing to an interest rate of 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for collection of the full amount of the loan.

RTC declared that the promissory notes were genuine, however, it ruled that although the Usury Law had been repealed, the interest charged by Gonzales on the loans was unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or credit of 12% per annum.CA reversed the ruling of the RTC holding that the Usury Law had become legally inexistent. Hence, this petition for review on certiorari.

ISSUE: WON the stipulated rate of interest at 5.5% per month on the loan is valid.

HELD: We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent".

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law." In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9,

19Obli-Con 2012-2013 Atty. Espejo Uno - Manresa

1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.No pronouncement as to costs in this instance SO ORDERED.

RUIZ VS CA/ APRIL 22, 2003 / D.MILES

FACTS:

Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She obtained loans from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5Prior to their maturity, the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as follows:

"P750,000.00 Quezon City, March 22, 1995

PROMISSORY NOTEFor value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months, payable every _____ of the month, and to start on April 1995 and to mature on April 1996, subject to renewal.

If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan, for every month default, shall be collected.

Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month, compounded monthly.

It is finally agreed that the principal and surety in solidum, shall pay attorney’s fees at the rate of twenty-five percent (25%) of the entire amount to be collected, in case this note is not paid according to the terms and conditions set forth, and same is referred to a lawyer for collection.

In computing the interest and surcharge, a fraction of the month shall be considered one full month.

In the event of an amicable settlement, the principal and surety in solidum shall reimburse the expenses of the plaintiff.

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner. The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the subject promissory note.

Thereafter, petitioner obtained three (3) more loans from private respondent, under the following promissory notes: (1) promissory note dated 21 April 1995, in the amount of P100,000.00;9(2) promissory note dated May 23, 1995, in the amount of P100,000.00;10and (3) promissory note dated December 21, 1995, in the amount of P100,000.00.11These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private respondent.

From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,13amounting to P270,000.00.14 After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business.

Due to petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest payment for April 1996, private respondent demanded payment not only of the P750,000.00 loan, but also of the P300,000.00 loan.16 When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage.

ISSUES: The pertinent issues to be resolved are:(1) Whether the promissory note of P750,000.00 is a contract of adhesion;(2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal property of petitioner; and(3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid.

RULING: We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines, Inc. vs. Teves, this Court discussed the nature of a contract of adhesion as follows:". . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category." . . . it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party . . . who cannot change the same and who are thus made to adhere hereto on the ‘take it or leave it’ basis . . . "

In the case at bar, the promissory note in question did not contain any fine print provision which could not have been examined by the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note for P750,000.00, three other promissory notes of different dates and amounts were executed by petitioner in favor of private respondent. These promissory notes contain similar terms and conditions, with a little variance in the terms of interests and surcharges. The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in her complaint40 dated October 7, 1996 filed with the trial court, never claimed that she was forced to sign the subject note. Paragraph five of her complaint states:"That on or about March 22, 1995 plaintiff was required by the defendant Torres to execute a promissory note consolidating her unpaid principal loan and interests which said defendant computed to be in the sum of P750,000.00 . . ."

To be required is certainly different from being compelled. She could have rejected the conditions made by private respondent. As an experienced business-woman, she ought to understand all the conditions set forth in the subject promissory note. As held by this Court in Lee, et al. vs. Court of Appeals, et al., it is presumed that a person takes ordinary care of his concerns.42 Hence, the natural presumption is that one does not sign a document without first

20Obli-Con 2012-2013 Atty. Espejo Uno - Manresa

informing himself of its contents and consequences. This presumption acquires greater force in the case at bar where not only one but several documents were executed at different times by petitioner in favor of private respondent.

We also affirm the ruling of the appellate court that the real property covered by the subject deed of mortgage is paraphernal property. The property subject of the mortgage is registered in the name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz, Filipinos." Thus, title is registered in the name of Corazon alone because the phrase "married to Rogelio Ruiz" is merely descriptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Furthermore, registration of the property in the name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz" is not proof that such property was acquired during the marriage, and thus, is presumed to be conjugal. The property could have been acquired by Corazon while she was still single, and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts.

The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. Before such presumption can apply, it must first be established that the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage is a condition sine qua non for the operation of the presumption in favor of conjugal ownership. No such proof was offered nor presented in the case at bar.

We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the appellate court of attorney’s fees, the amount of which having been reasonably reduced from the stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due, to a fixed amount of P50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory notes to 1% per month or 12% per annum interest.The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.60The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.61 Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it is iniquitous or unconscionable.62 In the instant case, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the appellate court.

In sum, petitioner shall pay private respondent the following:

1. Principal of loan under promissory note dated March 22, 1995

P750,000.00

a. 1% interest per month on principal from March 22, 1995 until fully paid, less P270,000.00 paid by petitioner as interest from April 1995 to March 1996

b. 1% surcharge per month on principal from May 1996 until fully paid

2. Principal of loan under promissory note dated April 21, 1995

P100,000.00

a. 1% interest per month on principal from April 21, 1995 until fully paid

b. 1% surcharge per month on principal from September 1995 until fully paid

3. Principal of loan under promissory note dated May 23, 1995

P100,000.00

a. 1% interest per month on principal from May 23, 1995 until fully paid

b. 1% surcharge per month on principal from December 1995 until fully paid

4. Principal of loan under promissory note dated December 1, 1995

P100,000.00

a. 1% interest per month on principal from December 1, 1995 until fully paid

b. 1% surcharge per month on principal from April 1996 until fully paid

5. Attorney’s fees P 50,000.00

Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure proceedings may now proceed.

21Obli-Con 2012-2013 Atty. Espejo Uno - Manresa

IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum.

Trade and Investment vs Roblett/May 2006/LMonday

FACTS: Under consideration are the motion for reconsideration[1] dated 23 December 2005 and supplemental motion for reconsideration dated 23 January 2006, both filed by respondent Paramount Insurance Corporation (Paramount) with regard to our Decision dated 11 November 2005 which disposed of the case as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision of the Court of Appeals is REVERSED and the judgment of the Regional Trial Court is REINSTATED with the following modifications:

a) ordering respondents Roblett, the Abieras, and Paramount, jointly and severally, to pay petitioner Philguarantee the amount of P11,775,611.25, with the following rates of interest and penalty charge, to wit:

i. for respondent Paramount, eighteen percent (18%) interest per annum from 5 June 1990 until fully paid;

ii. for respondents Roblett and the Abieras, sixteen percent (16%) interest per annum from 5 June 1990 until fully paid; and penalty charge of sixteen percent (16%) per annum compounded monthly from 5 June 1990 until fully paid;

b) ordering respondents Roblett and the Abieras, jointly and severally, to pay petitioner Philguarantee the amount of P18,029,219.78 plus 12% interest thereon from the time of finality of judgment until fully paid;

c) ordering respondents Roblett and the Abieras, jointly and severally, to pay petitioner Philguarantee ten percent (10%) of P11,775,611.25, as attorney's fees, plus the costs of suit;

d) ordering respondent Paramount, jointly and severally with respondents Roblett and the Abieras, to pay petitioner Philguarantee P100,000.00 as reasonable attorney's fees;

e) ordering respondents Roblett and Benlot, jointly and severally, to reimburse respondent Paramount whatever amount it would pay petitioner Philguarantee including all interests, attorney's fees and the costs; and

f) ordering all the respondents, jointly and severally, and the third-party defendants, also jointly and severally, to pay petitioner Philguarantee legal interest of 12% per annum on the judgment awards respectively against them from the time of finality of judgment until fully paid. SO ORDERED.

In support of its motion for reconsideration, Paramount submits the following grounds: (1) Paramount issued a bidder’s bond and not a performance or guarantee bond so that when respondent Roblett Industrial Construction Corporation (Roblett) executed the sub-contract agreement, Paramount was released from liability thereunder; (2) petitioner is guilty of misrepresentation and concealment in securing Paramount’s continuing commitment to answer for Roblett’s repayment scheme; (3) petitioner and Roblett entered into a rehabilitation program which novated the principal obligation of the parties resulting in the discharge of Paramount; (4)

the subject surety bond expired without any claim being made against the same; and (5) Paramount is not liable for attorney’s fees. The supplemental motion for reconsideration essentially reiterates the allegations and arguments found in the motion for reconsideration with the additional contention that the interest charge on the principal debt is unconscionable.ISSUE: WON the validity of the interest charge against the principal amount involved in this case is unconscionable.RULING: Under the surety bond, Paramount bound itself jointly and severally with Roblett to pay petitioner to the extent of P11,775,611.35 for whatever damages and liabilities the latter may suffer by virtue of its counterguarantee. Paramount further agreed to pay petitioner interest thereon at the rate of 18% per annum from the date of receipt of petitioner’s first demand letter up to the date of actual payment. In our Decision, we found that none of the parties questioned the validity of the stipulated interest rate. Finding the same legal, we upheld its validity. With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon them. Nevertheless, we ruled that Paramount’s liability therefor should commence from the date of judicial demand, or on 5 June 1990, and not from the date petitioner made a formal notice of demand to Paramount. This is but fair as the delay in the performance of Paramount is attributable to the failure of petitioner to inform the former of the developments in the negotiations with Roblett.

Paramount argues that it is made liable for approximately P48 million, the bulk of which is the interest charge and not the principal amount. It then submits that the interest is clearly iniquitous, unconscionable and exorbitant, thus contrary to morals, citing our ruling in Medel v. Court of Appeals. In the said case, we held as void the stipulation on interest at the rate of 5.5% per month or 66% per annum, on a P500,000.00 loan, the same being“excessive, iniquitous, unconscionable and exorbitant, hence, contrary to morals ("contra bonos mores"), if not against the law.” It would seem that Paramount’s opposition to the interest awarded herein does not spring from the invalidity of the stipulated interest rate but rather on the resulting amount of interest charge alone, which if counted from the date of judicial demand would come to roughly P32 million which is thrice the amount of the principal debt ofP11,775,611.35. While the Court recognizes the right of the parties to enter into contracts and who are expected to comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another. In a number of cases, this Court equitably reduced the interest rate agreed upon by the parties for being iniquitous, unconscionable, and/orexhorbitant.

Notably in the case of Development Bank of the Philippines v. Court of Appeals, while this Court held that respondents were liable for the stipulated interest rate of 18% per annum, we equitably reduced the same to 10% per annum after finding that the interests and penalty charges alone exceeded the amount of the principal debt. As such, the interests were found to be excessive. We further held that the additional penalty charge of 8% per annum would sufficiently cover whatever else damages petitioner may have incurred such as

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attorney’s fees and litigation expenses. In the instant case, the resulting interest charge has turned out to be excessive in the context of its base computation period, and hence, unwarranted in fact and in operation. We are not unmindful of the length of time this case has been pending in court for which the amount involved has ballooned to the outrageous amount of more than P45 million which is four times the principal debt.

While we have sustained the validity of much higher interest rates of 21% per annum in Bautista v. Pilar Development Corporation and 24% per annum inGarcia v. Court of Appeals as the factual circumstances therein warrant, it is well to note that compared to the instant case, the said cases were litigated for a shorter period of time—12 years and 3 years, respectively. Development Bank of the Philippines was finally decided after only 10 years of litigation. Here, the complaint was filed in the lower court on 5 June 1990 or sixteen (16) years ago. Consequently, the already huge principal debt swelled to a considerably disproportionate sum. Thus, we deem an interest rate of 12% per annum is more reasonable under the circumstances. WHEREFORE, premises considered, respondent Paramount’s motion for reconsideration and supplemental motion for reconsideration are GRANTED IN PARTand our assailed Decision dated 11 November 2005 is hereby MODIFIED. The interest rate of 18% per annum as stipulated in the surety bond is equitably reduced to 12% per annum. The Decision is AFFIRMED WITH FINALITY in all other respects.

Article 1176

MANILA TRADING & SUPPLY CO. vs. MEDINA/ May 31, 1961 / MMuñoz

FACTS: The facts appear to be that prior to May 7, 1956, the defendant-appellant Mariano Medina had certain accounts with appellee, Manila Trading & Supply CO. These accounts were on said date consolidated into a total balance due of P60,000.00, for which Medina executed a promissory note (Exh. "A") for Sixty Thousand Pesos (P60,000.00), with interest at 12% per annum, payable in monthly installments of P4,000.00 plus interest. The note provided that upon failure to pay any of the installments "the whole sum remaining then unpaid will immediately become due and payable, at the option of the holder of this note", together with 33-1/3% of the amount due for attorney's fees and expenses of collection, in addition to the costs of the suit.

On January 8, 1957, the payee Manila Trading & Supply Co. filed a complaint against appellant Medina in the Court of First Instance of Manila, claiming that the said debtor had failed to meet the installments due on the note for the months of September, 1956 up to and including January 7, 1957, and that due to such default, the balance of the note amounting to P43,596.22, plus 12% interest thereon and 33-1/3% thereof by way of attorney's fees and collection expenses, had become due and demandable; and prayed for judgment in the amounts stated. On January 4, 1957, upon petition of plaintiff, a writ of attachment was issued and levied upon eleven of defendant's buses.

On March 10, 1957, Medina filed an answer (Record on Appeal, p. 11), admitting the allegations of paragraphs 2, 3 and 4 of the complaint (i.e., the execution of the note; the failure to pay the monthly installments for September, 1956 up to January, 1957; the maturity of the balance due of P43,596.22; and the lack of sufficient

security). He also admitted the allegations of the complaint concerning the 12% interest on the principal, but contended that the 33-1/3% attorney's fees were exorbitant and unconscionable. Medina further pleaded, by way of defense, that he was induced to pay P4,000.00 additional on January 24, 1957 upon promise that he would not be sued, and that he would be allowed to pay the balance "paulatinamente", and that instead, his trucks were attached. By way of counterclaim, Medina asked for damages due to lost earnings of the trucks attached, at the rate of P900.00 per day. These defenses and counterclaim were traversed by the plaintiff.

Trial was set for September 10, 1957, and because of non-appearance of defendant and his counsel, the court commissioned the Clerk to receive plaintiff's evidence, which showed that from June 6, 1956 to January 21, 1957,defendants had made twenty-one payments totalling P24,311.34 of which P4,413.76 corresponded to interest and the balance (P19,982.15) to the principal.

Upon seasonable motion of defendant Medina, the Court reopened the case to give him opportunity to present his evidence. Thereupon, he testified and asserted that in addition to the twenty-one payments acknowledged by plaintiff company, he had made ten other payments that, added to the former, showed that he (Medina) had paid more than P4,000.00 a month since the execution of the note up to the filing of the complaint, and was, therefore, not in default. To bolster his claim, Medina exhibited ten additional receipts signed by the plaintiff's cashier, but without numbers or year dates, because they were allegedly eaten by anay; however, defendant wrote thereon the supposed numbers that the receipts originally bore, based on a memorandum book where he purported to have noted his payments to plaintiff. Medina also testified that by reason of the attachment of his buses, he had lost net earnings of P550.00 per day, and his business in building truck bodies had been affected to the extent of P50,000.00; and that he had been forced to engage counsel at stipulated fees of P7,000.00. Considering that the attachment was maintained for over two years, the damages claimed by defendant would amount to over P300,000.00.

In rebuttal, the assistant accountant of the Manila Trading denied that the ten additional receipts exhibited by the defendant corresponded to the period covered by the promissory note Exh. "A"; that the numbers attributed to them by plaintiff were not in the proper sequence, because as of July 28, 1956, the company has adopted a new numbering of its receipts; and that in the absence of the correct numbers and the years of issue, it was impossible to locate the record of the payments claimed.

After considering the evidence, the trial court entertained doubts as to the veracity of the receipts produced by the defendant, and refused to credit him with the amounts shown therein. It, therefore, gave judgment for the plaintiff for the balance due of P40,102.42 on the note, plus 12% interest from January 21, 1957 until payment but reduced the attorney's fees from 33-1/3% of the sum due to only P1,000.00. Defendant appealed from the decision.

ISSUE: WON the receipts presented are genuine to raise the presumption that prior installments were paid.

RULING: No.Our examination of the evidence satisfied us that the ten additional receipts produced by the defendant (Exhs. 3-D, 3-F, 3-H, 3-L, 3-S, 3-U, 3-W, 3-Z, 3-BB, and 3-CC), while issued by plaintiff, were not for

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payments made on the dates claimed by defendant, nor are they chargeable to the balance of the promissory note Exh. "A". As pointed out by the trial court, it is highly suspicious that these receipts should be mutilated precisely at the places where the serial numbers and the year of issue must appear, while the receipts for intervening payments recognized by the plaintiff remained intact. Moreover, these contested receipts appear identical in shape, size, and color to those issued by plaintiff company prior to July 28, 1956, before the form of its receipts were changed, such as Exhs. 3 to 3-C, and Exhs. 7 to 7-D; but differ radically in color, size and particulars from those issued after July 28, 1956. In addition, the numbers that Medina attributed to them are not in sequence, as can be seen from the list Exh. 4. Thus, defendant claims that Exh. 3-D was issued in June (or July) 29, 1956 and bore No. 2898; yet the acknowledged receipt for July 28, 1956 is numbered 0096; receipt Exh. 3-F, allegedly for August 1, 1956, is numbered, according to defendant, 3438, while the admittedly authentic receipt Exh. 3-G for August 3 has a lower number, 0813.

Moreover, receipt Exh. 3-H that defendant claims to be dated August 18, 1956, is numbered 1584, a number lower than that of Exh. 3-F dated August 1st (No. 3438), when the latter was issued earlier. The same inconsistency between dates and serial numbers is true with the other contested receipts. It is difficult to believe that a trading company should issue receipts numbered at random, since it would make auditing control impossible.

The lower court also correctly noted that the genuine receipts from and after July 28 invariably specify the amount charged to interest as well as that credited to the principal for each payment, while the disputed receipts contain no such specification.

These differences between the defendant's disputed receipts and those admitted by plaintiff, when coupled with the fact that appellant Medina's answer expressly admitted the balance due as well as his failure to meet the monthly installments from September, 1956 to January 1957; his lack of corroboration; and the further circumstance that the admissions in his answer were never withdrawn, nor was the answer containing them ever amended, irresistibly show that the trial court's rejection of the genuineness and validity of the disputed receipts constituted no error. The authenticity of the signatures appended to them does not prove that they were issued in 1956 or 1957, as claimed by the appellant, nor that they should be credited to the note Exh. "A". It is not at all improbable that these mutilated receipts were among those issued to the appellant prior to the consolidation of his accounts and the execution of the promissory note.

Appellant avers that the genuine receipts dated January, 1957 raise the presumption that prior installments were paid. This might be true if such receipts recited that they were issued for the installments corresponding to the month of January, 1957; but nowhere does that fact appear. And even if such recital had been made, the resulting presumption would only be prima facie, and the evidence before us is clear that the payments made do not correspond to the installments falling due on the dates of the genuine receipts.

We find no error in the judgment appealed from, and therefore the same is hereby affirmed. Costs in both instances against appellant Mariano Medina.

RCBC v. Buenaventura / October 6, 2010 / PJNg

FACTS:

Respondent Pedro P. Buenaventura and his first wife (now deceased) owned a townhouse unit in Casa Nueva Manila Townhouse, Quezon City. On December 27, 1994, they obtained a loan from petitioner. As security for the loan, they mortgaged the townhouse to petitioner.3 Under the loan agreement, respondent was to pay RCBC a fixed monthly payment with adjustable interest for five years. For this purpose, respondent opened an account with RCBC’s Binondo branch from which the bank was to deduct the monthly amortizations.4

On April 19, 1999, respondent received a Notice of Public Auction of the mortgaged townhouse unit. He wrote Atty. Saturnino Basconcillo, the notary public conducting the auction sale, demanding the cancellation of the auction sale. However, the notary public proceeded with the public sale on May 25, 1999, where RCBC emerged as the highest bidder. The Notary Public’s Certificate of Sale was registered with the Register of Deeds on September 28, 2000.

On September 18, 2001, respondent filed with the Regional Trial Court (RTC) of Quezon City a complaint for Annulment of Sale and Damages against RCBC, notary public Saturnino Basconcillo, and the Registrar of Deeds of Quezon City. Respondent prayed that the RTC (1) annul the extra-judicial foreclosure and sale of the property; (2) cancel the Certificate of Sale; and (3) direct the payment of P170,000.00 as actual damages, P100,000.00 as moral damages, P50,000.00 as exemplary damages, P70,000.00 as attorney’s fees, plus P2,500.00 for every court appearance of his counsel, and the costs of the suit.

RCBC failed to timely file an Answer and was declared in default. Based on respondent’s evidence, the RTC rendered a decision,5

The RTC found that respondent made regular payments of the monthly amortizations as they fell due, as evidenced by his passbooks and the various deposit slips acknowledged by RCBC.7 The RTC also found that RCBC’s own computer-generated amortization schedule showed that no balance was due respondent after his last payment on March 27, 2000

The CA ruled that the foreclosure sale was premature. It held that respondent made valid and sufficient payments on his loan obligation. It found respondent’s evidence as sufficient proof to negate default on his part in paying the monthly amortizations. It noted that sometime in September 1996, RCBC sent respondent a letter informing the latter of past due accounts since January 27, 1996, which would warrant the application of the acceleration clause. The CA, however, deemed the same to have been "cured" by a subsequent Amortization Schedule given by the bank to respondent stating that, as of March 27, 2000, he no longer had an unpaid balance on his loan. The CA said this clearly suggests the uninterrupted receipt by RCBC of the installments, thus, negating the claim that respondent was in default. It also noted respondent’s evidence (his passbooks) which indicated that he had sufficient funds to cover the remaining balance of his loan at the time of the foreclosure sale. Moreover, the CA said that based on the term of the loan (April 27, 1995 to March 27, 2000), the loan was not yet due and demandable at the time of the foreclosure.

On the other hand, the CA found the award of moral and exemplary damages unwarranted. It held that since respondent irregularly paid his monthly amortizations, RCBC did not act maliciously and in bad faith when it initiated the foreclosure proceedings.

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In this petition, RCBC argues that the CA Decision is not in accord with law and applicable jurisprudence. In particular, it assails the CA’s finding that respondent was not in default at that time of the foreclosure of the mortgage. It says that the foreclosure sale was done in the lawful exercise of its right as mortgagee of the property as, at the time of the foreclosure sale, respondent had unpaid amortizations. The bank points out that respondent made payments until March 2000, but these payments were not withdrawn by the bank and credited to respondent’s loan payments but remained in his account.

In his Comment, respondent avers that he never received a copy of petitioner’s Motion for Extension of Time to file the Petition for Review in violation of Rule 45, Section 2. Thus, he argues that the motion is without legal effect, and therefore, the petition has been filed out of time. He also alleges that the petition lacks the requisite affidavit of material dates. Respondent likewise posits that the petition does not raise questions of law. He argues that the issue raised by petitioner, while purportedly a question of law, in reality questions the sufficiency of evidence relied upon by both the trial court and the CA, which this Court has held in the past to be a question of fact.

ISSUE:

whether respondent’s subsequent payment of unpaid amortizations done after the foreclosure and public sale of the property invalidates the extra-judicial foreclosure and public sale proceedings?

HELD:

Yes.

Clearly, the petition disputes the factual findings of the CA,11 which, in turn, merely affirmed the factual findings of the RTC.

It is settled that factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court and will generally not be reviewed on appeal. Inquiry into the veracity of the CA’s factual findings and conclusions is not the function of the Supreme Court, because this Court is not a trier of facts. Neither is it our function to reexamine and weigh anew the respective evidence of the parties.

While it is true that there are well-established exceptions to this principle, petitioner in this case has failed to show that this case falls under one of such exceptions.

The RTC and the CA both found that respondent was not in default on the monthly payments of his loan obligation.

These findings are supported by the evidence on record.

At the time of foreclosure – April 1999 – respondent’s savings account deposits showed a balance ofP852,913.26.13 This was more than enough to cover whatever amortizations were due from him at that time. Moreover, the Amortization Schedule shows that, as of April 27, 1999, respondent’s loan account with the bank totaled only P269,023.38.14 The same schedule shows that, by March 27, 2000, he had "0.00" balance left to pay,15 meaning he had paid his loan in full.

Foreclosure is valid only when the debtor is in default in the payment of his obligation.16 It is a necessary consequence of non-payment of mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due.17

In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose on the

mortgage, to have the property seized and sold, and to apply the proceeds to the obligation.18

RCBC’s own Amortization Schedule readily shows the applicability of Article 1176 of the Civil Code, which states:

Art. 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that the said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.19

Respondent’s passbooks indicate that RCBC continued to receive his payments even after it made demands for him to pay his past due accounts, and even after the auction sale.

RCBC cannot deny receipt of the payments, even when it claims that the deposits were "not withdrawn."20 It is not respondent’s fault that RCBC did not withdraw the money he deposited. His obligation under the mortgage agreement was to deposit his payment in the savings account he had opened for that purpose, in order that RCBC may debit the amount of his monthly liabilities therefrom. He complied with his part of the agreement.

This bolsters the conclusion of the CA that respondent had no unpaid installments and was not in default as would warrant the application of the acceleration clause and the subsequent foreclosure and auction sale of the property.

WHEREFORE, the foregoing premises considered, the petition is DENIED. The Decision dated November 21, 2006 and the Resolution dated January 30, 2007 of the Court of Appeals in CA-G.R. CV No. 82079 are hereby AFFIRMED.

SO ORDERED.

Article 1177

SIGUAN v. LIM/November 19, 1999/ROmegaFACTS: July 2, 1991, a Deed of Donation conveying the following parcels of land and purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of Cebu City.New transfer certificates of title were thereafter issued in the names of the donees.

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed. Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated with her children in antedating the questioned Deed of Donation, to petitioner’s and other creditors’ prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations.

LIM denied any liability to petitioner. As regards the questioned Deed of Donation, she maintained that it was not antedated but was made in good faith at a time when she had sufficient property. She alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.

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December 1994, the trial court ordered the rescission of the questioned deed of donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney’s fees; and P5,000 as expenses of litigation.

On appeal, the Court of Appeals reversed the decision of the trial court and dismissed petitioner’s accion pauliana. It held that two of the requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission.

According to the CA, the Deed of Donation, which was executed and acknowledged before a notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of Donation was made, there being no convincing evidence on record to indicate that the notary public and the parties did antedate it. Since LIM’s indebtedness to petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the first requirement for accion pauliana was not met. Petitioner’s motion for reconsideration having been denied, she came to this Court.

ISSUE(S): Whether the questioned Deed of Donation was made in fraud of petitioner and, therefore, rescissible.

HELD: SC resolved these issues in the negative. Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are “those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them.” The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4)the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud.

The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted.

In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989.

SC are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that it was made prior to petitioner’s credit. Notably, that deed is a public document, it having been acknowledged before a notary public. As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court. It bears repeating that notarial documents, except last wills and testaments, are public documents and are evidence of the facts that gave rise to their execution and of their date.

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989. Petitioner’s claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent.

The third requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 CC provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. “Subsidiary remedy” has been defined as “the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to.” It is, therefore, essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist.”

The fourth requisite for an accion pauliana to prosper is not present either. Article 1387, 1st par., of the CC: “All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, 2ndpar.: the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation. Petitioner’s alleged credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed. Petitioner did not adduce any evidence that the price of said property was lower. Aside from the tax declarations, petitioner did not present evidence that would indicate the actual market value of said properties. It was not, therefore, sufficiently established that the properties left behind by LIM were not sufficient to cover her debts existing before the donation was made. Hence, the presumption of fraud will not come into play.

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other circumstance from

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which fraud can be inferred. Accordingly, since the four requirements for the rescission of a gratuitous contract are not present in this case, petitioner’s action must fail.

Article 1181

TOMAS K. CHUA vs. CA / April 9, 2003 / BCPanditaFacts: This is a petition for review on certiorari seeking to reverse the decision[1] of the Court of Appeals in an action for specific performance[2] filed in the Regional Trial Court[3] by petitioner Tomas K. Chua (“Chua”) against respondent Encarnacion Valdes-Choy (“Valdes-Choy”). Chua sought to compel Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the decision[4] rendered by the trial court in favor of Chua.

Valdes-Choy advertised for sale her paraphernal house and lot (“Property”) with an area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. Chua responded to the advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash.

The parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest money. The contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be “in proper order” before full payment is made.The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy’s counsel who was suppose to pay the tax did not do so. The trial court held that Chua’s non-payment of the balance of P10,215,000.00 on the agreed date was due to Valdes-Choy’s fault.

Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to deliver the owner’s duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The Property was also free from all liens and encumbrances.

Issue: (a) Whether the transaction between Chua and Valdes-Choy is a perfected contract of sale or a mere contract to sell, and (MINOR ISSUE) (b) Whether Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua’s name even before payment of the full purchase price. (RELEVANT ISSUE)

Held: A) The agreement between Valdes-Choy and Chua is a mere contract to sell and the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer. Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However,

Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price.

It is true that Article 1482 of the Civil Code provides that“ [W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract.” However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable.

B) We see no reason to disturb the ruling of the Court of Appeals. In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price by Chua. Such full payment gives rise to Chua’s right to demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation.

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.

In a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale

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pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer.

Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale.

In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua’s condition that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot be considered part of the“omissions of stipulations which are ordinarily established” by usage or custom.[41] What is increasingly becoming customary is to deposit in escrow the balance of the purchase price pending the issuance of a new certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew no response from Chua.

Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the Civil Code provides that-ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the suspensive condition - the full payment of the purchase price - did not happen. There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated, this is not one of the obligations of a vendor.

Benjamin Coronel and Emilia Meking Vda. De Coronel v. CA and Florentino Constantino and Andrea Buensuceso/ October 1996/JPinili

This refers to the petition for review on certiorari of the decision of the Court of Appeals, dated March 27, 1995, in CA-G.R. CV No. 44023[1] which affirmed the decision of the Regional Trial Court of Bulacan, Branch 8, dated April 12, 1993 in Civil Case No. 105-M-91[2]; and the resolution of said appellate court, dated July 4, 1995, denying the motion for reconsideration of its decision.

Facts: The subject property consists of two parcels of land situated in Sta. Monica, Hagonoy, Bulacan, designated as Cadastral Lots Nos. 5737 and 5738. The property is originally owned by Honoria Aguinaldo. One-half (1/2) of it was inherited by Emilia Meking Vda. de Coronel together with her sons Benjamin, Catalino and Ceferino, all surnamed Coronel. The other half was inherited by Florentino Constantino and Aurea Buensuceso.

On February 20, 1991, Constantino and Buensuceso filed a complaint for declaration of ownership, quieting of title and damages with prayer for writ of mandatory and/or prohibitory

injunction with the Regional Trial Court of Bulacan (Branch 8) against Benjamin, Emilia and John Does, docketed as Civil Case No. 105-M-91. Plaintiffs allege that: on April 23, 1981, Jess C. Santos and Priscilla Bernardo purchased the property belonging to Emilia and her sons by virtue of a deed of sale signed by Emilia; on June 21, 1990, Santos and Bernardo in turn sold the same to Constantino and Buensuceso by virtue of a compromise agreement in Civil Case No. 8289-M; they are the owners of the subject property and defendants have illegally started to introduce construction on the premises in question; and pray that “defendants respect, acknowledge and confirm the right of ownership of the plaintiffs to the share, interest and participation of the one-third (1/3) portion of the above described property”.

After defendants filed their Answer, pre-trial ensued wherein the parties stipulated that: (1) the property in question was previously owned by Honoria Aguinaldo, one-half (1/2) of which was inherited by the defendants while the other half was inherited by the plaintiffs from the same predecessor; (2) it was admitted by counsel for the defendants that there was a sale between Jess Santos and the plaintiffs covering the subject property; and (3) that there was no evidence presented in Civil Case No. 8289-M by either of the parties and that the decision therein was based on a compromise agreement.[3]

After trial on the merits, the trial court rendered a decision in favor of the plaintiffs, the decretal portion of which reads as follows:

“WHEREFORE, judgment is hereby made in favor of plaintiffs, the Court hereby declares plaintiffs as the sole and absolute owners of the properties covered by Tax Declarations Nos. 28960 and 28961 of Hagonoy, Bulacan, and orders the defendants to respect, acknowledge and confirm the right of ownership of plaintiffs over the whole property described above, to remove whatever improvements introduced by them thereon, and to pay the plaintiffs, solidarily and severally P10,000.00 as attorney’s fees and costs of suit.

On appeal brought by defendants, the Court of Appeals affirmed the decision of the lower court and denied defendants’ motion for reconsideration.

Issue: I.WHETHER OR NOT THE CONTRACT [OF] SALE EXECUTED BY A PARENT-CO-OWNER, IN HER OWN BEHALF, IS UNENFORCEABLE WITH RESPECT TO THE SHARES OF HER CO-HEIRS-CHILDREN;

Held: The court ruled for the respondents.

A careful reading of the “Kasulatan ng Bilihang Patuluyan”which is a private document, not having been duly notarized, shows that only the share of Emilia in the subject property was sold because Benjamin did not sign the document and the shares of Ceferino and Catalino were not subject of the sale.

Thus, it is clear, as already stated, that petitioner Benjamin did not sign the document and that the shares of Catalino and Ceferino in the subject property were not sold by them.

Since the shares of Catalino and Ceferino were not sold, plaintiffs Constantino and Buensuceso have no cause of action against them

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or against any of their heirs. Under Rule 3, Section 7 of the 1997 Rules of Civil Procedure, indispensable parties are parties in interest without whom no final determination can be had of an action. In the present case, the heirs of Catalino and Ceferino are not indispensable parties because a complete determination of the rights of herein petitioners and respondents can be had even if the said heirs are not impleaded.

Emilia executed the instrument in her own behalf and not in representation of her three children.

Article 493 of the Civil Code states:

“Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.”

Consequently, the sale of the subject property made by Emilia in favor of Santos and Bernardo is limited to the portion which may be allotted to her upon the termination of her co-ownership over the subject property with her children.

Applying Articles 1317 and 1403 of the Civil Code, the Court of Appeals ruled that through their inaction and silence, the three sons of Emilia are considered to have ratified the aforesaid sale of the subject property by their mother:

“Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

“A contract entered into in the name of another by one who has no authority or legal representation or who has acted “beyond his powers shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

“Art. 1403. The following contracts are unenforceable, unless they are ratified:

“(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers.

We do not agree with the appellate court. The three sons of Emilia did not ratify the sale. In Maglucot-Aw vs. Maglucot we held that:

“Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized, and becomes the authorized act of the party so making the ratification.

No evidence was presented to show that the three brothers were aware of the sale made by their mother. Unaware of such sale, Catalino, Ceferino and Benjamin could not be considered as having voluntarily remained silent and knowingly chose not to file an action for the annulment of the sale. Their alleged silence and inaction may not be interpreted as an act of ratification on their part.

Hence, Jess C. Santos and Priscilla Bernardo, who purchased the share of Emilia, became co-owners of the subject property together with Benjamin and the heirs of Ceferino and Catalino. As such, Santos and Bernardo could validly dispose of that portion of the subject property pertaining to Emilia in favor of herein private respondents Constantino and Buensuceso.

However, the particular portions properly pertaining to each of the co-owners are not yet defined and determined as no partition in the proper forum or extrajudicial settlement among the parties has been effected among the parties. Consequently, the prayer of respondents for a mandatory or prohibitory injunction lacks merit.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the following MODIFICATIONS:

1. Plaintiffs-private respondents Florentino Constantino and Aurea Buensuceso are declared owners of one-half (1/2) undivided portion of the subject property plus the one-fourth (¼) undivided share of defendant-petitioner Emilia Meking Vda. de Coronel; and, defendant-petitioner Benjamin Coronel together with the heirs of Catalino Coronel and the heirs of Ceferino Coronel are declared owners of one-fourth (¼) share each of the other one-half (1/2) portion of the subject property, without prejudice to the parties entering into partition of the subject property, judicial or otherwise.

2. The order of removal of the improvements and the award of the amount of Ten Thousand Pesos (P10,000.00) as attorney’s fees and costs of suit are DELETED.

Cheng vs Genato/1998/CBRemoroza

Facts: Respondent Ramon B. Genato is the owner of two parcels of land located at Paradise Farms, San Jose Del Monte, Bulacan who entered into a Contract to Sell with respondent-spouses Ernesto R. Da Jose and Socorro B. Da Jose for which the purchase price was P80.00 per square meter; P50,000.00 shall be paid as partial down payment at the time of execution of this Contract to Sell; and that P950,000 as full payment shall be paid 30 days after the execution of the contract to sell after the buyer has satisfactorily verified the authenticity of the documents.

The contract was in a public instrument and was duly annotated at the back of the two certificates of title. Sps Da Jose asked for and was granted by respondent Genato an extension of another 30 days -until November 5, 1989. Without due notice to the Da Jose spouses, Genato executed an Affidavit to Annul the Contract to Sell.

Ricardo Cheng then expressed his desire to buy Genato’s property. Genato showed him the TCT with annotation of the contract with Sps Da Jose and the affidavit of cancelling such contract. Cheng paid him P50,000 upon the assurance that the previous contract will be annulled. When Genato was in Registry of Deeds in Meycauayan,

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Bulacan to register the annulment of the contract with the Sps Da Jose, by coincidence, the two parties met and later on in the day, Genato decided to continue the Contract he had with them. Genato returned the P50,000 to Cheng. Da Jose spouses paid Genato the complete down payment of P950,000.00. So, with these, Cheng instituted a complaint for specific performance to compel Genato to execute a deed of sale for the check he gave as partial payment to the total agreed purchase price of the subject properties and considered as an earnest money for which Genato acceded. RTC ruled in favor of Cheng which was reversed by the CA. Hence this petition

Issue/s: 1) that the Da Jose spouses' Contract to Sell has been validly rescinded or resolved;

(2) that Ricardo Cheng's own contract with Genato was not just a contract to sell but one of conditional contract of sale which gave him better rights, thus precluding the application of the rule on double sales under Article 1544, Civil Code; (related to Article 1181); and

(3) that, in any case, it was error to hold him liable for damages.

Held: The petition must be denied for failure to show that the Court of Appeals committed a reversible error which would warrant a contrary ruling. No reversible error can be ascribed to the ruling of the Court of Appeals that there was no valid and effective rescission or resolution of the Da Jose spouses Contract to Sell, contrary to petitioner's contentions and the trial court's erroneous ruling.

(2) According to art. 1181

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. The contract between Genato and spouses Da Jose was a contract to sell which is subject to a suspensive condition. Thus, there will be no contract to speak of, if the obligor failed to perform the suspensive condition which enforces a juridical relation. The contract between Genato and Cheng is a contract to sell not a contract of sale. Even assuming that it should be treated as a conditional contract of sale, it did not acquire any obligatory force since it was subject to a suspensive conditionthat the earlier contract to sell between Genato and the Da Jose spouses should first be cancelled or rescinded.

Obviously, in the case at bar the foregoing cannot be made to apply to the situation in the instant case because no default can be ascribed to the Da Jose spouses since the 30-day extension period has not yet expired.

(1) Even assuming that the spouses defaulted, the contract also cannot be validly rescinded because no notice was given to them. Thus, Cheng's contention that the Contract to Sell between Genato and the Da Jose spouses was rescinded or resolved due to Genato's unilateral rescission finds no support in this case.

Art.1544 should apply because for not only was the contract between herein respondents first in time; it was also registered long before petitioner's intrusion as a second buyer (PRIMUS TEMPORE, PORTIOR JURE). (Spouses made annotation on the title of Genato).

Since Cheng was fully aware, or could have been if he had chosen to inquire, of the rights of the Da Jose spouses under the Contract to Sell duly annotated on the transfer certificates of titles of Genato, it now becomes unnecessary to further elaborate in detail the fact that he is indeed in bad faith in entering into such agreement.

Art. 1182

Castillo Vda. de Mistica v. Spouses Naguiat/2003/MRequillo

Facts: The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.

“Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.“On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document entitled ‘Kasulatan sa Pagbibilihan’

“Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986.

“On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and surrender possession of the same to [petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate where she incurred expenses for attorney’s fees and litigation expenses in the sum of P20,000.00.

HELD: 1. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of the reciprocity between parties, brought about by a breach of faith by one of them.Rescission, however, is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation.

In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be made even after ten years from the execution of the Contract, provided the vendee paid 12 percent

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interest. The stipulations of the contract constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed upon and written.

Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during her husband’s funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have been made well within the agreed period.

The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled.Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor’s will would be to sanction illusory obligations.[15] The Kasulatandoes not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not. Second, the fact that they already made partial payment thereof only shows that the parties intended to be bound by theKasulatan.

2. The issuance of a certificate of title in favor of respondents does not determine whether petitioner is entitled to rescission. It is a fundamental principle in land registration that such title serves merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therei. A certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in direct proceedings in accordance with law.

3. Registration has never been a mode of acquiring ownership over immovable property, because it does not create or vest title, but merely confirms one already created or vested. Registration does not give holders any better title than what they actually have.Land erroneously included in the certificate of title of another must be reconveyed in favor of its true and actual owner.

WHEREFORE, the assailed Decision and Resolution are AFFIRMEDwith the MODIFICATION that the payment for the extra 58-square meter lot included in respondents’ title is DELETED.

ONG v. CA/ July 1999/ ZSabelita

Article 1186

PAPA vs. VALENCIA/ January 23 1998/ Bush Sandico

This should be Valencia v. RFC page 3. Please check.

FACTS: Sometime in June 1982, A.U. Valencia and Co., Inc. and Felix Peñarroyo, filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte. The complaint alleged that Papa, acting as attorney-in-fact of Angela M. Butte, sold to Peñarroyo, through Valencia, a parcel of land.

Prior to the alleged sale, the said property had been mortgaged by her to the Associated Banking Corporation. After the alleged sale to Valencia and Penarroyo, but before the title to the subject property had been released, Butte passed away. Despite representations made by Valencia to the bank to release the title to the property sold to Peñarroyo, the bank refused to release it unless and until all the mortgaged properties of the late Butte were also redeemed.

In order to protect his rights and interests over the property, Peñarroyo caused the annotation on the title of an adverse claim.

Sometime in April 1977, that Valencia and Peñarroyo discovered that the mortgage rights of the bank had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa. Jr. Since then, Papa had been collecting monthly rentals in the amount of P800.00 from the tenants of the property, knowing that said property had already been sold to Valencia and Peñarroyo. Despite repeated demands from said respondents, Papa refused and failed to deliver the title to the property.

Valencia and Peñarroyo prayed that Papa be ordered to deliver to Peñarroyo the title to the subject property

RTC rendered a decision, allowing Papa to redeem from the Reyes spouses, who bought the land at a public auction because of tax delinquency and ordering Papa to execute a Deed of Absolute Sale in favor of Peñarroyo.

Papa’s defense: The sale was never “consummated” as he did not encash the check (in the amount of P40,000.00) given by Valencia and Peñarroyo in payment of the full purchase price of the subject lot. He maintained that what Valencia and Peñarroyo had actually paid was only the amount of P5,000.00 (in cash) as earnest money.

ISSUE: Was there valid payment although Papa failed to encash the check?

HELD: Yes. Valencia and Peñarroyo had given Papa the amounts of P5,000.00 in cash on 24 May 1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject lot. Papa himself admits having received said amounts, and having issued receipts therefor. Papa’s assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that “he can no longer recall the transaction which is supposed to have happened 10 years ago.”

After more than 10 years from the payment in part by cash and in part by check, the presumption is that the check had been encashed. Granting that Papa had never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Article 1249 of the Civil

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Code, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given.

If no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.

Considering that Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price, they, therefore, had the right to compel Papa to deliver to them the owner’s duplicate of TCT 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question.

REYNALDO LABAYEN vs. TALISAY-SILAY MILLING CO., INC.,/December 15, 1928/ JTan

Facts: This is an action for damage in the amount of P28,620 for the alleged breach of a contract to grind sugar cane in 1920-1921. After a rehearing, the defendant was absolved from the complaint, and the plaintiff was condemned, on the cross-complaint, to pay the defendant the sum of P12,114, without special pronouncement as to costs.

The plaintiff, along with another, possesses the hacienda known as Dos Hermanos of Talisay, Occidental Negros. The defendant is a corporation dedicated to the milling of sugar cane. On August 27, 1919, the plaintiff and the defendant entered into a contract similar to contracts entered into by the defendant and other planters. It is this contract which is the basis of plaintiff's cause of action. Among the clauses in the contract are the following:

COVENANTS OF 'LA CENTRAL'

Third: That it shall build and after building it shall do or cause to be done all that is necessary for its preservation in good condition, and shall, during the period of this agreement, without charge to the Procedure or Procedures, operate a permanent railroad run by steam or motor, or both, for the use of the plantation or plantations in the transportation of sugar cane, sugar, fertilizer, and all such articles as the procedure may need for his estate, his use and that of his family and employees, and shall cause the main line or a branch thereof, as the case may be, to reach the point of the plantation to be hereafter described not farther than one mile from ay of the boundaries of said plantation, whenever the contour of the land, the curves, and elevations permit the same; it shall provide said railroad with locomotives or motors and wagons in a number sufficient to make the transportation of sugar cane, sugar, fertilizer, and the above mentioned articles, and shall likewise build a branch of said railroad in such a way that from the main line, mill and warehouses, it shall reach the wharf above mentioned, and it shall also cause the yard of the factory near the sugar mill to be available for use with

switches or otherwise. All the steam locomotives shall be provided with safety spark devices. The railroad shall consist of a road or path conveniently and duly designated so that, so far as possible, all the producers may derive equal benefit from said railroad. The right-of way for the main line of the railroad shall be three and a half (3-½) meters wide measured from the center of the road to each side, and the branches, switches, or curves shall have more if necessary.

OBLIGATIONS OF THE PRODUCER

Fifth: That he shall accept the provisions of clauses 7, 8, and 9 of the covenants of "La Central" and shall deliver the cane as therein provided; hereby binding himself to plant each year according to the usage and custom of a good agriculturist not less than one-half of his own lands devoted to sugar cane subject to the approval of the Committee of Producers leaving the remainder uncultivated.

MUTUAL OBLIGATIONS

10.In case of . . . inability to secure, under reasonable conditions such rights-of-way as "La Central" may require, . . . "La Central" shall notify the Committee of Producers and without incurring any liability for the non-fulfillment of the terms of this contract, its effects shall be suspended in part or in whole during such period of incapacity. . . .

Issue: Is there a breach of contract when conditions are not met but was prevented for some cause?

Ruling: With particular reference to the third paragraph of the clauses obligating the central, it is admitted that the central has not continued its railroad through to the Hacienda Dos Hermanos. The railroad comes to the HaciendaEsmeralda No. 2 and there stops. For the railroad to extend to the Hacienda Dos Hermanos, a distance of four kilometers would require a gradual elevation of 4.84 per cent to 7 per cent, would make necessary the providing of twenty-six curves, and would cost about P80,000. The witness H. W. Corp, a civil engeneer employed in the construction work of the Manila Railroad Company, the Pampanga Sugar Milling Co., and the Binalbagan Central, testified that it was possible to construct a railroad to the Hacienda Dos Hermanos but that to do so would be very dangerous.

Recalling that the contract provided for the construction of a railroad "whenever the contour of the land, the curves, and elevations permit the same," and that such construction is possible but very dangerous, the question then arises if the defendant can excuse itself on this ground, or if the plaintiff can recover from the defendant for damages for breach of contract, through inability to mill cane.

It is elemental that the law requires parties to do what they have agreed to do. If a party charges himself with an obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of God, the law, or the other party. A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough. Equity cannot relieve from bad bargains simply because they are such. So one must answer in damages where the impossibility is only so in fact.

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Article 1272 of the Civil Code provides: "Impossible things of services cannot be the subject-matter of contracts." And article 1184 of the same Code provides: "The debtor shall also be relieved from obligations which consist in the performance of a act if fulfillment of the undertaking becomes legally or physically impossible."

May one obligate himself to do something which, when accomplished, will prove to be dangerous to life and property? We doubt it. Take the contract in question as an example. It was a general contract of the form used by the central and various proprietors of sugar-cane fields. It was intended to be limited in particular application to haciendas where not impeded by physical impossibility. The contract was qualified by an implied condition which, if given practical effect, results in absolving the central from its promise. Not to sanction an exception to the general rule would run counter to public policy and the law by forcing the performance of a contract undesirable and harmful. (8 Manresa's Codigo Civil Espanol, p. 355.)

There is another aspect to the case which has to do with the tenth paragraph of the mutual obligations of the contract and which concerned the securing of the right- of-way for the proposed railroad. To get from the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos, the railroad would have to pass through the haciendasof Esteban de la Rama. But he would not grant permission to use his land for this purpose in 1920, and only consented to do so in 1924. Here then was a clear case of such a condition of affairs as was contemplated by the contract.

Accepting, therefore, the facts as found by the trial judge, and nothing no reversible error on any legal question, the judgment appealed from must be as it is hereby affirmed, with the costs of this instance against the appellant.

Valdez v. Court of Appeals/ 24 Sept 2004/ SMier

FACTS: Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners of a parcel of land with an area of 24,725 square meters located in the commercial district of Isulan, Sultan Kudarat. When Carlos Valdez, Sr. died intestate on March 26, 1966, he was survived by Josefina and their children, including Carlos Valdez, Jr., a practicing lawyer.

On December 28, 1978, Josefina caused the subdivision survey of the property into eight (8) lots, i.e., Lots Nos. 3-A to 3-H, all fronting the national road. To enhance the value of the property, she decided to sell a portion thereof to Jose Lagon, a successful businessman in Sultan Kudarat who owned a construction firm as well as real estate and business enterprises: the Lagon Enterprises and the Rural Bank of Isulan. He was also one of the clients of her son, Carlos, Jr., a practicing lawyer.

On May 1, 1979, Josefina executed a Special Power of Attorney authorizing her son, Carlos, Jr. to sell a portion of Lot No. 3-C and Lot. No. 3-D to Lagon. The lots subject of the sale had an area of 4,094 square meters, with a frontage of 64.3 square meters. Part of the consideration of the transaction was the condition that Lagon cause the transfer of the Rural Bank of Isulan to the subject property and construct a commercial building beside the bank.

On May 9, 1979, Josefina, through her son and attorney-in-fact, Carlos, Jr., executed a Deed of Absolute Sale of a portion of Lot No. 3 with a frontage of 64.3 square meters facing the national highway and the National Grains Authority office going towards the Buencamino Movie House starting from the corner. However, the condition imposed by Josefina was not incorporated in the deed; what was appended thereto was the Special Power of Attorney executed by Josefina. It was indicated in the said deed that the property was to be sold for P80,000 cash and that Lagon had already paid the said amount to Carlos, Jr. In reality, however, Lagon purchased the 4,094-square-meter property atP40.00 per square meter, or for the amount of P163,760 inclusive of Carlos, Jr.’s personal account to Lagon in the amount of P73,760. Lagon had not yet remitted to Josefina the said amount of P163,760.

On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No. 55007805 in the amount of P8,196.00 dated April 21, 1981, and PCIB Check No. 55007806 postdated June 15, 1981 in the amount of P81,880.00 both checks totaling P90,076.00 in full payment of the purchase price of the property, after deducting the account of Carlos, Jr. amounting to P73,684.00. Josefina acknowledged the checks, through Carlos, Jr., who signed a cash voucher for the same. Carlos, Jr. was able to encash PCIB Check No. 55007805, but returned the other check to Lagon’s wife, Nenita, after the latter paid him P20,000.00 thereby leaving a balance of P61,880.00 of the purchase price.

Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by Lagon, where the latter undertook to transfer the Rural Bank of Isulan to the property and construct a commercial building thereon, to be in full operation within a period of five (5) years from May 9, 1979, the date of the deed of absolute sale, or until May 9, 1984, as part of the condition of the sale; and that if Lagon failed to do so, the deed of absolute sale shall be declared null and void without need of demand therefor. Lagon also made it clear in the said affidavit that the consideration of the said Deed of Absolute Sale was not only the P80,000.00 purchase price, but also that the subject property be commercialized.

However, Lagon failed to start the construction of a commercial building and to transfer the rural bank thereon; he, likewise, failed to pay the balance of the purchase price amounting toP61,880.00. Consequently, Josefina and Carlos, Jr. refused to deliver to Lagon a torrens title over the purchased property. On September 4, 1981, Carlos, Jr. wrote Lagon demanding the payment of P61,800.00 within ten days from notice thereof, otherwise, the sale would be considered rescinded. Still, Lagon failed to pay or even respond to the letter. Carlos, Jr. again wrote Lagon on September 25, 1981, and this time proposed the reduction of the area of the property subject of the sale to correspond to the payment so far made by Lagon in the total amount ofP90,676.00. There was no response from Lagon.

In the meantime, in August 1987, a question ensued in connection with Lagon’s failure to pay the balance of the purchase price of the property, to cause the construction of a commercial building and the transfer of the Rural Bank of Isulan to Lot No. 3, as undertaken by him in his Affidavit dated April 27, 1981. As a reminder, Carlos, Jr. furnished Lagon with a machine copy of the said affidavit on August 12, 1987. On August 13, 1987, Lagon’s counsel, Atty. Ernesto I. Catedral, wrote Carlos, Jr., pointing out that he had earlier sought Lagon’s consent for the construction of the PCIB Branch in Lot No. 3. Catedral posited that by consenting to the sale of the property to

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PCIB and the construction thereon of its branch office, Lagon thereby substantially complied with his undertaking under the deed of absolute sale.

On September 24, 1990, Lagon filed a Complaint against Josefina, and Carlos, Jr., in his capacity as attorney-in-fact of Josefina, for specific performance and damages with a prayer for a temporary restraining order and writ of preliminary injunction. Lagon testified that Josefina failed to deliver the title to the property he purchased from her, as well as the possession thereof; hence, he was not certain of the metes and bounds of the property and could not secure a building permit for the transfer and construction of the Rural Bank of Isulan, as well as the commercial building. On January 20, 1995, the trial court rendered judgment in favor of Lagon.

The appellate court ruled that based on the deed of absolute sale, the Special Power of Attorney executed by Josefina, and the affidavit of the respondent, the parties had executed a contract to sell. The respondent filed a motion for the reconsideration thereof. On February 4, 1999, the Court of Appeals reversed itself and rendered an Amended Decision, setting aside its decision and affirming that of the RTC. This time, the appellate court held that Josefina had, after all, executed a deed of absolute sale over the 4,094-square-meter portion of Lot No. 3. It declared that the Special Power of Attorney executed by Josefina and the affidavit did not form part of the deed of absolute sale. It further declared that Lagon’s affidavit could not be considered part of the said deed because it was merely an afterthought contrived by Carlos, Jr.

ISSUE: WON LAGON IS ENTITLED TO HIS CLAIM FOR SPECIFIC PERFORMANCE AND DAMAGES CONSIDERING HIS FAILURE TO COMPLY WITH THE SUSPENSIVE CONDITIONS AGREED UPON. (In relation to Art. 1186 on Constructive or Presumed Fulfillment)

RULING: NO.

We agree with the trial and appellate courts that petitioner Josefina and the respondent entered into a contract of sale over the subject property and not merely a contract to sell the same. A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. From the time the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery thereof, as provided for in Article 1477 of the New Civil Code. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. In a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Such payment is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

Irrefragably, the deed is one of sale, not a contract to sell. The deed specifically states that the property is sold and delivered to the respondent as vendee. Petitioner Josefina even warranted the

peaceful possession and ownership of the respondent over the property subject of the transaction. She did not reserve the ownership over the property, as well as any right to unilaterally rescind the contract. There has been, by the execution of the said deed, a constructive delivery of the property to the respondent; hence, the latter acquired ownership over the same. Upon payment of the purchase price, petitioner Josefina was obliged to deliver the torrens title over the property to and under the name of the respondent as the new owner and place him, as vendee, in actual possession thereof; otherwise, the failure or inability to do so constitutes a breach of the contract sufficient to justify its rescission.

The intractable refusal of the respondent to pay the balance of the purchase price of the property despite the petitioners’ demands had no legal basis. As such, petitioner Josefina’s refusal to deliver the torrens title over the subject property under the respondent’s name was justified, precisely because of the respondent’s refusal to comply with his obligation to pay the balance of the purchase price. Had the respondent paid the purchase price of the property, such failure on the part of petitioner Josefina to deliver the torrens title to and under the name of the respondent would have warranted the suspension of the five-year period agreed upon for the construction of a fully operational commercial building, as well as the transfer of the aforesaid bank to the property. This is so because absent such torrens title under the name of the respondent, no building permit for the construction of the buildings could be secured.

Considering all the foregoing, the failure of the respondent to cause the construction of the commercial building and the transfer of the bank to the property sold under the deed of sale executed between him and petitioner Josefina was due to the respondent’s own fault.

There was no need for petitioner Josefina to make a notarized demand to the respondent or file an action to rescind the deed of absolute sale to enable her to recover the ownership of the property. This is so because the petitioner and the respondent had agreed that upon the latter’s failure to construct a new and fully operational commercial building and to cause the transfer of the Rural Bank of Isulan to the property on or before May 9, 1984, the deed of absolute sale would be deemed null and void without need of any demand from the petitioners. Such agreement is evidenced by the affidavit executed by the respondent himself on April 27, 1981.

In sum, then, the respondent had no cause for specific performance against the petitioners. However, the petitioners are obliged to refund to the respondent the latter’s partial payments for the subject property.

Coronel v. CA/ 1996/ Please check Art. 1181 same case

Philippine Airlines, Inc. vs. Court of Appeals/March 14, 1996/JYlanan

Facts: Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit microwave oven, with a gross weight of 33 kilograms from

34Obli-Con 2012-2013 Atty. Espejo Uno - Manresa

San Francisco, U.S.A. to Manila, Philippines. Upon arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the damage rendered it unserviceable. Demands both oral and written were made by plaintiff against the defendant for the reimbursement of the value of the damaged microwave oven, and transportation charges paid by plaintiff to defendant company. But these demands fell on deaf ears.

Philippine Airlines contend that the claim was filed out of time under paragraph 12, a (1) of the Air Waybill which provides: “(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the damage and at the latest within 14 days from the receipt of the goods.

Both the Trial Court and the Appellate Court ruled in favor with the respondent and ordered for the payment of damages.

Issue: Whether there is compliance in the filing of the formal claim or damages as required in the air waybill.

Held: Yes. Considering the abovementioned incidents and private respondent Mejia’s own zealous efforts in following up the claim, it was clearly not her fault that the letter of demand for damages could only be filed, after months of exasperating follow-up of the claim, on August 13, 1990. If there was any failure at all to file the formal claim within the prescriptive period contemplated in the air waybill, this was largely because of PAL’s own doing ( She made one personal visit and several follow-up calls. With Atty. Paco, she made one phone call but also made several phone calls with his secretary or the clerk at PAL cargo office and she was trying to locate him but unfortunately, he was always out of his office.), the consequences of which cannot, in all fairness, be attributed to private respondent.

Even if the claim for damages was conditioned on the timely filing of a formal claim, under Article 1186 of the Civil Code that condition was deemed fulfilled, considering that the collective action of PAL’s personnel in tossing around the claim and leaving it unresolved for an indefinite period of time was tantamount to “voluntarily preventing its ulfilment.” On grounds of equity, the filing of the baggage freight claim, which sufficiently informed PAL of the damage sustained by private respondent’s cargo, constituted substantial compliance with the requirement in the contract for the filing of a formal claim.

- END OF PART III -

35Obli-Con 2012-2013 Atty. Espejo Uno - Manresa