1

Geraldez v CA

FACTS:
Oct, 1989: Lydia Geraldez read about Kenstar from the
newspaper and was sent a brochure from their representative
Alberto Cruz, which discussed their tours for Europe and the
highlights. He and her sister chose the Volare 3 tour which
covered 22 days in Europe for 2,990 dollars.

Geraldez filed a civil action against Kenstar for committing
FRAUD in contracting an obligation, which was due to the
following reasons:

1. There was no European tour manager for the group
2. Hotels were not first class and lacked basic amenities
(soap, shampoo, toilet paper, etc)
3. The UGC leather Factory (where you get really good
leather for cheap) was not visited even though it was a
specifically added HIGHLIGHT of the tour
4. The Filipino lady tour guide was a first timer (first
time in Europe), Rowena Zapanta
a. Felt uneasy and unsafe with her
STATED IN THE BROCHURE that these would be
available/happen

July 9 1991: RTC decision was Kenstar should pay Geraldez
moral damages, nominal damages, exemplary damages,
attorneys fees (500k,200k,300k,50k)

Kenstar appealed and respondent court deleted the award of
the moral and exemplary and reduced the nominal and
attorneys fees to (30k and 10k). Hence, this petition.

ISSUES:
1. Did private respondent Kenstar act in bad faith or with
gross negligence in discharging its obligations in the contract?
2. Are moral, exemplary and nominal damages warranted?

2

RATIO:
Private respondent committed fraudulent
misrepresentation amounting to bad faith, to the prejudice of
petitioner and the members of the group
Kenstars choice of the tour guide is a manifest
disregard of its specific assurances to the tour group, and
which deliberate omission is contrary to the elementary rules
of good faith and fair play
By providing the Volare 3 group with an
inexperienced first timer as a tour guide, Kenstar manifested
indifference to the satisfaction, convenience and peace of mind
to its clients
Selection of the tour guide was a deliberate and
conscious choice on the part of Kenstar in order to afford her
on-the job-training making the tour group her unknowing
guinea pigs.
The inexperienced tour guide will not know how to
anticipate the possible problems and needs of its group,
therefore not being able to provide the tour group with the
necessary accommodations and personal necessities promised.
Furthermore the inability to visit the UGC leather
factory is reflective of the ineptness and neglect of the tour
guide.
The UGC was one of the highlights and
Kenstar should have ensured that it would be visited
The shortcomings of the tour guide can be traced to
the lack of due diligence on the part of Kenstar in the
selection of its employees
Although Kenstar argues that the tour guide made
daily calls to show diligence does not hold
The reason she had to call was so that
Kenstar could monitor her progress and training and provide
instructions for her
The failure of Kenstar to provide a European Tour
Manager although it specifically advertised and promised to do
so is also a contractual breach
Kenstar expressly stated in its advertisement that a
European Tour Manager would be present
3

Kenstars contention that the European Tour
Manager does not refer to a natural person but a juridical
personality does not hold
Cursory reading of the advertisement reveals
the express representation that the tour manager would be a
natural person
Corporate entity could not possibly
accompany the tour group
Kenstars contention that the word he used in the
advertisement also includes the word it to include females
and corporations does not hold as well
Hard to believe that the word he was
used to denote an artificial or corporate being
From its advertisement, it is beyond cavil
that the import of the word he is a natural and not a
juridical person
Kenstars contention that it explained the concept of
the European manager to its client at the pre-departure
briefing also does not hold
Respondent failed to present even one
member of the tour group to substantiate its claim
If it was really its intention to provide a juridical
entity it wouldnt have repeatedly promised the arrival of a
natural tour manager
The contract of adhesion as printed on the face of
the brochure does not delimit the responsibility of Kenstar
from providing its clients with what it promised
The contract stated:
Kenstar, its employees...assume no responsibility or liability
arising out of or in connection with the services or lack of
servicesneither will they be responsible for any act, error or
omission or of any damages, injury, loss, accident or delay or
irregularity which may be occasioned by reason (of) or any
defect inlodging place or any facilities
The contract of adhesion, wherein only one party
creates the contract and the other party either takes it or
leaves it is not necessarily void but it must nevertheless be
construed strictly against the one who drafted it.
4

This is especially true when the stipulations are
printed in fine letters and are hardly legible, as is the case of
the tour contract
Even assuming arguendo that the contractual limit is
enforceable, Kenstar still cannot be exculpated for the reason
that responsibility arising from fraudulent acts cannot be
stipulated against by reason of public policy
Kenstar committed grave misrepresentation when it
assured in its tour package that the hotels provided would
provide complete amenities and would be conveniently located
along the way for the daily itineraries
Testimonies by petitioner and private respondent
show that the hotels were unsanitary and sometimes did not
even provide towels and soap
Further testimonies claim that the hotels were also
located far from the city making it difficult to go to
Respondents contention that the hotels were listed
in the Official Hotel and resort Guide and Worldwide Hotel
Guide do not hold
Kuoni Traveler, the tour operator of
Kenstar which prepared the listing could have easily verified
the same
Nor can it be logically claimed that first-
class hotels in Europe are different from first-class hotels in
the Philippines
Reasonable that petitioner would assume
that the meaning of first-class would be the same
Even assuming that there is a difference in
quality, it cant be said that a first-class hotel in Europe does
not provide the basic necessities and sanitary accommodations
The fact that Kenstar could only book them in such
hotels because of budget constraints is not the fault of the
tour group
Kenstar contends that it could only book them in
such hotels because what they paid will only allow them to
pay for such accommodations does not hold
Kenstar should not have promised such
accommodations if they couldnt afford it. Kenstar should have
increased the price to ensure that the accommodations.
5

Fact that the tourists were to pay a supposedly
lower amount, such that respondent allegedly retained hardly
enough as reasonable profit, does not justify a substandard
form of service
Respondent Court erred in deleting the award for
moral and exemplary damages.
Moral damages may be awarded in breaches of
contract where the obligor acted fraudulently or in bad faith
Kenstar can be faulted with fraud in the inducement
which is employed by a party in securing the consent of the
other
This fraud or dolo which is present or employed at
the time of birth or perfection of the contract may either be
dolo causante or dolo incidente
Dolo Causante or Causal Fraud
Referred to in Art 1338, are those
deceptions or misrepresentations of a serious character
employed by one party and without which the other party
would not have entered into the contract
Dolo causante determines or is the essential
cause of the consent
Effect: nullity of the contract and the
indemnification of damages
Dolo Incidente or Incidental Fraud
Referred to in Art. 1344, are those which
are not serious in character and without which the other
party still would have entered into the contract
Dolo incidente refers only to some particular
or accident of the obligation Effect: obliges person employing it
to pay damages
In either case, whether Kenstar has committed dolo
causante or dolo incidente, it is indubitably liable for damages
both moral and exemplary

6

De Guia v Manila Electric Railroad

Facts:
- On September 4, 1915 8PM, Plaintiff De Guia rode
the street-car line from Caloocan Rizal to the city. He
boarded the last car of the said vehicle. At about 30 meters,
upon entering the switch (point where two rail tracks
diverge), the plaintiff was holding the handle of the right-hand
door. Upon coming out of the switch, the small wheels of the
rear truck left the track and ran along the pavement for a
short distance. Eventually the said vehicle hit a post at the
left of the track.
- The plaintiff was thrown against the door and
received some bruises and possibly some internal injuries.
- The Trial Court found that the motorman of the
derailed car was negligent because he maintained a rapid speed.
The defendant company insisted that there was a stone, which
lodged itself between the rails at the juncture of the switch.
Furthermore, the defendants believe that it was a fortuitous
event.

Issue: A. WON the motorman was negligent. B. WON the
damages awarded by the trial court was the proper amount.

Held/Ratio:
A. YES. The motorman was negligent.
- Upon leaving the switch, the motorman was able to
change the controls from point one to four. During the
moment that he perceived the rear wheels to be derailed, he
applied the brake and hit the post. The motorman stated
that when the car was propelled, it was behind schedule time
and after leaving the switch it was driving at a higher speed
normally indicated at point 4.
- The Court stated that the driver was negligent, not
mainly due to his excessive speed but because an experienced
and attentive motorman would have discovered that something
was wrong and would have stopped before driving the whole
distance.
- The company is also liable for the motormans
negligence because there was a contractual relation between
7

the parties. It was the carriers duty to deliver the party
safely to his destination.



B. NO. The trial court excessively awarded 6,100 pesos
in damages.
- The defendant is only liable to damages, during the
time of accident, would have been reasonably foreseen as a
probable consequence of the plaintiffs physical injuries.
- Since the plaintiff was unable to perform his duties
as a physician for 3 months, the trial court properly awarded
900 pesos for loss of professional earnings. On the other
hand, the trial court wrongly awarded the plaintiff an
additional 3,900 pesos, which was supposedly lost by the
plaintiff because of his inability to accept a position as district
health officer in Negros Occidental. The Supreme Court stated
that the damage of this character could not have been
foreseen at the time of the accident.
- The Court stated that after the accident the
plaintiff sensed that his physical injuries could be a source of
profit and devoted himself to the case at bar. The trial court
aptly rejected the exaggerated estimate of damages for other
hosts of diseases, which the plaintiff stated he received due to
the accident.
- For medical fees, the Supreme Court granted 200
pesos in damages because that was the only amount paid. His
other host of physicians did not charge and thus further
damages cannot be claimed.
- The Supreme Court reduced the amount to 1,100
pesos with legal interest.

8

US v Barias

Parties:
United States Plaintiff (and appellee)
Segundo Barias Defendant (and appellant)
Relevant Laws: Art. 1173 (fault/negligence by omission of
diligence required of the obligation)
Facts:
- Defendant Segundo Barias was a motorman for the
Manila Electric Railroad and Light Company. He was driving his
car along Rizal Avenue.
- On November 2, 1911, at 6am, he stopped his car
along an intersection to take on passengers. He looked
backwards to check if all the passengers were aboard.
- He then started his car, but had failed to see that a
3-year old girl had been in front of it. As a result, he ran
over her and she was dragged underneath the car. Due to the
damages to her body, specifically her head, she was left dead
on the track. Barias only learned of this situation when he had
returned to the area and was informed regarding it.
- Court of First Instance found him guilty of reckless
negligence (imprudencia temeraria), and sentenced him to 1
year and 1 month of imprisonment, with costs.

Issue:
WON the evidence shows carelessness or lack of ordinary care
that amounts to reckless negligence and Barias was guilty of a
failure to take such precautions or advance measures as
common prudence would suggest

Held/Ratio:
YES. Barias was guilty of reckless negligence.

- It is true that he had looked behind him to check
whether his passengers were aboard, however he had failed to
check the track before him.
- Rizal Avenue was a densely populated area, and the
accident had happened at 6am, wherein people had begun to
move about. He had no right to assume the track before him
was clear. Given the circumstances, Barias was charged with a
9

high degree of diligence and due care in the performance of his
duties. He was bound to know that any negligence on his part
may cause accidents or injuries.
- Ahern v. Oregon Telephone Co.: Negligence is want
of the care required by the circumstances Its application
depends upon the situation of the parties and the degree of
care and vigilance which the circumstances reasonably require.
(like Art. 1173, NCC)
- Barias had a duty to secure the safety of his
passengers, but also a duty to avoid the infliction of injuries
upon pedestrians, etc.
- Defense raised the point that the average motorman
may not be able to see the child, as their line of vision may
miss the top of a 3-year old childs head.
** HOWEVER, the Court stated that the simple act
of inclining the head and raising the shoulders would have
allowed Barias to see the child. This action was also required of
him and was part of his duty in securing the safety of
pedestrians.
- The company is also liable for the motormans
negligence because there was a contractual relation between
the parties. It was the carriers duty to deliver the party
safely to his destination.
- Supreme Court affirms lower courts decision, but
reduces sentence to 6 months and 1 day of prision
correccional.



Doctrine
A person cannot be held criminally liable for
negligence in every case wherein an accident occurs, hence it is
the duty of the prosecution to prove criminal negligence with
competent evidence. Each case requires varying amounts of
diligence and due care, depending on the circumstances (Art.
1173). However, in this case the motorman Barias did not
observe the necessary diligence required by his profession. He
was a motorman along a crowded street, and his duty was to
ensure the safety of his passengers as well as avoid any
10

accidents or injuries to other citizens. His obligation then
required utmost care and so he should have exerted efforts to
check whether the path in front of him was clear of any
passersby. His failure to do so was an act of reckless
negligence, and resulted in the death of a young child.

11

Tomasa Sarmiento v Sps. Tomas and Rose Sun-Cabrido &
Maria Lourdes Sun

Tomasa Sarmientos friend, Dra. Virginia Lao, requested the
former to find someone to reset a pair of diamond earrings
into two gold rings. Sarmiento then sent a certain Tita Payag,
together with the earrings, to Dingdings jewelry shop, owned
and managed by spouses Luis and Rose Cabrido, herein
respondents. The job order was accepted for PHP 400.

Petitioner provided 12 grams of gold to be used in crafting
the pair of ring settings. Three days later, Payag delivered to
the shop one of the diamond earrings which was earlier
appraised as worth .33 carat and almost perfect in cut and
clarity.

Respondent Marilou Sun went on to dismount the diamond
from its original setting. Unsuccessful, she asked their
goldsmith, Zenon Santos, to do it. He tried removing the
diamond by twisting the setting with a pair of pliers, breaking
the gem in the process.

Petitioner required the respondents to replace the broken
diamond but the latter refused and so the petitioner was
forced to buy a replacement in the amount of PHP 30,000.

Rose Cabrido denied having any transaction with Payag whom
according to her (Cabrido) she met only after Payag came to
seek for compensation for the broken piece of jewelry. Marilou
Sun, on the other hand, admitted knowing Payag of availing
their services and recalled that when Santos broke the jewelry,
Payag turned to her for reimbursement thinking she was the
owner. Santos also recalled that Payag requested him to
dismount what appeared to him as sapphire and that the
stone accidentally broke. He later denies being an employee of
the shop.

The MTCC rendered a decision in favour of the petitioner.
On appeal, respondents conceded to the existence of an
12

agreement for crafting a pair of gold rings mounted with
diamonds but alleged that they had no obligation whatsoever.

Petitioner claims that dismounting the diamonds from the
original setting was part of the obligation assumed by the
respondents under the contract of service. RTC ruled in favour
of the respondents. CA affirmed RTCs decision.


Issue
1. WON the dismounting of the diamond from its
original setting was part of the obligation.
2. WON respondents are liable for damages.
3. WON respondents are liable for moral damages.


Held & Ratio
Disposition: Petition was granted and CA decision was reversed.
Respondents were ordered to pay PHP 30,000 as actual
damages and PHP 10,000 as moral damages.
1. YES
The contemporaneous and subsequent acts of the
parties reveal the scope of obligation assumed by the jewelry
shop to reset the pair of earrings. Marilou Sun expressed no
reservation regarding the dismounting of the diamonds. She
could have instructed Payag to have the diamonds dismounted
first, but instead, readily accepted the job order and charged
PHP 400. After the new settings were completed, she
requested the petitioner to bring the diamond earrings to be
reset. She examined one of them and went on to dismount
the diamond from the original setting. After failing to do so,
she delegated it to the goldsmith. Having acted the way she
did, she cannot deny that the dismounting was part of the
shops obligation to reset the pair of earrings.

2. YES
Art. 1170 states that 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. Santos acted negligently in dismounting the
13

diamond from its original setting. Instead of using a miniature
wire, which is the practice of the trade, he used a pair of
pliers. Marilou examined the diamond before dismounting and
found the same to be in order. The subsequent breakage could
only have been caused by Santos negligence in using the wrong
tool. Facts show that Marilou, who has transacted with Payag
on at least 10 occassions, and Santos, who has been accepting
job referrals through respondents for 6 months, are employed
at the jewelry shop. The shop, through it employees, failed to
perform its obligation with the ordinary diligence required by
the circumstances.

3. YES
Moral damages may be awarded in a breach of
contract when there is proof that defendant acted in bad
faith, or was guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual obligation. Santos
was a goldsmith for more than 40 years. He should have
known that using a pair of pliers would have entailed
unnecessary risk of breakage. The gross negligence on the part
of Santos makes the employers liable of damages.

14

Crisostomo v CA

FACTS:
Atty. Crisostomo contracted the services of Caravan
Travel and Tours Intl to arrange and facilitate her booking,
ticketing, and accommodation in a tour dubbed Jewels of
Europe at a total cost of P74k; Crisostomo was given discount
for her niece, Menor, was the companys ticketing manager
Pursuant to the contract, Menor went to her aunts
house on June 12, 1991 (Wednesday) to deliver the travel
documents and plane tickets. Crisostomo gave Menor the full
payment. Menor told her to be at the airport on Saturday
two hours before her flight
Without checking her travel documents, Crisostomo
went to NAIA on Saturday. She discovered that the flight
she was supposed to take had already departed the previous
day.
Crisostomo called up Menor to complain. Menor
prevailed upon her aunt to take another tour the British
Pageant. She was asked anew to pay P21k as partial payment
and commenced the trip in July
Upon Crisostomos return, she demanded the
difference between the sum she paid for Jewels of Europe and
the amount she owed respondent for British Pageant
Caravan Travel refused to reimburse her saying it was
non-refundable
Trial Court held that the Caravan Travel was
negligent in erroneously advising Crisostomo of her departure
date through it employee, Menor who was not presented as a
witness. However, Crisostomo was guilty of contributory
negligence for not verifying the exact date of her departure.
Accordingly, 10% of the amount was deducted from the
amount being claimed as refund
Court of Appeals also found both parties at fault but
held that Crisostomo is more negligent because as a lawyer and
a well-traveled person, she should have known better. She
was ordered to pay the Caravan Travel the balance of British
Pageant plus interest

15

ISSUE: WON a travel agency is bound under the law to
observe extraordinary diligence in the performance of its
obligation


HELD:
A contract of carriage is one whereby one party is
obligated to transport another for a price. A common carrier
is defined in Art.1732
Respondent is a travel agency and its obligation is
only to arrange and facilitate travel documents
Therefore, it does not have to extraordinary diligence
but only the standard of care of a good father of a family
under Art 1173
Evidence shows that respondent exercised due
diligence in rendering services to petitioner since Menors
negligence was not proved and plane ticket did have departure
date and time
After travel papers were given to petitioner, it
became her responsibility to take care of her concerns

NO. For reasons of public policy, a common carrier in a
contract of carriage is bound by law to carry passengers as far
as human care and foresight can provide using the utmost
diligence of a very cautious person and with due regard for all
circumstances.

However, a travel agency is not a carrier that it is not an
entity engaged in the business of transporting either
passengers or goods. Respondents services as a travel agency
include procuring tickets and facilitating travel permits or visas
and booking customers for tours. It is thus not bound under
the law to observe extraordinary diligence in the performance
of its obligation.

16

Gutierrez v Gutierrez

FACTS:
Feb. 2, 1930 a passenger truck and a private
vehicle collided while attempting to pass each other on the
Talon bridge
Truck driven by Abelardo Velasco, owned by
Saturnino Cortez
Private Vehicle driven by Bonifactio Gutierrez,
owned by Mr. and Mrs. Manuel Gutierrez, Bonifacios parents
The collision between the bus and the automobile
resulted in Narciso Gutierrez, a passenger in the bus, suffering
a fractured right leg which needed medical assistance
Narciso filed a case to recover damages for his
physical injuries suffered as a result of the accident

ISSUE:
What are the respective legal obligations of the
defendants

HELD:
Bonifacio Gutierrezs obligation arises from culpa
aquiliana while Saturnino Cortez and his chauffeur Abelardo
Velascos obligation arise from culpa contractual

RATIO:
It is undisputed that the accident was caused by
negligence between both the passenger truck and the
automobile
The case is one of 2 drivers approaching a narrow
bridge from opposite directions with neither being willing to
slow up and give the right of way to the other
With regards to the automobile:
o The youth Bonifacio was an incompetent chauffeur as
he was driving at an excessive rate of speed and on
approaching the bridge and the truck, he lost his head and so
contributed to the negligence
o His father is also responsible because he has given
guaranty at the time the son was granted the license to
17

operate motor vehicles and as such, he alone is liable for the
damage caused by the minor
With regards to the passenger truck:
The liability rests on that of contract, namely a
contract of carriage
Vasquez v Borja

De Borja entered into a contract with Natividad-
Vazquez Sabani Development to purchased 4,000 sack of palay
at P2.10 per sack for a total consideration of P 8,400 which
was paid by de Borja. Vazquez and Busuego represented the
Company in the transaction as acting manager and treasurer,
respectively. In addition, de Borja delivered to the defendants
a total of 4,000 empty sacks which presumealy were to be
used in the delivery of the palay.
Defendants only deliverd to de Borja a total of
2,488 cavans of palay with a value of P5,224.80 and have
since refused to deliver the balance.
Action was commenced by Francisco de Borja in the
Court of First Instance of Manila against Antonio Vazquez and
Fernando Busuego to recover from them jointly and severally
the total amount of P4,702.70 arising out of the non
delivery of 1,512 cavans of rice and 1,510 empty sacks.
Vazquez denied entering into the contract in his
individual and personal capacity. The contract was between
plaintiff and Natividad-Vazquez Sabani Development Co., Inc.,
a corporation which the defendant Vazquez represented as its
acting manager. Vazquez filed a counterclaim for P1,000 as
damages.
Trial court found in favor of the plaintiff and ordered
Vazquez to pay the total sum of P3,552.70. It also absolved
Busuego from the complaint.
Vazquez appealed to the CA and it modified the
judgement by reducing the amount to P 3,314.78 plus
interest and costs. On motion for reconsideration, the CA set
aside its judgment and ordered the case remanded to the
court of origin for further proceedings.
Hence the two petitions from both plaintiff and
defendant to the Supreme court for certiorari.

18

ISSUES:
1. WON de Borja entered into the contract with Vazquez in
his personal capacity or as manager of the Natividad-Vazquez
Sabani Development
2. WON Vazquez is entitled to counter damages arising out of
the erroneous suit




HELD:
Ratio
The Action being on a contract, and it appearing
from the preponderance of the evidence that the party liable
is Natividad-Vazquez, which is not a party to the suit, the
complaint should have been dismissed.
No award is given to Vazquez as the SC believes that
he was morally responsible to the party with whom he
contracted to see to it that the corporation represented by
him fulfilled the contract by delivering that palay it had sold
particularly since the same had already been made.

Reasoning
Corporations are artificial beings invested by law with
a personality of is own, separate and distinct from that of
the shareholders and from that of its officers who manage and
run its affairs. The mere fact that its personality is owing to
a legal fiction and that it necessarily has to act thru its
agents does not make such agents personally liable on a
contract duly entered into by them for and in behalf of said
corporation. This legal fiction may however be disregarded only
when an attempt is made to use its as a cloak to hide an
unlawful or fraudulent purpose. As there seems to be no
showing that Vazquez personally benefited from the
transaction, he is within his rights to invoke the legal fiction
to avoid personal liability.
The trial court in finding Vazquez guilty of negligence
in the performance of the contract and in holding him
personally liable manifestly failed to distinguish a contractual
19

from an extra-contractual obligation, or an obligation arising
from contract from an obligation arising from culpa aquiliana.
In the contractual obligation, it is the obligor to fulfill said
contract and not its agents. Hence, the obligor is the party
guilty of negligence in the fulfillment of said contract. On the
other hand, if independently from the contract, Vazquez by
his fault or negligence cased damage to the plaintiff, then he
would be personally liable for such damage. But since the suit
is based on the contract, then the court has no jurisdiction
over the issue and could not adjudicate upon it.

DISPOSITION: The judgment of the CA is reversed and the
complaint is dismissed, without finding as to cost.




PARAS, Dissenting:
From the facts, it appears that Vasquez prior to
entering into contract with de Borja knew that his company
was already insolvent. Knowing full well that the contract
could not be fulfilled, he nonetheless consummated the
transaction and received the full payment. Hence the CFI and
Ca are both correct in holding the failure to deliver was the
result of Vazquezs fault or negligence.
While it is true that the contract is between de
Borja and the company, it was proven during the trial that it
was Vazquez who prevented the performance of the contract
and also of negligence bordering on fraud which caused damage
to de Borja. Hence the technicality of a procedural error
should not be hindrance to the rendition.
The suit be considered as based on fault and
negligence of Vazquez and to sentence defendant accordingly.

20

Cetus Development Corp v CA

Parties:
Petitioner - Cetus Development Inc.
Private Respondents - Ederlina Navalta, Ong Teng,
Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora
Nagoya
Relevant Laws:
Art 1169, NCC. Rule 70 Sec. 2, ROC.

Facts:
o Respondents are lessees of a premises located in
Quiapo originally owned by Susana Realty. These individual
lessees pay rent on a month to month basis - they do not
pay the same rate.
o Mar 1984: Aforesaid property was sold by Susana
Realty to Cetus Development.
o Apr-Jun 1984: Private respondents continued to pay
rent
o Jul-Sept 1984: There was no collector to take their
rent, so respondents were not able to pay
o Oct 9, 1984: The petitioner sent a letter to the
respondents demanding that they vacate the premises and pay
the unpaid rent.
o Oct 10, 1984: Lessees immediately paid their rent
upon receipt of the demand letter. The payments were
accepted by the lessor without prejudice to the filing of an
ejectment suit - meaning the lessees were still being demanded
to vacate the premises.
o Since the lessees did not vacate the premises as was
stated in the demand letter, the lessor filed complaints for
ejectment against the 6 lessees. The lessees interposed a
common defense saying that there was no rent collector that
went to them so they did not know where or whom to pay.
o The Metropolitan Trial Court, RTC, and CA all ruled
in favor of the lessees, and thus the lessor brought this
petition to the SC.

Issues:
21

WON Cetus has cause of action in filing the
complaint for ejection (or unlawful detainer)
WON there was Mora Solivendi on the part of the
lessees for not having paid rent

Held/Ratio
1. NO.
a. According to Sec 2, Rule 70 of the ROC the right
to bring an action of ejectment or unlawful detainer must be
counted from the time the defendants failed to pay rent
AFTER the demand therefor. It is NOT the failure per se to
pay rent as agreed in the contract, but the failure to pay
rent AFTER the demand therefor was made, that entitles the
lessor to bring an action for unlawful detainer.
* Thus, if the lessee has not paid rent after
15 days or 5 days in case of building, after
demand therefore was made upon the lessees personally, or
by serving written notice of such demand
upon the person found on the premises, or by
posting notice on the premises, then the lessor can
proceed against the lessee.
* In order for there to be an ejectment
suit, there must be
1. Failure to pay rent with the
conditions of the lease
2. From the nature and
circumstances of the obligation, it can be said that time is of
the essence of the contract.
3. The demand would be useless
for example if the debtor has rendered it beyond his power to
comply.
2. NO.
a. Mora Solivendi (Art 1169) is defined as the delay of
the debtor to fulfill his obligations, such delay is actionable
after the creditor makes a demand for the fulfillment of the
said obligation. Respondents herein are not guilty of mora
solivendi because there was no collector to take their rent.
When the demand was made, the respondents immediately paid
their rent.
22


Decision
Though it is still possible for the lessor to eject its
lessees for nonpayment of rent, since acceptance of tendered
payment does not constitute as a waiver of the cause of
action for ejectment especially when accepted with the written
condition that it was without prejudice to the filing of an
ejectment suit. However, this line of argument presupposes
that a cause of action for ejectment has already accrued,
which is not true in the present case.
Upheld CA decision. Lessees will not be ejected.

Santos Ventura Hocorna Foundation v Santos

Facts:
Santos and SVHFI have previously been involved in
several civil cases regarding parcels of land
To resolve the dispute, the parties entered into a
compromise agreement on october 26, 1990 that states the
following
1. SVHFI will pay to Santos, 14.5 million pesos
2. 1.5 million immediately upon execution of
agreement
3. emaining 13 million will be paid within the next
2 years, any delay will result in lands previously attached with
lis pendens to be made as payment for the balance
Santos shall dismiss civil cases in return
Any failure to comply will entitle the aggrieved to
writ of execution for enforcement of this agreement
1.5m was paid and the cases were dismissed,
agreement approved by rtc makati on sept 30, 1991
Oct 28, 1992 - SVHFI sold the lands previously
under lis pendens prompting Santos to write a letter
demanding fulfilment of their agreement --> ignored by SVHFI
Santos filed for a writ of execution after being
repeatedly ignored; granted by the rtc
Sheriff levied execution upon lands previously under lis
pendens and sold them at auction to Riverlands inc.
June 2, 1995 - Santos and Riverland Inc then
petitioned for declaratory relief and damages against SVHFI for
23

non fulfilment of its obligation to pay --> SVHFI must pay
interest for delay
- SVHFI counters that here was no right of
action (obligation was paid)
RTC dismisses the petition; reversed by CA, granting
the damages to Santos and riverlands hence, the present case

Issue:
WON interest could be paid in delay of the obligation's
fulfilment?

Held/Ratio
YES, SVHFI failed to fulfill its obligation within the
2 year period and must therefore compensate Santos' loss of
ability to use the said funds. Compensation for delay is in the
form of interest.
- current jurisprudence states that
compromise agreements are made binding upon their execution
(oct 26, 1990), not upon their approval (sept 30, 1991)
- the contract was made demandable after
lapse of 2 years from its execution (1992)
> proof of demandability: payment of
1.5m and dismissal of civil cases
> letter of demand was sent on oct
26, 1992
- Art 1169, NCC: debtors incur delay from the
time the creditor judicially or extrajudicially demands from
them the fulfilment of their obligation
> delay is synonymous with default or
mora: delay with respect to time
- requisites for delay:
1. The obligation is demandable and liquidated: end
of 2 year period made it demandable; liquidation = debtor
knowing how much he has to pay when it must be paid
2. The debtor delays fulfilment of the obligation:
obligation was fulfilled only in 1995
3. The creditor requires the fulfilment of the
obligtioin judicially or extrajudicially: semding of letter of
24

demand was within what the law contemplates as extrajudicial
demand
- damages may be granted for delay according to
art 1170, NCC
> those guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor
thereof shall be liable for damages

25

Vasquez v Ayala

Relevant Law:
CC, 1193.1: Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when that day
comes.
Facts:
In 1981, the Vazquezes sold to Ayala their shares of
stock in Conduit Devt. In 1984, they entered into a
memorandum of agreement (MOA) where Ayala was to
develop the entire property less the Retained Area.
Ayala agreed to offer the 4 adjacent lots for sale to
the Vazquezes at the prevailing market price at the time of
the purchase.
Some pertinent provisions of the MOA:
o 5.7- Buyer commits that it will develop the
remaining property and that it intends to complete the 1st
phase within 3 years from the date of the agreement.
o 5.15- Buyers agrees to give sellers a 1st
option to purchase 4 developed lots next to the retained area
at the prevailing market price at the time of the purchase.
On their part, the Vazquezes made several
warranties, the pertinent ones of which are:
o 7.11- That the Audited Financial Statements
of Ayala will show that on the day of the closing, Ayala shall
own the remaining property free from all liens and
encumbrances and that the company shall have no obligation to
pay any party except for billings payable to GP construction
and Devt Corp and advances made by Daniel Vasquez.
Ayala later on received a demand letter form Lancer
Corp claiming P1.5 million from Ayala as a a subcontractor of
GP corporation.
o A suit ensued and Lancer and GP Corp was
able to collect P4.6 million
Meanwhile, the Vazquezes sent reminder letters to
Ayala. No formal demand though was made to Ayala to sell
the lot.
26

By 1990, Ayala finished the construction of the 4
adjacent lots and offered the same to the Vazqueses at the
prevailing market price. The Vazqueses refused and asserted
that the same be sold to them at 1984 prices.
The Trial Court ordered Ayala to pay up, but the
Court of Appeals reversed the decision.



Issues:
1. Would the SC still review the assailed decision
especially if its a Q of facts involving a conflict between the
factual findings of the Trial Court and the Appellate Court?
2. Did petitioners breach their warranties under the
MOA when they failed to disclose the Lancer claim?
3. Did Ayala default in the devt of the lots to be sold
to the Vazqueses?
4. Did Ayala fail to offer the subject lots to the
Vazqueses withint 3 years from execution of the MOA?
5. Is the contract an option contract or a right of first
refusal?

Held:
1. Would the SC still review the assailed decision
especially if its a Q of facts involving a conflict between the
factual findings of the Trial Court and the Appellate Court?
a. Yes. SC will treat this as an exception
because anyway the submitted issue for decision is the
classification of the right to purchase under the MOA.
2. Did petitioners breach their warranties under the
MOA when they failed to disclose the Lancer claim?
a. No. Correspondence shows that Ayala was
duly informed of the Lancer claim even before the date of the
signing of the MOA.
b. Ayala bound itself to pay all billings payable
to GP Construction and advances by Vasquez. This necessarily
includes Lancer to which GP is liable.
3. Did Ayala default in the devt of the lots to be sold
to the Vazqueses?
27

a. No. Lets construct the provisions of the
MOA.
i. 5.7- Buyer commits that it will
develop the remaining property and that it intends
to complete the 1st phase under its amended plan
within 3 years from the date of the agreement.
ii. Commits is different from intends.
Commits= pledge while intends= mere proposition
iii. Under its amended plan- Indicates
not the plan of Conduit where the said lots are
included in the 1st phase of devt, but Ayalas plan
where the said lots are included in the 3rd or last
phase of devt

4. Did Ayala fail to offer the subject lots to the
Vazqueses within 3 years from execution of the MOA?
a. No. Elements of Delay:
i. Obligation is demandable and
liquidated
1. CC 1193- Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when that day
comes.
2. In our case, no period has been fixed for the devt of
the lots. Since MOA did not specify this, the Vasquezes should
have went to Court and asked the same to fix the period. No
action of this kind was filed.
3. The 3 year period under Article 5.7 of the MOA
refers to a different period and not to the period of devt.
ii. Debtor delays performance
1. Since there is no fixed period when the devt of the
lots would have been made, debtor cannot delay performance
then
iii. Creditor requires performance
through judicial/extra judicial demand
1. Mere reminders of the Vazqueses are not demands.
2. Also, the Vazquezes themselves waived the 3 year
period evidenced by their letter wherein 3 year period will be
counted from the date of termination of Lancers case.
(1987)
28


5. Is the contract an option contract or a right of first
refusal?
a. Right of 1st refusal.
b. Distinction of an option contract and a right of first
refusal.
i. Option contract- preparatory contract
where 1 party grants to another for a fixed period and at a
determined price WON he/she will enter into a contract
ii. Right of 1st refusal- exercise of right is
dependent not only on granators eventual intent to enter a
contract but also on the terms and the price which are yet to
be fixed up.
c. The construction of the phrase at the prevailing
market price at the time of the purchase
i. No definite period within which Ayala is
bound to reserve the subject lots for petitioners to exercise
their privilege of purchase.
ii. CC 1324- When the offeror has allowed the
offeree a certain period to accept, the offer may be
withdrawn any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
1. In our case, no consideration has been made, so Ayala
may validly withdraw its offer.
2. Also Ayala offered the property 2x to the Vazqueses
but they refused, asserting that they should only pay 2000
per sq m.
a. 1st offer- 6,500/sqm
b. 2nd offer- 5000/sqm
CONCLUSION:
Ayala did not breach the MOA and cannot be compelled
specific performance.

29

Julio Abella v Guillermo Francisco

Facts:
Defendant Guillermo Francisco purchased from the
Govt on installments lots 937 to 945 of the Tala Estate in
Novaliches, Caloocan, Rizal.
He was in arrears in some of the installments.
Oct. 31, 1928: signed document stating that he
received from plaintiff Julio Abella the payment of P500 for
the said lots, with an area of 221 ha (P100/ha), the balance
being due on or before Dec. 1928, extendable 15 days
thereafter.
Plaintiff proposed the sale of lots at a higher price
to George Sellner. He collected P10,000 on account thereof.
Nov. 13, 1928: Plaintiff made another payment of
P415.31 upon defendants demand
Dec. 27, 1928: defendant wrote to Roman Mabanta
authorizing him to sign in behalf of him for all required
documents by Bureau of Lands in the transfer of the lots.
Mabanta was also instructed that if plaintiff failed to pay
remainder, the option would be considered cancelled and to
return to him the amount of P915.31 already delivered.
Jan. 3, 1929: Mabanta notified received of
defendants letter to him.
Plaintiff asked for a few days but Mabanta only gave
him until Jan. 5. Plaintiff tried to pay on the 9th but
Mabanta refused and told him that the contract is rescinded.
Mabanta returned the check of sum P915.31.
Plaintiff instated action to compel the defendant to
execute deed of sale. Court denied so plaintiff appealed.
-Court: plaintiff failed to pay on stipulated time; time/period
was an essential element of the contract because the contract
in question was an option to purchase the lots.
Issue: WON the agreement was an option or a sale
Held: Judgment appealed from is affirmed. WON the
agreement was a sale, the court holds that the time was an
essential element in the transaction. The defendant wanted to
sell those lots to the plaintiff in order to pay off certain
obligations which fell due in December.
30

The time therefore was essential for the defendant, as
evidenced by defendants letter to Mabanta instructing him to
consider the contract rescinded if the price was not completed
in time.
Art. 1124, CC: the defendant is entitled to resolve the
contract for failure to pay the price within the time specified.
Vda de Villaruel v Manila Motor Company

RELEVANT LAWS:

Art. 1554 (Duty of the Lessor)
Xxx 3. To maintain the lessee in the peaceful enjoyment of
the lease during the entire term of the contract.

Art. 1550 (When the lessor is not liable for damages)
Xxxx If the third person, be it a Government or a private
individual has acted in reliance upon a right, such action shall
not be deemed a mere act of disturbance.

Art. 1560 (In case of mere disturbance, the lessee shall have
a direct action against the trespasser)

DOCTRINE: Mora Accipendi: Duty of lessor to maintain the
lessee in the peaceful enjoyment of lease during the entire
term of contrat (CC 1554), in international law

Belligerent occupant may legitimately quarter troops
in privately owned lands and buildings for duration of military
operations so Japs acted in pursuant to a right and owner is
liable since the result of the disturbance was deprivation of
the leesees peaceful use & enjoyment of the building
obligation to pay ceased during deprivation

FACTS:

May 31, 1940 Plaintiffs Villaruel and defendant Manila
Motor Co., Inc entered into a contract of lease of a building.
for five years on The contract started on October, 1940.

31

The contract is renewable for an additional period of
5 years
Manila Motor company agreed to pay P300 every
month and for the residential portion, P50. Total: P350.

1942-1945 The Japanese arrived in the country .
Lessee was deprived of the premises when the Japanese
occupied the same as headquarter. It was also eventually
occupied by the Americans after the liberation. No payment
was made by Manila Motors.

After sometime, the Americans gave up the
occupancy of the premises to Rafael Grey, the manager of
Manila Motors to exercise their option to renew the contract

Before resuming to collect the rentals, Villaruel
demanded payment of rent for the years 1942-1945
(Japanese occupation). Manila Motors refused. No payment
was made until Nov. 1946.

Villanueva now authorized Arturo Colmenares to
instead pay a rent of P350 a month. During its pendency, a
fire broke out, burning the building. Lessor then filed a
supplemental case for recovery of the buildings value.

CFI: Ouster by the Japanese forces was a mere trespass, and
Manila Motors should pay rent.

ISSUES:

1. WON Manila Motor is liable to pay the rent for the
disputed period


HELD/RATIO:

First Issue: WON Manila Motor is liable to pay the rent for
the disputed period

32

NO! The act was not a mere act of trespass
(perturbacion de mero hecho), as distinguished from trespass
under color of title (perturbacion de derecho)

Under international law, a belligerent occupant may
legitimately quarter its troops on private property. Manila
Motors eviction was not due to mere trespass. Thus their
obligation to pay ceased as the lessor is the one answerable for
their eviction under Art. 1560 and Art. 1554.

Haw Pia v China Banking Corp: the right of Japan to
sequester or take temporary control over enemy private
property was expressly recognized.

The result of the disturbance was the deprivation of
the lessee of the peaceful enjoyment of the property leased.

Under Art. 1560, in case of mere disturbance, the
lessee has a direct action against a trespasser. This is not the
case here.

The seizure by the Japanese is also not FORCE
MAJEURE (fortuitous event). Lease is a contract that called
for reciprocal prestations, failure by one constitutes failure of
the causa which excuses the other from performance. NO
LESSEE WILL PAY FOR PROPERTY HE CANNOT ENJOY!

o Common Law: Loss of possession due to war or other
fortuitous event leaves the tenant liable for rent in the
absence of a stipulation
o Civil Law: Lease is a mere transfer of the
use/enjoyment and holds the landlord bound to keep it in
repair/fit for enjoyment

Also, the parties renewed the contract without
making reservations as to the rental from 1942 to 1945.
The passivity of lessor supports the claim of verbal waiver.



33

On Mora creditoris/Mora accipendi

Lessors refusal to accept the current rentals
constitutes mora accipiendi, with the result that they had to
hear all supervening risks of accidental injury/destruction of
leased premises.
o The lessors incurred in default (mora) and they must
shoulder the subsequent accidental loss of the premises leased.

While there is a presumption that the loss of the
thing leased is due to the fault of the lessee, they have not
invoked this presumption.

Thus, he bears the risk of damage to the property.
Lessees failure to consign the amount tendered does not
result in mora solvendi and merely resulted in subsistence of
the obligation to pay the amount.

On the failure of the lessee to make the consignation of the
rejected payments in court

Did not cure the mora of the lessors, but the lessee
remained obligated to pay the amounts tendered. The
obligation to pay subsisted.

DISPOSITIVE:

Wherefore, the decision appealed from is modified in the
sense that the appellant Manila Motor Company should pay to
the appellees Villaruel only the rents for the leased premises
corresponding to the period from July up to November 1946,
at the rate of P350 a month, or a total of P1,750.

34

Tengco v CA

Parties:
- Emilia Tengco (petitioner, lessee)
- Benjamin Cifra, Jr. (respondent, lessor)
Relevant Law: Article 1169 (Mora Accepiendi)

Facts:
- No. 164 Int Gov. Pascual St, Navotas, Metro Manila
- Private Respondent Cifra filed an action for unlawful
detainer with the Municipal Trial Court of Navotas to evict
Petitioner Tengco from the said premises for her alleged failure
to comply with the terms and conditions of the lease contract
o Alleged failure and refusal to pay the
stipulated rentals despite repeated demands
- Decision of the MTC
o In favour of respondent Cifra
o Tengco ordered to vacate said property
o Tengco ordered to pay 376 pesos as rental
in arrears, 12 pesos a month starting October 1976 until
premises is fully vacated, and 200 pesos as attorneys fees
- CFI and Court of Appeals affirmed MTC decision
- The petitioner contends:
o Private respondent is not the owner of the
property in question
Originally contracted with the
mother of the respondent
o Lessor was guilty of mora accipiendi
Non-payment = refusal of the
collector to accept her tender of payment
o Petitioners version of the facts are much
credible than that of the respondents
o Laches had deprived the lessor of the right
to eject her
Complaint filed only in Sept 1976
Cause of action arose in February
1974 (when she defaulted payments)
35

o Failed to establish a cause of action against
the petitioner

Issue/s: WON the decision of the respondent Court erred in
ordering petitioner Tengco to fully vacate the property in No.
164 Int Gov. Pascual St, Navotas, Metro Manila, owned by
private respondent Cifra

Held/Ratio: CA decision affirmed. Petitioner Tengco ordered
to fully vacate the said property

- Ownership of the property
o Findings of the lower court = entitled to
the highest respect barring any material evidence to the
contrary
o Tenant is not permitted to deny the title
of his landlord at the time of the commencement of the
relation of the landlord and tenant between them
- Laches = petitioner's claim that private respondent's
cause of' action is barred by laches is untenable.
o Tenant's mere failure to pay rent does not
ipso facto make unlawful his possession of the leased premises.
o Failure to pay rents after a demand =
entitles the lessor to bring an action of Unlawful Detainer.
The lessor has the privilege to
waive his right to bring an action against his tenant
and give the latter credit for the payment of the
rents and allow him to continue indefinitely in the
possession of the premises.
Tenant would not be in illegal
possession of the premises and the landlord cannot
maintain an action until after he has taken steps to
convert the legal possession into an illegal possession.
Thus, in the case at bar, the
demand on petitioner to vacate the premises for
failure to pay the rentals thereon was made by
private respondent only on August 23, 1976 and the
Complaint against petitioner was filed on September
16,1976.
- Mora Accipiendi
36

o Background Facts:
Tengco entered into a verbal
agreement with Lutgarda Cifra over the premises in
question which belongs to the latter (1942)
Petitioner: Collector stopped
collecting for Lutgarda Cifra (1974)
No demand for payment
Kept the money until
the collector comes back again and collects
payment
Recto (sister of the respondent)
wrote a letter to Tengco stating that she was the
new owner and that she was offering the property
for sale (May 1976)
Respondent wrote letter to
petitioner demanding the surrender of the possession
of the property in question, claiming to be the
owner (August 1977)
Tengco went to the residence of
the collector and there tended payment but was
refused without justification
o Under the circumstances, the refusal to
accept the proffered rentals is not without justification.
The ownership of the property had
been transferred to the private respondent and the
person to whom payment was offered had no
authority to accept payment.
It should be noted that the
contract of lease between the petitioner and
Lutgarda Cifra, the former owner of the land, was
not in writing and, hence, unrecorded.
The Court has held that a
contract of lease executed by the vendor, unless
recorded, ceases to have effect when the property is
sold, in the absence of a contrary agreement.
The petitioner cannot claim
ignorance of the transfer of ownership of the
property because, by her own account, Aurora Recto
37

and the private respondent, at various times, had
informed her of their respective claims to ownership
of the property occupied by the petitioner.
The petitioner should have
tendered payment of the rentals to the private
respondent and if that was not possible, she should
have consigned such rentals in court.

Petitioner's non-payment of the rentals on the premises,
notwithstanding demand made by private respondent, and her
failure to avail of the remedy provided for in Article 1256 of
the Civil Code, entitles private respondent to eject her from
the premises.

38

Central Bank v CA

Parties
Central Bank of the Philippines and Acting Director Antonio T.
Castro, Jr. of the Department of Commercial and Savings
Bank vs. The Honorable Court of Appeals and Sulpicio M.
Tolentino

Facts: This is a petition for review on certiorari to set aside
as null and void the decision of the Court of Appeals,
modifying the decision of the Court of First Instance of
Agusan, which dismissed the petition of respondent Sulpicio M.
Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.

April 28, 1965 Island Savings Bank approved P80,000 loan
of Sulpicio M. Tolentino. As a security for the loan, Sulpicio
executed a real estate mortgage over his 100-hectare land
located in Cubo, Las Nieves, Agusan. The loan was repayable in
semi-annual installments for a period of 3 years, with 12%
annual interest. Sulpicio required the loan to develop his other
property into a subdivision.

May 22, 1965 P17,000 was partially released to Sulpicio;
he and his wife signed a promissory note for P17,000 at 12%
annual interest, payable w/in 3 years from the date of the
execution of the contract at semi-annual installments of
P3,459. An advance interest of P4,800 was deducted from
this partial release. The advance was refunded on July 23,
1965 as the bank had not yet the funds available for the
release of the P63,000.

August 13, 1965 The Monetary Board of the Central Bank
issued Resolution No. 1049 after finding Island Savings Bank
was suffering liquidity problems.

1) To prohibit the bank from making new loans and
investments /except investments in government securities/
excluding extensions or renewals of already approved loans...

39

June 14, 1968 The Monetary Board issued Resolution No.
967 which prohibited Island Savings Bank from doing business
in the Philippines, after finding that it failed to put up the
required capital to restore its solvency.

August 1, 1968 In view of the non-payment by Sulpicio of
the advanced P17,000, Island Savings Bank filed an action for
the extra-judicial foreclosure of the real estate mortgage,
scheduled for January 22, 1969.

January 20, 1969 Sulpicio filed a petition with the CFI of
Agusan for injunction, specific performance or rescission and
damages with preliminary injunction on the ground that Island
Savings Bank failed to deliver the P63,000, which entitles him
specific performance to deliver the said amount with interest
of 12% per annum from April 28, 1965, or else to rescind the
mortgage.

January 21, 1969 CFI issued temporary restraining order on
the foreclosure of the mortgage.

January 29, 1969 CFI admitted the answer in intervention,
praying for the dismissal of the petition of Sulpicio and setting
aside the TRO, which was filed by the Acting Superintendent
of Banks.

February 15, 1972 CFI found umeritorious the petition of
Sulpicio, ordering him to pay P17,000 plus legal interest and
legal charges due thereon and lifting TRO.

February 11, 1977 The CA on appeal by Sulpicio, affirmed
the dismissal of Sulpicio's petition for specific performance, but
ruled that Island Savings Bank can neither foreclose the real
estate mortgage nor collect the P17,000 loan.

Issue/s
Can the action of Sulpicio for specific performance
can prosper?
Is Sulpicio liable to pay the P17,000 debt covered by
the promissory note?
40

If Sulpicio's liability to pay the P17,000 subsists, can
his real estate mortgage be foreclosed to satisfy said amount?

Held/Ratio per Issue

I.
When Island Savings Bank and Sulpicio entered into a loan
agreement, they undertook reciprocal obligations.
Reciprocal obligations = obligation or promise of each party is
the consideration for that of the other.

When one party has performed or is ready and willing to
perform his part of the contract, the other party who has
not performed or is not ready and willing to perform incurs in
delay.

Promise (Obligation) of Sulpicio to pay = consideration of
Island Savings to furnish the P80,000 loan.
Willingness of Sulpicio to pay P80,000 = Execution of the
real estate mortgage.
Sulpicio's promise + Willingness of Sulpicio = Obligation of Island
Savings to furnish the P80,000.

Delay in Performance- Island Savings' delay started on April
28, 1965 and lasted for 3 years until Resolution No. 967 on
June 14, 1968the power of Monetary Board to take over
insolvent banks for the protection of the public is recognized
by Sec. 29 of R.A. No. 265.

Resolution No. 1049 did not interrupt obligation of Bank as it
only prohibited new loans and not form releasing the
P63,000.

Insolvency of the Bank- Mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract,
nor a defense to a decree of specific performance, neither does
the mere fact of insolvency provide an excuse. Mere insolvency
is taken as a breach of contract.

41

Refund by Sulpicio - The fact that Sulpicio demanded and
accepted the advanced interest of P4,800 cannot be taken as
a waiver of his right to receive the P63,000. A person
cannot be legally charged for a non-existing debt. Therefore
when Sulpicio accepted the refund, he was only exercising a
right and did not extinguish his right to the P80,000 loan.

Overvaluation It is the responsibility of the bank's officials
and employees to verify the valuation of properties securing
the loan applications of customers. Hence, when it turns out
that the property is over-valued, the bank, for merely relying
on a customer's valuation, incurs the consequences resulting
from the non-performance of their responsibility.

Moreover, petitioners were enjoined by the lower court from
presenting proof on the alleged overvaluation, which is
sanctioned by the Rules of Court, Sec. 2, Rule 9--defenses
and objections not pleaded either ina motion to dismiss or in
the answer are deemed waived. Therefore, petitioners cannot
raise the same issue in the Supreme Court.
Specific Performance Since the bank defaulted in its
reciprocal obligation, Sulpicio may choose between specific
performance or rescission with damages in either case; but
since the Bank is now prohibited from doing business, the
Court cannot grant the specific performance to Sulpicio.

II.

Rescission Rescission only covers the P63,000, which the
bank, being in default, failed to furnish as part of the loan. As
for the partial release of P17,000, the promissory note that
Sulpicio accepted and executed, the bank was able to comply
with its reciprocal obligation, that is, of furnishing the said
amount; likewise, the promissory note gave rise to Sulpicio's
reciprocal obligation to pay the Bank when the payment for
the amount fell due. Failing to pay the P17,000, Sulpicio was
the party in defaultor the party who failed to perform his
obligation, the aggrieved party being the Bank; hence, the
right to rescind belongs to the bank. IF he hadn't signed the
promissory note he would have been entitled to the rescission
42

of the entire amount of P80,000, since there could have
been no possibility of him being in default there being no due
date in that scenario for performing his reciprocal obligation.

Damages They are both liable for damages, being both in
default.

Art. 1192 provides that in case both parties committed a
breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. The
liability of the Bank for the P63,000 is offset by Sulpicio's
liability for the P17,000.

The interest for the overdue P17,000 shall not be included in
the liabilities since Sulpicio derived some benefit from it and
therefore should account for it.

III.
Foreclosure of Mortgage The consideration of the accessory
contract of real estate mortgage is the same as that of the
principal contract. For the debtor, the consideration of his
obligation to pay is the existence of a debt. Thus, in the
accessory contract of real estate mortgage, the consideration
of the debtor in furnishing the mortgage is the existence of a
valid, voidable, or unenforceable debt.

Consideration of Sulpicio = existence of debt
Existence of debt = non-existent
therefore,
Consideration of Sulpicio = non-existent

BUT non-existence is not equate to the mortgage being void.
It is not necessary that consideration should pass at the time
of the execution of the contract of real mortgageit may be
a prior or subsequent matter. However, when the
consideration is subsequent to the mortgage, the mortgage can
take effect only when the debt secured by it is created as a
binding contract to pay. When there is partial failure of
consideration, the mortgage becomes unenforceable to the
extent of such failure. Where the indebtedness actually owing
43

to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than
the actual sum due.

The P63,000 of the bank, which is Sulpicio's consideration,
was not given, hence to such extent the real estate mortgage
is unenforceable, that is, 78.75% of the property (based on
the percentage of P63,000 in P80,000). There being 100
hectares, 78.75 hectares of the real estate mortgage is
unenforceable; but the remaining 21.25 is, as security for the
P17,000 released by the bank.

Art. 2089 does not apply. Art. 2089 states:
A pledge or mortgage is indivisible even though the debt may
be divided among the successors in interest of the debtor or
creditor.
Therefore, the debtor's heirs who have paid a part of the
debt can not ask for the proportionate extinguishment of the
pledge or mortgage as long as the debt is not completely
satisfied.
Neither can the creditor's heir who has received his share of
the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid.
The Art. Presupposes heirs. There being none in this case, the
rule does not apply.

WHEREFORE, CA modified, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY
IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD FROM MAY
22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON
THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985
UNTIL PAID; 2. IN CASE SULPICIO M. TOLENTINO FAILS
TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND 3. THE REAL ESTATE MORTGAGE
COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR
OF SULPICIO M. TOLENTINO.
44

Chavez v Gonzales

Rosendo O. Chaves, plaintiff-appellant vs. Fructuoso Gonzales,
defendant-appellee
Relevant Law: Art. 1167, Civil Code

Facts:
Gonzales was a typewriter repairer and was hired by the
plaintiff to clean and service his portable typewriter. Gonzales
was not able to do his job, despite the constant demand of
Chaves.
Gonzales even asked for 6.00 to cover for spare parts, which
Chaves did give. Gonzales was soon fed up with the way things
were going so he asked for his typewriter back. It was given to
him wrapped but when Gonzales opened it later he saw that
it was already in shambles and with missing parts.
Chaves wrote Gonzales, asking him for the missing parts and
6.00. He received all of that the next day. However, he still
had to have the thing repaired which cost him about 89.85.
CFI: He tried to recover for the cost of the repair from
Gonzales. The court only granted 31.10, to account for the
missing parts.

Issue: WON the plaintiff is entitled to the entire cost (to be
delivered by Gonzales) of the subsequent repair done to the
typewriter

Held/Ratio: Yes, he is entitled to it. It is clear that the
defendant contravened the tenor of his obligation for his
failure to repair the typewriter and even returned the thing in
poor condition. He is liable under Art. 1167.

45

Telefast v Castro

FACTS:
When Sofia was vacationing in the Philippines, her mother
died. She decided to send a telegram to their family residing
in the US through the Telefast Communications to inform
them about it. She paid the necessary fees and then left the
rest to the company. Later on, the mother was interred
with only Sofia in attendance. She eventually came back to
the US and was surprised to find out that her telegram never
reached her father and siblings. She instituted this case
against the company. The companys only defense is that
they were unable to transmit the wire due to some technical
and atmospheric factors which were beyond the control of the
company.

ISSUE: WON Telefast Communications breached its contract
with Sofia.
HELD: Yes. Sofia had already paid the necessary fees and has
thus performed her end of the obligation. There was a
contravention of the tenor when the company neglected to
send the wire without evidence of exerting sufficient effort to
overcome the said difficulties.

Damages:
Moral because the shock suffered by the family who only
learned of the death of the mother when she was already
interred was proximately caused by the acts, or lack thereof,
of the company. They were not given the opportunity to
choose to attend her funeral in the Philippines because they
were not informed of its occurrence.

Exemplary as a warning to other telegram companies to
perform their jobs better and to observe due diligence in
transmitting the messages of their customers to avoid
incurring these unnecessary expenses.

Compensatory (for Sofia) because she had to go to the
Philippines to file this suit which would not have been
necessary had the company performed its job.
46

Arrieta v NARIC

PARTIES:
Paz P. Arrieta and Vitiliado Arrieta (plaintiffs)
National Rice and Corn Corporation and Manila
Underwriters Insurance Co., Inc. (defendants)

RELEVANT LAW:
Article 1170 of the New Civil Code

FACTS:
Action: Appeal of defendant NARIC from decision of
the trial court awarding plaintiffs with $286,000 as damages
for breach of contract
NARIC was abolished and was transferred to the Rice
and Corn Administration (RCA) by virtue of RA 3452
May 19, 1952 plaintiff was awarded in a public
bidding the contract to be the supplier of 20,000 metric
tons of Burmese rice at $203 per metric ton
July 1, 1952 parties entered into a Contract of
Sale of Rice. Agreement was plaintiffs would deliver 20,000
metric tons of Burmese Rice and defendants would pay for the
imported rice by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the
plaintiffs and/or supplier in Burma, immediately.
Even with the promise of payment immediately, it
was only on July 30, 1952 (a full month from the execution
of the contract) when the general manager of NARIC took the
first step to open a letter of credit by forwarding to the
Philippine National Bank its Application for Commercial Letter
of Credit with a transmittal letter which asked PNB to
consider that letter of credit as a special case and that
since plaintiffs have a deadline to meet (August 4, 1952), it
is imperative that PNB should open an letter of credit prior
to that date.
July 30, 1952 also on the same date, plaintiffs
counsel advised the corporation of the extreme necessity for
the immediate opening of the letter of credit since the
plaintiffs made a tender to the supplier in Burma equivalent
47

to 5% of the F.O.B. (Free On Board) price and 20,000
metric tons at $180.70 and in compliance with the regulations
in Rangoon, this 5% will be confiscated if the required letter
of credit is not received by them before August 4, 1952
August 4, 1952 PNB informed NARIC that its
application for a letter of credit for $3,614,000 in favor of
Thiri Setkya has been approved by the B.O.D. with the
condition that 50% marginal cash deposit be paid and that
drafts are to be paid upon presentment. PNB also said that
they will hold the application in abeyance pending compliance
with their requirement.
NARIC was not in any financial position to meet the
condition. NARIC confessed this to the plaintiffs in a letter.
September 8, 1952 credit instrument was opened
in favor of Thiri Setkya of Burma and/or assignee for
$3,614,000, more than 2 months from the execution of the
contract.
Because of the delay, the allocation of the plaintiffs
supplier in Rangoon was cancelled and the 5% deposit of
P200,000 was forfeited after a 15 day grace (ended August
20, 1952) from the deadline of August 4, 1952.
Plaintiffs tried to restore the rice allocation from
Burma but failed and offered to substitute Thai Rice instead
to NARIC. NARIC rejected offer in a Resolution dated
November 15, 1952.
Plaintiffs demanded compensation for damages of
$286,000 representing unrealized profit from NARIC.
NARIC blames plaintiffs for the delay and contends
that they should not be held responsible because the plaintiffs
failed to furnish data necessary and required to open a letter
of credit (missing data necessary: the amount of the letter
credit, the person company or corporation in whose favor it is
to be opened and the place and bank where it may be
negotiated.)

ISSUE(S):
1. WON the plaintiff-appellee should be awarded
compensation / WON NARICs failure to open immediately a
letter of credit amounted to a breach of contract
48


HELD/RATIO (per issue):
2. YES, the plaintiff appellee should be awarded
compensation / YES, NARICs failure to open immediately a
letter of credit amounted to a breach of contract. The failure
to open the letter of credit within the contemplated period is
the sole, principal and immediate cause for the consequent
damage to the plaintiffs.

The Court does not side with NARIC in its allegations because
these are of facts and the SC are not at liberty to encroach
upon conclusions by the lower court (who are better situated
to look at questions of fact.) Also, in the trial court, plaintiff
testified that NARIC had knowledge of alleged missing data.

The Court is convinced that what delayed the opening the
letter of credit was the inability of NARIC to meet the
Banks condition (50% marginal cash deposit requirement).
NARICs fault arises from its willful and deliberate assumption
of contractual obligations even if it is well aware of its
financial incapacity. In other words: NAPASUBO SILA. They
even admitted their incapacity in a letter to the plaintiffs.
The Court agrees with the trial court in saying that NARIC
should have ascertained its capability to comply with the
requirements to pay for the importation.

Article 1170 says, (1101 then,) 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. Not only debtors guilty of fraud, negligence
or default in the performance of their obligations are decreed
liable; in general, every debtor who fails in performance of his
obligations is bound to indemnify for the damages caused
thereby. The phrase any manner contravene the tenor of
the obligation includes any illicit act, which impairs the strict
and faithful fulfillment of the obligation or every kind or
defective performance.

NARICs claim that the subsequent offer of the plaintiffs to
substitute Thailand Rice for the original Burmese Rice
49

amounted to a waiver of whatever rights the plaintiff might
have derived the breach of contract is untenable. Waivers are
not presumed and must be clearly and convincingly shown
either by express stipulation or acts admitting no other
reasonable explanation. NO showing of such in present case.

Regarding which exchange rate the court shall use in awarding
damages, the Court says that the rate of exchange that
should be used is the rate of exchange at the time when the
obligation was incurred by virtue of RA 529.

50

Magat v Medialdea

Petitioner: Victorino Magat
Respondents: Hon. Leo Medialdea and Santiago Guerrero
Relevant law:
1. Article 1170 of the Civil Code:
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof are liable for damages.

FACTS:
September 1972 Defendant Guerrero entered into
a contract with the US Navy Exchange, Subic Bay, Philippines,
for the operation of a fleet of taxicabs, each taxicab to be
provided with the necessary taximeter and a radio transceiver
for receiving and sending of messages from mobile taxicab to
fixed base stations within the Naval Base at Subic
Isidro Aligada, who already had experience contracting
with the U.S. Navy, and acting as agent of Guerrero,
conducted studies on how bet to meet the requirements of
said contract. He proposed to import from Japan through
plaintiff-petitioner Magat all the needed taximeters and radio
transceivers
Guerrero and Aligada thus imported from Japan, with
the assistance of Magat and his Japanese business associates,
the taximeters and transceivers. Plaintiff Magats assistance in
the matter was given gratis et amore.
o Aligada secured from Magat a firm offer in
writing, wherein the plaintiff quoted in his offer a total price
of $77, 620.
o Magat received notice of the fact that
Aligada accepted the terms and conditions of his offer of sale,
as shown by the signature of the defendant
Believing that Aligada and Guerrero would faithfully
fulfil the contract, Magat took steps to advise the Japanese
entity entrusted with the manufacture of the items to the
effect that the contract between plaintiff and defendant had
been perfected, and all that was needed was advice from
Aligada regarding the radio frequency
51

It being normal business practice in case of foreign
importation that the buyer opens a letter of credit in favor
of the foreign supplier before delivery of the goods sold,
plaintiff Magat awaited the opening of such a letter by the
defendant
Aligada and Guerrero had repeatedly assured plaintiff
of their financial capability to pay for the ordered goods, but
the defendant instructed his banker not to give due course to
his application for a letter of credit, and that for whatever
reason, he refuses to open the necessary letter of credit to
cover payment of the goods ordered by him.
Magat found out that the defendant was operating
his taxicabs without the required radio transceivers. When the
US Navy Authorities of Subic Bay pressed Guerrero for
compliance with his contractual commitments regarding the
transceivers, he impliedly laid the blame for the delay upon
plaintiff Magat, thus destroying his reputation with the Naval
Authorities, with whom the plaintiff also did other business.
March 27, 1973 Magat wrote a letter through
counsel to ascertain his intentions, but defendant did not
reply
Magat thus argued that the defendant had only
entered into a contract with the plaintiff in order to obtain
the concession from the US Navy Exchange, whereupon he
begun operating taxicabs inside the base, to his own financial
benefit, and at the expense and prejudice of third parties.
Magat asserted the following damages:
o Losses in the amount of P523,938, as the
radio transceivers ordered by the defendant are already in the
hands of Magats Japanese representative
o Losses in the amount of P52,393 (10% of
the purchase price) by way of loss of expected profits from
the contract between Magat and Guerrero
o Loss of confidence in the plaintiff, impairing
his business dealings with Japanese firms (assessed at no less
than P200,000)
52

o In view of defendants bad faith, plaintiff
Magat sought moral and exemplary damages (P200,000) and
attorneys fees (P50,000)
Case was brought to the Court of First Instance of
Rizal, presided by respondent Judge Leo Medialdea.
Respondent Guerrero filed a motion to dismiss for lack of
cause of action, and the judge subsequently dismissed the case.

ISSUES: WON dismissal of Magats case for reason of lack of
cause of action was valid

HELD: NO. Dismissal of Magats complaint is set aside, and
the case is ordered remanded to the court of origin for
further proceedings.



RATIO:
The Court finds the test of legal sufficiency of the
cause of action adequately satisfied. In a methodical and logical
sequence, the complaints recites the circumstances that led to
the perfection of the contract entered into by the parties. It
further avers that while petitioner had fulfilled his part of the
bargain, private respondent failed to comply with his
correlative obligation by refusing to open a letter of credit to
cover payment of the goods ordered by him, and that
consequently, petitioner suffered damages.
From these allegations, the essential elements of a
cause of action are present:
[1] the existence of a legal right to the plaintiff;
[2] a correlative duty of the defendant, and
[3] an act or omission of the defendant in violation of the
plaintiff's right, with consequent injury or damage to the
latter for which he may maintain an action for recovery of
damages or other appropriate relief
Indisputably, the parties, both businessmen, entered
into the aforesaid contract with the evident intention of
deriving some profits. Upon breach of the contract by either
of them, the other would necessarily suffer loss of his
expected profits. Since the loss comes into being at the very
53

moment of breach, such loss is real, "fixed and vested" and,
therefore, recoverable under the law.
The phrase "in any manner contravene the tenor" of
the obligation includes any ilicit act or omission which impairs
the strict and faithful fulfillment of the obligation and every
kind of defective performance.
If the obligor acted in good faith, he shall be liable
for those damages that are the natural and probable
consequences of the breach of the obligation and which the
parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted; and in case of fraud, bad
faith, malice or wanton attitude, he shall be liable for all
damages which may be reasonably attributed to the non-
performance of the obligation.