Philippine Supreme Court case on rescission of contract for sale of property with mortgage

CASE 1: SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO.
, defendant-appellant
(1925, MALCOLM, J.)
FACTS:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action
for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50,
with legal interest, and costs.
In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had
defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the
latter was compelled to cancel and rescind the said contract.
The case was submitted for decision on a stipulation of facts. The judgment of the trial court condemned the
defendant to pay to the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the
complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the
following assignment of errors: "I. The lower court erred in finding that appellant had agreed to sell to the appellee
400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded
without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court
erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of
its answer and cross-complaint. IV. The lower court erred in denying appellant's motion for a new trial."
ISSUES:
(1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses?
(2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Co.?
(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached
by Hawaiian-Philippine Co., what is the measure of damages?
HELD:
(1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as seen in the documents
presented in court. The language used with reference to the additional 100,000 gallons was not a definite promise.
(2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to make the
payments for the delivery of molasses as shown in the documents presented by the parties.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be
treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be
imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of
Song Fo & Company. But actually, there is here present no outstanding fact which would legally sanction the
rescission of the contract by the Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such
breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A
delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential
condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co.
waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract.
Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in reality no
excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil.,
505.)
The appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay
for the molasses within the time agreed upon by the parties.
(3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater expense to
which it was put in being compelled to secure molasses from other sources to which Supreme Court ruled that
P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until payment.
Obligations and Contracts
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The second cause of action was based on the lost profits on account of the breach of contract. Supreme Court said
that Song Fo & Co. is not entitled to recover anything under the second cause of action because the testimony of
Mr.Song Heng will follow the same line of thought as that of the trial court which iS unsustainable and there was no
means for the court to find out what items make up the P14,000 of alleged lost profits. The facts examined and Song
Fo & Co. allowed nothing for lost of profits on account of the breach of ontract because of failure of proof.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and
recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment.
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CASE 2: Velarde vs. Court of Appeals (2001)
CONCEPT: A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission abrogates the
contract from its inception and requires a mutual restitution of benefits received.
FACTS:
David Raymundo (private respondent) is the absolute and registered owner of a parcel of land, along
with the house and its improvements located thereon (1918 Kamias St., Dasmarinas Village, Makati
TCT No. 142177). His father, George Raymundo negotiated with petitioners Avelina and Mariano
Velarde for the sale of the property which was under lease.
On Aug. 8, 1986, a Deed of Sale with Assumption of Mortageg was executed by defendant David
Raymundo (as vendor) in favor with the Avelina Velarde (as vendee) with certain conditions:
o That for the consideration of P800,00, the vendor delivers to the vendee, her heirs,
succcessors and assigns, the parcels of land together with the house and other improvements
thereon.
o That the aforesaid parcel of land, the house and other improvements were mortgaged by the
vendor to the Bank of the Philippine Islands (BPI), Makati, Metro Manila, to secure the
payment of a loan of P1,800,000.
o That as part of the consideration for the sale to the vendee, the vendee assumes to pay the
mortgage obligations on the property in the amount of P1.,800,000 in favor of BPI and agrees
to faithfully comply with the conditions appearing in the Real Estate Mortgage signed and
executed by the vendor, including interests and charges for late payment
On the same day, as part of the above agreement, Avelina, with the consent of her husband, executed
an undertaking, which included the following:
o Statement that she paid the P800,000 to the respondent and assumed the obligations
regarding the P1,800,000.
o That while the application for the assumption of mortgage property to BPI has not yet been
approved by the Mortgage bank, she agreed to pay the obligations in the name of Mr.
Raymundo.
o That the petitioner, with the consent of her husband, obligates her hairs, successors, and
assigns, to comply with certain terms and conditions, including:
a) to continue to pay the mortgage bank until such time as the assumption is approved
by the bank,
b) that the violation of any of the conditions of the Deed of Real Estate Mortgage,
the downpayment of P800,000 and all payments made with BPI shall be
forfeited in favor of Mr. Raymundo (as and by way of liquidated damages),
without necessity of notice or judicial declaration, and that Mr. Raymundo shall
resume complete ownership and possession of the property by way of the
Deed of Sale with Assumption of Mortgage, and the same shall be deemed
automatically cancelled and be of no further effect as if it had never been
executed.
o The payment for the P1.8M was to be from proceeds of a loan that petitioners were to secure
from a bank with the defendants help, the latter having an approced credit card line with BPI.
The parties agreed to avail of it subject to the banks approval of the assumption of mortgage
by the petitioners. Pending approval, the petitioners paid BPI the monthly interest on the loan
secured by the mortgage for three months (September to November 1986).
o Dec. 15, 1986, BPI did not approve the application for the Assumption of Mortgage.
o On January 5, 1987, the defendants wrote the petitioners, saying that non-payment of the
mortgage constituted non-performance of their obligation.
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o
o
The petitioners responded with a letter stating that they were willing to pay the balance in cash
not later than January 21, 1987, provided that actual possession of the property was delivered
no later than January 15, 1987, that the defendants cause the release of title and mortgage
from BPI and make the title free from liens and encumbrances.
January 8, 1987, the defendants sent a notrial notice of cancellation of the intended sale of the
property.
February 9, 1987, the petitioners filed a complaint with the RTC. Judge Consuelo YnaresSantiago dimissed the complaint on November 14, 1990. The petitioners filed an MR. Judge
Ynares-Santiago was promoted to the CA and was replaced with Judge Salvador S.A. Abad
Santos, who ganted the MR on May 15, 1991 and directed the parties to proceed with the sale.
Private private respondents appealed to the CA.
a) The CA upheld the validity of the rescission made by the private private respondents,
citing the assumption of the P1.8M mortgage payment as part of the consideration of
the sale and consequently, an obligation of Velarde under the contract.
b) The CA interpreted the contract by stating that in the case of approval of the
assumption of mortgage, payment of the obligations will be in the name of velarde,
but in the event of a disapproval, Velarde had to pay in full.
c) The CA also cited Velardes response letter indicating that she had the capacity to
pay but insisted on new conditions not stipulated in their original agreement.
d) In the stipulation regarding the automatic cancellation incase of nonfulfillment, the CA
ruled that while there is automatic rescission, the vendee may still pay but only for so
long as no demand for the rescission has been made judicially or by notarial contract
(present in the form of the private respondents notarial notice). The nonfulfillment by
one party in a reciprocal obligation entitles the other to rescind the contract. The
petitioners have lost their right to the contracts enforcement and cannot avail of the
action for specific performance
ISSUES:
1. W/N the nonpayment of the mortgage obligation resulted in a breach of contract.
2. W/N the rescission of the contract by private respondents was justified.
RULING:
1. Breach of Contract Petitioners allege that their obligation to psy the monthly amortizations
ceased when the bank disapproved. The petitioners did not merely stop paying the mortgage but
also failed to pay the balance of the purchase price. During litigation, the parties admitted that the
agreement mandated the petitioners should pay the P.18M to the private respondents in case the
request to assume the mortgage would be disapproved. Thus, when the bank disapproved, the
petitioners should have paid the balance. Instead of doing so, they sent a letter offering to make the
payment based on entirely new conditions.
In a contract of sale, the seller obligates himself to ownership and deliver the determinate thing,
and the buyer to pay the price or its equivalent. The private respondents already performed their
obligations through the exectuion of the Deed of Sale. The petitioners clearly failed to perform their
obligation, in light of the stipulations of the agreement.
2.
Validity of the Rescission. Art. 1191, NCC provides that the power to rescind obligations is
implied in reciprocal obligations. This right I predicated on a breach of faith by the other party who
violates the reciprocity. When the obligor cannot or does comply, the other party may seek
rescission or fulfillment. The petitioners offer to pay based on new obligations does not constitute
faithful compliance to their agreement. The private respondents validly exercised their right.
However, rescission also creates the obligation to retun the object of the contract. Mutual restitution
is required to bring the parties to their situation prior to the contracts inception (Art. 1191, plus the
provision of the agreement that failure to fulfill would lead to the invalidity of the contract, as if it
never existed).
The decision of the CA is hereby affirmed with a modification that private respondents are ordered to
return to the petitioners, which the latter paid as a consequence of the rescinded contract (with legal
interest).
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Case 3: BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL.,
defendants-appellants. 1985-03-18 | G.R. No. L-42283
FACTS:
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the
amount of P3,920.00 plus 7% interest per annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay
the balance in monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th day
of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment
already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of
past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the
plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the
said cancellation was denied by the defendants-appellants, which is the cause of herein legal dispute.
The trial court ruled in favor of the plaintiff-appellees, an appeal was made in the Court of Appeals but the latter court
certified the case to Supreme Court since only pure questions of law have been raised for appellate review.
In the contract to sell entered by the parties which was drafted solely by the defendants-appellants (constitute a
contract of adhesion), stipulates that in case of non-compliance of the payment scheme as well as the stipulations
therein, the defendants-appellants have the right to rescind (cancel) the contract.
It is undisputable that the plaintiffs-appellees were in default and extra-judicial demand in writing was already given
by the defendants-appellants.
ISSUE:
Whether or not the extrajudicial demand is subject to the scrutiny of the court since in contracts the contracting
parties has the autonomy is making their stipulations provided it is not contrary to law, morals, good customs, public
order, or public policy.
RULING:
Yes, the court ruled that the party who deems the contract violated many consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.
Judicial action is necessary for the resolution of a reciprocal obligation, since in every case where the extrajudicial
resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription."
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the
observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party
who drafted the same, especially where such interpretation will help effect justice to buyers who, after having
invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract
clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its
entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid
an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but
not uphold the cancellation of the contract. Upon payment of the balance of
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P671.67 without any interest thereon, the defendants-appellants must immediately execute the final deed of sale in
favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the
contract. The attorney's fees are justified.
Case 4: Delta Motors Corp. vs. Genuino, G.R. No. 55665, February 8, 1989
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Case 6: Woodhouse vs. Halili [93 PHIL 527 # L-4811. July 31, 1953]
Facts: The Plaintiff entered into an agreement with the defendantfor the establishment of a partnership for bottling
and
distribution
of
Mission soft
drinks.
Before the
partnership was
actually
established
the defendant required the plaintiff to secure an exclusive franchisefor the said venture. In behalf of the said
partnership and upon obtaining the said exclusive franchise the defendant stipulated to pay the plaintiff 30% of the
profits. The plaintiff sought to obtain the said exclusive franchise but was only given a temporary one, subject only to
30 days. The parties then proceeded with the signing of the agreement. The partnership was still not initiated, only
the agreement to work with each other, with the plaintiff as manager and the defendant as financer, was established.
Together the two parties went to the US to formally sign the contract of franchise with Mission Dry Corporation.
The defendant then found out about the temporary franchise right given to the plaintiff, different from the
exclusive franchise rights they stipulated in their contract.
When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next
month, the pay was decreased to P 1,000 and the car was withdrawn from him.
The plaintiff demanded the execution of the partnership, but thedefendant excused himself, saying that there was no
hurry to do so. The Court of First Instance ordered the defendant to render an accounting of the profits and to pay
the plaintiff 15% of such amount. It also held that execution of the contract of partnership cannot be enforced upon
the defendant and that fraud as alleged by thedefendant was also not proved. Hence the present action.
Issues:
(1) Whether the representation of the plaintiff in saying that he had exclusive franchise rights rather than the actual
temporary right he possessed invalidated the contract
(2) Whether the court may compel the defendant to execute thecontract of partnership between the parties
(3) What will be the amount of damages to be paid to the plaintiff?
Held: The Decision of the Court of First Instance is affirmed with modification.
Fraud was undoubtedly employed by the plaintiff to secure the consent of the defendant to enter into the contract with
him by representing himself as holder of exclusive franchise rights when in fact he only holds a
temporary franchise right good for 30 days. The fraud employed was not such as to render the contract null and void
but only such as to hold the plaintiff liable for damages. Such fraud is merely incidental (dolo incidental) and not the
causal fraud (dolocausante) that is detrimental to a contract. It does not invalidate the contract since fraud was only
employed to secure the 30% stipulated share from the partnership.
The parties cannot be compelled to enter into a contract of partnership. The law recognizes the liberty of an individual
to do or not to do an act. The action falls within ActoPersonalisimo (a very personal act) which courts may not compel
compliance.
The 15% that the Trial court ordered the defendant to pay theplaintiff is deemed to be the appropriate and
reasonable. Such amount was the spontaneous reaction of the defendant upon knowledge of the misrepresentation
of the plaintiff and amounts to the virtual modification of their contract.
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7. LYDIA L. GERALDEZ vs. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION
G.R. No. 108253
February 23, 1994
FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent Kenstar
Travel Corp.
Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for $2,990.00 which she
paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores. At the
tour, petitioner claimed that what was alleged in the brochure was not what they experienced. There was no
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European tour manager as stated in the brochure, the hotels where they stayed in which were advertised as first
class were not, the UGC leather factory which was specifically included as a highlight of the tour was not visited and
The Filipino tour guide provided by Kenstar was a first timer thus inexperienced. The Quezon City RTC rendered a
decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totalling P1,000,000 and
P50,000 attorneys fees. On appeal, respondent Court of Appeals deleted the award for moral and exemplary
damages and reduced the nominal damages and attorneys fees to P30,000 and P10,000 respectively.
ISSUES: (1) Whether or not Kenstar acted in bad faith or with gross negligence in discharging its obligations in the
contract?
(2)Whether or not the Court of Appeals erred in removing the moral and exemplary damages
HELD: (1) Yes, Kenstar acted in bad faith and with gross negligence in discharging its obligation.
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 rules of good faith and fair play.
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. The election 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, furthermore the inability to visit the UGC leather factory is reflective of the ineptness and
neglect of the tour guide. 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. Kenstars contention that the European Tour Manager does not refer to a
natural person but a juridical personality does not hold because a corporate entity could not possibly accompany the
tour group. Lastly 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 in locations far from the city
making it difficult to go to. The fact that Kenstar could only book them in such hotels because of budget constraints is
not the fault of the tour group. Kenstar should not have promised such accommodations if they couldnt afford it.
Kenstar should have increased the price to ensure accommodations.
(2) Yes, the Court of Appeals erred in removing the 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. The first, or causal fraud referred to in Article 1338 are those deceptions or
misrepresentations of a serious character employed by one party and without which the other party would not have
entered into the contract, Dolo incidente, or incidental fraud which is referred to in Article 1344, are those which are
not serious in character and without which the other party would still have entered into the contract. In either case,
whether Kenstar has committed dolo causante or dolo incidente, it is liable for damages both moral and exemplary.
(8) Case Title: NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE
GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendantsappellants. G.R. No. 34840 September 23, 1931
FACTS:
On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass
each other on the Talon bridge on the Manila South Road in the municipality of Las Pinas, Province of Rizal. The
truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being
operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and
Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the mother, together with several
other members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the
name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus and the
automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical attendance for a
considerable period of time, and which even at the date of the trial appears not to have healed properly.
Because of the foregoing facts the plaintiff-appellee filed a case against defendants-appellants for damages due to
negligence for the amount of 10,000 but neither would accept responsibility, instead they blame each other for the
accident. The trial court ruled in favor of the plaintiff-appellee, thus the appeal in this court filed by the defendantsapellants
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ISSUE:
In the collision of the vehicles, the truck and the automobile, who should be charged with negligence and liable for the
physical injuries suffered by the plaintiff-appellee?
RULING:
The Supreme Court ruled that both the owner and driver of the truck as well as the father who is the owner of the
automobile are liable jointly and severally for the damages.
The guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father
responsible for the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code,
the father alone and not the minor or the mother, would be liable for the damages caused by the minor. It is uniformly
held that the head of a house, the owner of an automobile, who maintains it for the general use of his family is liable
for its negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied
and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving
it. The theory of the law is that the running of the machine by a child to carry other members of the family is within the
scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master
and servant.
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different
basis, namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint,
not controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning
the position of the truck on the bridge, the speed in operating the machine, and the lack of care employed by the
chauffeur. While these facts are not as clearly evidenced as are those which convict the other defendant, the court
nevertheless hesitate to disregard the points emphasized by the trial judge. In its broader aspects, the case is one of
two 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 the inevitable result of a collision and an accident is liable for the damages incurred by
the plaintiff-appellee.
Case 9: VAZQUEZ VS. BORJA

Antonio Vasquez, petitioner, vs. Francisco de Borja, respondent
Ponente: Ozaeta, J.
Facts:
The action was commenced by de Borja against Vasquez and Fernando Busuego to recover from
them jointly and severally the total of PhP 4702.70 upon three alleged causes:
First, Vasquez and defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay,
which they will deliver. Vasquez and Busuego, after receiving 8,400 pesos from de Borja, only delivered 5,224 pesos
worth of cavans of palay. They refused to deliver the remaining cavans amounting to3,175.20 pesos.
Second, de Borja suffered damages as a result of the refusal to deliver Third, on account of the agreement
mentioned, de Borja delivered 4000 empty sacks but only 2,490 were returned to the plaintiff. 1,510 sacks were
refused to deliver. There are also damages for the non-delivery of the empty sacks. Vasquez denies that he entered
into the contract mentioned in his own and personal capacity. He said that the agreement for the purchase of the
cavans of palay and the payment of the price of 8,400 were made by de Borja not with him but with NatividadVasquez Sabani Development Co. Inc. (NVSDCI), a corporation organized and existing under the laws of the
Philippines. Vasquez was the acting manager when the transaction took place. On account of the filing of this action
against him, he filed a counterclaim of 1,000pesos for damages.Vasquez was ordered by the trial court to pay de
Borja the sum of P3,175.20 plus P377.50. The said court absolved Busuego, the corporations treasurer, from paying
the said sums. Said amount was reduced by the Court of Appeals. The case was then remanded to the court of origin
for further proceedings upon Vasquezs motion for reconsideration. Vasquez filed a petition for certiorari for the review
and reverse of the CA judgement.
De Borja also filed a cross-petition for certiorari to maintain the original CA judgement.The trial court found
Vasquez guilty of negligence in the performance of the contract and held him personally liable on that account.
Likewise, CA ruled that he was not only negligent but should also responsible for paying the amount of the demand
under Arts. 1102, 1103 and 1902 of the Civil Code.
Issues:
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1. Whether the plaintiff entered into the contract with the defendant Antonio Vasquez in his personalcapacity or as
manager of the Natividad-Vasquez Sabani Development Co., Inc.2. Whether the trial court and/or the Court of
Appeals erred in its rulings.3. Whether Vasquez could claim damages against Borja.
Held/ Ratio:
1. Vasquez entered the contract in his capacity as acting president and manager of NVSDCI.The action being on a
contact, with the NCSDCM being the party liable on the contract, the complaint should have been dismissed. A
corporation is an artificial being invested by law with its own personality, which is distinct and separatefrom its
stockholders or the people who run its affairs. Even if the agents are the one acting for thecorporation, it does not
make the agent personally liable for entering a contract in behalf of the corporation.
The corporations personality, a legal fiction, may only be disregarded if the agent used the corporation to
hide an unlawful or fraudulent purpose. There is no legal basis upon which to hold Vasquez liable on the contract
either principally or subsidiarily. There are no allegations that Vasquez personally benefited through the contract that
he entered for the corporation. It was also not contended that he entered into the contract for the corporation in bad
faith and with intent to defraud the plaintiff.
2. Both the trial court and CA erred in their ruling that Vasquez is guilty of negligence and must be personally liable.
Since it was the corporations contract, the corporation is the one liable and not the agent even if the non-fulfilment of
the contract is due to negligence or fault or any other cause. Vasquez could be principally liable under article 1902 of
the Civil Code if independent of the contract, he caused damage to the plaintiff by his fault or negligence. The basis
of such separate liability should be on culpa aquiliana and not based on the contract. But since there was no such
cause of action in this complaint,the trial court has no jurisdiction over that issue.3. No. As the acting president and
manager of the corporation, he has a moral duty towards the part with whom he contracted in said capacity to see to
it that the corporation he represents fulfilled the contract by delivering the palay it had sold. Since he was not able to
fulfill that moral duty, he has no legitimate cause for his claim of damages.
Dissenting Opinion (Paras, J.):
Vasquez should be made liable to de Borja. As acting president and manager of NCSDCM, Vasquez has full
knowledge of the insolvent status of his company but still agreed to sell to de Borja 4000 cavans of palay. The failure
and refusal to deliver the undelivered cavans resulted from his negligence
____________________________________________________________________________
Case 12: TOMASA SARMIENTO, petitioner, vs. Spouses LUIS & ROSE SUN-CABRIDO and MARIA LOURDES
SUN, respondents
Facts:
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to
find somebody to reset a pair of diamond earrings into two gold rings. [2] Accordingly, Sarmiento sent a certain Tita
Payag with the pair of earrings to Dingdings Jewelry Shop, owned and managed by respondent spouses Luis and
Rose Cabrido,[3] which accepted the job order for P400.[4]
Sarmiento provided 12 grams of gold to be used in crafting the pair of ring settings. [5] After 3 days, Tita Payag
delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier appraised as worth .33 carat and
almost perfect in cut and clarity.[6] Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its
original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by
twisting the setting with a pair of pliers, breaking the gem in the process.[7]
Petitioner required the respondents to replace the diamond with the same size and quality. When they refused,
the petitioner was forced to buy a replacement in the amount of P30,000.[8]
June 28, 1994 - petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial
Court in Cities (MTCC) of Tagbilaran. Decision was in favour of Sarmiento ordering defendants to pay
jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual or compensatory
damages; Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos ( P5,000.00)
as attorneys fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6%
per annum from the date of this decision and 12% per annum from the date when this decision
becomes final until the amounts shall have been fully paid and to pay the costs. This case as against
defendant Maria Lourdes Sun as well as defendants counterclaim are dismissed for lack of merit.
Page 9
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the
MTCC, thus absolving the respondents of any responsibility arising from breach of contract.
Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its Decision
promulgated on November 26, 1999.[16]
Unable to accept the decision, the petitioner filed the instant petition for review with the Supreme Court.
Issue:
1. Whether or not the scope of obligation of the defendant included the dismounting of the diamond.
2. Whether or not the defendants are liable for the damaged diamond.
Held:
Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the
obligation assumed by the private respondents under the contract of service. Thus, they should be held liable for
damages arising from its breakage.
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who
in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner
contravene the tenor thereof, are liable for damages. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place.
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original
setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as
diamonds, from their original setting. However, Santos employed a pair of pliers in clipping the original setting, thus
resulting in breakage of the diamond.
At any rate, the contemporaneous and subsequent acts of the parties support the version of the
petitioner. Thus, when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of diamond earrings, she
brought with her the said pieces of jewelry so that the diamonds which were still mounted could be measured and the
new ring settings crafted accordingly. On the said occasion, Marilou expressed no reservation regarding the
dismounting of the diamonds which, after all, was an integral part of petitioners job order.
She should have instructed Payag to have them dismounted first if Marilou had actually intended to
spare the jewelry shop of the task but she did not. Instead, petitioner was charged P400 for the job order which
was readily accepted. Thus, a perfected contract to reset the pair of diamond earrings arose between the petitioner,
through Payag, and Dingdings Jewelry Shop, through Marilou.
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the
respondents spouses who admittedly owned and managed Dingdings Jewelry Shop. It was proven that petitioner
replaced the damaged jewelry in the amount of P30,000.[30]
The facts of the case also justify the award of moral damages. As a general rule, moral damages are not
recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under
Article 2219 of the Civil Code.[31] Moral damages may be awarded in a breach of contract only 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. [33] Given his long experience in the trade, he should have
known that using a pair of pliers instead of a miniature wire saw in dismounting a precious stone like a diamond
would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence, respondent spouses are
liable forP10,000 as moral damages due to the gross negligence of their employee.
However, private respondents refusal to pay the value of the damaged jewelry emanated from an honest belief
that they were not responsible therefor, hence, negating any basis for the award of attorneys fees.[34]
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated
November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are
Page 10
hereby ordered to pay, jointly and severally, the amount of P30,000 as actual damages and P10,000 as moral
damages in favor of the petitioner.
____________________________________________________________________________
Case 14: CETUS DEVELOPMENT INC VS. COURT OF APPEALS
For full txt: http://www.lawphil.net/judjuris/juri1989/aug1989/gr_77648_1989.html
Article 1169 of the Civil Code
FACTS:
Private respondents were the lessees of the premises originally owned by Susana Realty. The payments of
the rentals were paid by them to a collector of the Susana Realty who went the premises monthly. Susana Realty,
however, sold the property to petitioner Cetus Development, Inc. The private respondents then continued to pay their
monthly rentals to a collector sent by the petitioner. In succeeding months, for three months, the private respondents
failed to pay their rentals because no collector came. They then contacted the petitioner over the telephone as to
where they should pay their rentals. The petitioner then told them that they would send a collector to collect the
rentals. Private respondents waited but no collector came. Petitioner then sent a letter to each of the private
respondents demanding that they vacate the subject premises and to pay their arrearages within 15 days from the
receipt thereof. With this, private respondents immediately upon the receipt of such demand, tendered their payments
which were accepted by the petitioner with the condition that the acceptance was without prejudice to the filing of
ejectment suit. For failure of the private respondents to vacate the premises as demanded, petitioner filed an
ejectment suit against them.
ISSUE:
Whether or not there was a delay of payment by the private respondents to the petitioner considering that
upon receipt of the demand letter, they immediately tendered their payments.
HELD:
No. There was no failure yet on the part of the private respondents to pay rents for three consecutive
months. It has been duly established that it has been customary for private respondents to pay their rentals through a
collector sent by the lessor.
Article 1169 of the Civil Code provides that those obliged to deliver or to do something incur in delay from
the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation.
The moment the petitioner extrajudicially demand the payment of the rentals, private respondents
immediately answered their obligation by paying their arrearages of rentals to the petitioner.
____________________________________________________________________________
Case 15: Aerospace Chemical Industries, Inc. vs CA
Facts
1.
2.
3.
4.
5.
6.
7.
8.
On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five hundred metric tons of sulfuric acid
from private respondent Philippine Phosphate Fertilizer Corporation.
Petitioner agreed to secure the means of transport to pick-up the sulfuric acid from private respondents' load
ports in Basay, Negros Oriental and Sangi, Cebu.
On October 3, 1986, petitioner paid the purchased price of 500 MT of sulfuric acid. Then, it chartered M/T
Sultan Kayumanggi to carry the agreed volumes of freight from designated loading areas.
But the vessel was able to withdraw a partial amount of sulfuric acid from Basay and Sangi because it tilted.
And later, it sank with a total amount of 227.51 MT of sulfuric acid on board.
Petitioner sent a demand letter to private respondent for delivery of the 272.49 MT of sulfuric acid.
Petitioner then filed a complaint against private respondent for specific performance and/or damages before
the Regional Trial Court of Pasig.
The private respondent filed an answer with counterclaim and alleged that it was the petitioner which was
remiss in the performance of its obligation in arranging the shipping requirements of its purchases and,
hence, should pay damages.
Petitioner prevailed in the trial court.
Page 11
9.
However, on appeal, the Court of Appeals reversed the decision of the trial court and instead found
petitioner guilty of delay and therefore, liable for damages
Issue
1.
2.
3.
Did the respondent court err in holding that the petitioner committed breach of contract, considering that:
a. The petitioner allegedly paid the full value of its purchases, yet received only a portion of said
purchases?
b. Petitioner and private respondent allegedly had also agreed for the purchase and supply of an
additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?
Did the respondent court err in awarding damages to private respondent?
Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be
on seller's account pursuant to Article 1504 of the Civil Code?
Ruling
1.
No, CA did not err in absolving the private respondent from liability. Petitioner, as the buyer, was obligated
under the contract to undertake the shipping requirements of the cargo from the private respondent's load
ports to the petitioner's designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi.
The vessel was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric
acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another sea
worthy vessel.
Where there has been breach of contract by the buyer, the seller has a right of action for damages.
Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove
the goods, such that buyer has to remove them. Article 1170 of 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."
2.
No, respondent court did not err in awarding damages to private respondent. Where there has been breach
of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of
the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to
remove them. Article 1170 of 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." Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation. Art. 1169 states: "Art. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation." In order that the debtor may be in default, it is necessary that the following requisites be present:
(1) That the obligation be demandable and already liquidated;
(2) That the debtor delays performance; and
(3) That the creditor requires the performance judicially or extrajudicially.
Records reveal that a tanker ship had to pick up sulfuric acid in Basay, then proceed to get the remaining
stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel between Basay
and Sangi. Logically, the computation of damages arising from the shipping delay would then have to be
from December 15, 1986, given said reasonable period after the December 12th letter. More important,
private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred
before December 15, 1986, were necessary and regular business expenses for which the petitioner should
not be obliged to pay.
3. No, Article 1504 is not applicable. The general rule that before delivery, the risk of loss is borne by the seller
who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance
of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery has made or not except
that: . . . (2)Where actual delivery had been delayed through the fault of either the buyer or seller the
goods are at the risk of the party at fault.
Page 12
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial
demand by requiring petitioner to lift the cargo at its designated load ports. When petitioner failed to comply
with its obligations under the contract it became liable for its shortcomings. Petitioner is indubitably liable for
proven damages.
____________________________________________________________________________
CASE 16: Santos Ventura Hocorma Foundation vs Santos, G.R. No. 153004, November 5 2004
Facts:
Ernesto V. Santos, herein respondent, and Soco Ventura Hocorma Foundation Inc. (SVHFI), herein petitioner, are the
parties in several civil cases. On October 26, 1990, they executed a Compromise Agreement containing the following:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:
a.
P1.5 Million immediately upon the execution of this agreement;
b.
The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the
discretion of the Foundation, within a period of not more than two (2) years from the execution of this
agreement; provided, however, that in the event that the Foundation does not pay the whole or any part of such
balance, the same shall be paid with the corresponding portion of the land or real properties subject of the aforesaid
cases and previously covered by the notices of lis pendens, under such terms and conditions as to area, valuation,
and location mutually acceptable to both parties; but in no case shall the payment of such balance be later than
two (2) years from the date of this agreement; otherwise, payment of any unpaid portion shall only be in the form
of land aforesaid;
2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos
shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and
voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No.
24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the real
properties aforementioned (by signing herein attached corresponding documents, for such lifting); provided,
however, that in the event that defendant Foundation shall sell or dispose of any of the lands previously subject of lis
pendens, the proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the
payment of the Foundations obligations under this agreement as may still be subsisting and payable at the time of
any such sale or sales;
...
5.
Failure of compliance of any of the foregoing terms and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement. [Emphasis supplied]
Thereafter, petitioner paid P1.5 Million to the respondent leaving P13 Million as balance. As a result, herein
respondent moved to dismiss the civil cases that were filed against the petitioner. On September 30, 1991, the
agreement was approved by the RTC of Makati.
Subsequently, two of the real properties of the petitioner, which were recently subject of lis pendens, were sold
to Development Exchange Livelihood Corporation. Upon knowing, the respondent sent a letter to the petitioner
demanding for the payment of the balance however was ignored by the latter. On October 28, 1992, another letter
was sent to the respondent but again was ignored by the latter. After the said failures, respondent then applied for a
writ of execution to the RTC which was granted. The remaining properties of the petitioner located in Mabalacat,
Pampanga and Bacolod City, respectively which was sold to one bidder, Riverland Inc. Certificates of Sale was
issued provided for the right of redemption within one year from the date of registration of the said properties.
On June 2, 1995, petitioner filed for a Complaint for Declaratory Relief and Damages and praying for the
payment of the legal interest on the obligation.
Respondent's Contention:
Page 13
1. There was delay in paying the balance; and

2. Under the Compromise Agreement, the obligation became due on October 26, 1992, but payment of
the remaining P12 million was effected only on November 22, 1994.
Petitioner's Contention:
1. It had already paid its obligation to the petitioner;

2. The delay was due to its valid exercise of its right to protect its interest in accordance to the Rules;
3. There was no provision in the Compromise Agreement that they should pay legal interest in case there was delay;
and
4. the respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly
approved compromise agreement.1[12] Article 4 of the compromise agreement provides:
Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the
defendant Foundation arising from and in connection with the aforesaid civil cases, and defendant
Foundation, on the other hand, also waives and renounces any and all claims that it may have against plaintiff
Santos in connection with such cases.
On October 4, 1996, RTC rendered a decision in favor of the petitioner, however, was reversed by the Court of
Appeals.
Issues:
1. Whether or not there is delay.
2. Whether or not the petitioner is entitled for the legal interest.
Ruling:
The petition is dismissed.
SC ruled that the contention of the respondent is meritorious because The two-year period must be counted from
October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on October
28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after
the demand was made, it incurred delay.
Default has three elements:
(1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.
All of the said elements were present in this case. When the letter was sent to the petitioner on October 28, 1992, the
obligation was already demandable. Further, the petitioner delayed the performance through applying for motions to
hinder the execution.
When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a
matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise
agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those
1
Page 14
funds. This compensation is in the form of interest. In the absence of agreement, the legal rate of interest shall
prevail.
Case 17: VASQUEZ vs. AYALA CORPORATION

FACTS:
Daniel Vasquez owns Conduit Development, Inc. In 1981, Vasquez enters into a Memorandum of Agreement (MOA)
with Ayala Corporation wherein Ayala bought Conduit from Vasquez. Ayala committed to develop Conduits lands
including 4 parcels of land adjacent to Vasquez retained land. Be it noted that these parcels of land were in the
3rd phase of Ayalas development plan. Paragraph 5.15 of the MOA provides:
5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four
developed lots next to the Retained Area at the prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits
development plan, but Ayalas amended development plan which was still to be formulated as of the time of
the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first
phase thereof or Village 1, in the Ayala plan which was formulated a year later, it was in the third phase, or
Phase II-c.
Dr. Daniel Vazquez and Ma. Luisa Vazquez filed this Petition for Review on Certiorari dated October 11, 2001
assailing the Decision of the Court of Appeals dated September 6, 2001 which reversed the Decision4 of the Regional
Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.
In 1990, Ayala was able to develop the said lots. (This was after some slump, and some litigation between Conduits
former contractor (GP construction) and GPs subcontractor (Lancer Builders).) Ayala then offered to sell the 4
parcels of land to Vasquez at P6.5k/sq. m. which was the market price in 1990. Vasquez refused the offer. Vasquez
contended that the purchase price should be P460/sq. m. which was the market price in 1981 (time of purchase).
Ayala then lowered the purchase price to P5k/sq. m. but Vasquez refused again. Instead he made a counter offer to
buy the lots at P2k/sq. m. This time, Ayala refused.
ISSUE:
Whether or not Paragraph 5.15 of the MOA is an option contract or right of first refusal.
HELD:
No. The said paragraph is a mere right of first refusal. Although the paragraph has a definite object, i.e., the sale of
the 4 lots, the period within which they will be offered for sale to Vasquez and, necessarily, the price for which the
subject lots will be sold are not specified. The phrase at the prevailing market price at the time of the purchase
connotes that there is no definite period within which Ayala is bound to reserve the subject lots for Vasquez to
exercise his privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be
offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified person or persons.
Further, paragraph 5.15 was inserted into the MOA to give Vasquez the first crack to buy the subject lots at the price
which Ayala would be willing to accept when it offers the subject lots for sale. It is not supported by an independent
consideration.
The Court has clearly distinguished between an option contract and a right of first refusal.
An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price,
the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has
given the option not to enter into the principal contract with any other person during the period designated, and within
that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use
the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of
the option. It must be supported by consideration.
In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right
would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that are yet to be firmed up.
Page 15
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter,
the prevailing market price for the property when the offer was made on June 18, 1990.48 Insisting on paying for the
lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation
reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counteroffer in the amount of P2,000.00/square meter.49 Ayala Corporation rejected petitioners counter-offer. With this
rejection, petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and should be compelled
by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
___________________________________________________________________________
CASE 21: CENTRAL BANK OF THE PHILIPPINES VS COURT OFAPPEALS
MAKASIAR; October 3, 1985
NATURE
This is a petition for certiorari to review the decision of the Court of Appeals.
FACTS
Island Savings Bank approved the loan application for P80K of SulpicioTolentinowho executed a real estate
mortgage over his 100 hectare land.
The loan called for a lump sum of P80K, repayable in semi-annual installments for 3 years, w/ 12% annual
interest. It was required that Tolentino shall use the loan solely as additional capital to develop his other
property into a subdivision.
A mere P17K partial release of the loan was made by the bank and Tolentino and his wife signed a
promissory note for the P17K at 12% annual interest payable w/in 3 yrs. An advance interest was deducted
from the partial release but this pre-deducted interest was refunded to Tolentino after being informed that
there was no fund yet for the release of the P63K balance. The bank VP and Treasurer promised release of
the balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the bank
from making new loans and investments. And after the bank failed to restore its solvency, the Central Bank
prohibited Island Savings Bank from doing business in the Philippines.
Island Savings Bank in view of the non-payment of the P17K filed an application for foreclosure of the real
estate mortgage.
Tolentino filed petition for specific performance or rescission and damages w/ preliminary injunction, alleging
that since the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the real
estate mortgage.
Trial court found Tolentinos petition unmeritorious. CA affirmed dismissal of Tolentinos petition for specific
performance, but it ruled that the bank can neither foreclose the real estate mortgage nor collect the P17K
loan.
ISSUES
1. WON Tolentinos action for specific performance can prosper
2. WON Tolentino is liable to pay the P17K covered by the promissory note
3. If liable to pay P17K, WON Tolentinos real estate mortgage can be foreclosed
HELD
1. NO
Page 16
The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the other
party is not ready or willing, incurs in delay. When Tolentino executed real estate mortgage, he signified
willingness to pay. That time, the banks obligation to furnish the P80K loan accrued. Now, the Central Bank
resolution made it impossible for the bank to furnish the P63K balance.
The prohibition on the bank to make new loans is irrelevant because it did not prohibit the bank from
releasing the balance of loans previously contracted.
Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a breach of contract.
The banks asking for advance interest for the loan is improper considering that the total loan hasnt been
released. A person cant be charged interest for non-existing debt.
The alleged discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials
should have been more responsible and the bank bears risk in case the collateral turned out to be
overvalued. Furthermore, this was not raised in the pleadings so this issue cant be raised.
The bank was in default and Tolentino may choose bet specific performance or rescission w/ damages in
either case. But considering that the bank is now prohibited from doing business, specific performance
cannot be granted. Rescission is the only remedy left, but the rescission should only be for the P63K
balance.
2. YES
The promissory note gave rise to this liability. His failure to pay made him party in default, hence, not entitled
to rescission. This time, it is the bank which has right to rescind the promissory note.
Since both Tolentino and the bank are in default, both are liable for damages. Liability may be offset.
3. NO
Since the bank failed to furnish the balance, the real estate mortgage became unenforceable to such extent.
CASE 23: Telefast Communications/Philippine Wireless Inc., vs. Ignacio Castro Sr., et al.(1986)
FACTS
On November 2, 1956, Consolacion Bravo-Castro, wife of the respondent and mother of the other
respondents, passed away in Lingayen, Pangasinan. On the same day, her daughter, Sophia Crouch,
who was vacationing in the Philippines at the time, sent a telegram to Castro who was in Scottsburg,
Indiana, announcing the death. The telegram was accepted by the petitioner at its Dagupan office for
transmission after payment of fees.
The telegram never reached its addressee and the deceaseds husband and other children (all residing
in the USA) never attended the funeral.
Upon returning to the USA, Sofia discovered the telegram was never received and she and her father
and siblings brought action for damages related to breach of contract at the CFI in Pangasinan.
The contention of Telefast was it was unable to transmit the telegram due to technical and atmospheric
factors beyond its control. No evidence was shown that the company made an effort to advice Sofia on
why it could not transmit.
The CFI ruled in favor the defendants and ordered the petitioner to pay damages to each of them, with
interest at 6% per annum (all receiving moral damages, with Sofia receiving compensatory damages).
The Intermediate Appellate Court affirmed the ruling but altered the distribution of damages among the
defendants.
The petitioners allege that the awarding of moral damages should be eliminated as its negligent act was
not motivated by fraud, malice or recklessness. It can only be held liable for the P31.92, the fee Sofia
paid for the telegram that was never sent.
ISSUES
1. W/N the petitioner is liable for moral damages regarding the breach of contract?
RULING
The petitioners contention is without merit.
Art. 1170 of the Civil Code provides 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
Page 17
damages. Art. 2176 also provides tthat whoever by act or omission causes damages to another, there
being fault or negligence, is obliged to pay for the damages done.
In the case at bar, Sofia Crouch and petitioner entered into a contract whereby, for a fee, petitioner
undertook to send the message overseas. The petitioner did not do so despite performance of the
private respondent of her obligation (paying the fees). The petitioner is guilty of contravenng its
obligation and is thus liable to damages. This liability is not limited to actual or quantified damages.
Such would be an inequitous position holding the petitioner liable only for a fee paid thirty years prior.
Moral damages, according to Art. 2217, include physical suffering, anguish, wounded feelings, moral
shock, etc. The Court agreed that the failure of the transmission of the message resulting in mental
anguish on the part of the children, finding that their mother had not only passed, but had already been
buried, providing them with no choice or opportunity to pay their last respects.
________________________________________________________________________________
Case 24: PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN
CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
1964-01-31 | G.R. No. L-15645
FACTS:
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000
metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for
the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a
Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric
tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed itself to
pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in
favor of the plaintiff-appellee and/or supplier in Burma, immediately."
Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable
Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract, that the
defendant corporation, thru its general manager, took the first step to open a letter of credit by forwarding to the
Philippine National Bank its Application for Commercial Letter of Credit.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme
necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in
Rangoon, Burma "equivalent to 5% of the F.O.B. price of 20,000 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."
In a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection, please
be advised that our application for the opening of the letter of credit has been presented to the bank since July 30th
but the latter requires that we first deposit 50% of the value of the letter amounting to approximately $3,614,000.00
which we are not in a position to meet."
Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya,
Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the
contract) the party named by the appellee as beneficiary of the letter of credit. As a result of the delay, the allocation
of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately
P200,000.00 was forfeited.
The plaintiffs-appellees offered to deliver Thailand rice instead of what was agreed due to the circumstances stated in
the preceding paragraphs to the defendant-appellant, but the latter denied the said offer which prompted the former
to demand compensation for damages representing the unrealized profit. Nevertheless the latter rejected such
demand which caused the plaintiffs-appellees to seek judicial action alleging that the defendant-appellant committed
breach of contract because of the foregoing facts mentioned above.
ISSUE:
Whether or not the delay of the credit instrument applied for by the defendant-appellant in favor of the plaintiffsappellees constitute a breach of contract and therefore the former is entitled for damages such as unrealized profit.
Page 18
RULING:
Yes, the Supreme Court ruled that the defendant-appellants culpability arises from its willful and deliberate
assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the
presentation. The judgment is based upon the letter which accompanied the application filed by the appellant with
the bank, in the said application, appellant admitted and owned that it did not have sufficient deposit with the bank
with which to cover the amount required to be deposited as a condition for the opening of letters of credit.
Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have
ascertained its ability and capacity to comply with the inevitable requirements in cash to pay for such importation.
Having announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to
finance the importation within the required period, especially since it had imposed on the supplier the 90-day period
within which the shipment of the rice must be brought into the Philippines. Having entered into the contract, it should
have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the
possibility of its issuance.
Under 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 in damages."
__________________________________________________________________________________
Case 25: VICTORINO D.
GUERRERO, respondents
(1983, Escolin, J.)
MAGAT, petitioner, vs.
HON.
LEO
D.
MEDIALDEA AND
SANTIAGO A.
Put to test in this petition for review on certiorari is the sufficiency of the averments contained in the complaint for
alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in Civil
Case No. 17827 of the Court of First Instance of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy
Judicial Administrator, which complaint was dismissed for failure to state a cause of action.
FACTS:
The pertinent allegations in the complaint, subject of inquiry, are as follows:
3. That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay,
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a
radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval
Base at Subic Bay, Philippines;
4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on how
best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay, Philippines.
The said Isidro Q. Aligada approached the plaintiff herein in behalf of the defendant and proposed to import from
Japan thru the plaintiff herein or thru plaintiff's Japanese business associates, all taximeters and radio transceivers
needed by the defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;
5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with the
assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs in
partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines.
6. That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein to the
effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio transceivers and to this
end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, wherein the plaintiff quoted in his
offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by the
plaintiff to the defendant to be delivered sixty to ninety [60-90] days after receipt of advice from the defendant of the
radio frequency assigned to the defendant by the proper authorities;
7. That the plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant the
items, as well as the terms and conditions of said offer whereupon all that the plaintiff had to do in the meantime was
to await advice from the defendant as to the radio frequency to be assigned by the proper authorities to the
defendant;
Page 19
8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his signed
conformity as well as the letter dated October 4, 1972, and in order that plaintiff's promised delivery would not be
delayed, the plaintiff herein took steps to advise the Japanese entity entrusted with the manufacture of the items to
the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with
regards to radio frequency would follow as soon as same is received by the plaintiff from the defendant;
9. That in his letter dated October 6, 1972, the defendant advised his aforementioned agent to the effect that the U.S.
Navy provided him with the radio frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to
proceed with his order placed with the plaintiff herein, which fact was duly communicated to the plaintiff by the
defendant's aforementioned agent;
10. That by his letter dated October 7, 1972, addressed to the plaintiff by the defendant's agent, defendant's agent
qualified defendant's instructions contained in his letter of October 6, 1972 in the sense that plaintiff herein should
proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit;
11. That it being normal business practice in case of foreign importation that the buyer opens a letter of credit in favor
of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a letter of
credit by the defendant;
12. That the defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities
to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with
his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and
that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover
payment of the goods ordered by him;
13. That it has come to the knowledge of the plaintiff herein that the defendant has been operating his taxicabs
without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing
defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs,
he impliedly laid the blame for the delay upon the plaintiff herein, thus destroying the reputation of the plaintiff herein
with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts business;
14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, to ascertain from the defendant as to whether it is
his intention to fulfill his part of the agreement with the plaintiff herein or whether he desired to have the contract
between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand;
15. That the defendant herein entered into a contract with the plaintiff herein without the least intention of faithfully
complying with his obligation is thereunder, but he did so only in order to obtain the concession from the U.S. Navy
Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S. Naval Base to his financial benefit
and at the expense and prejudice of third parties such as the plaintiff herein;
16. That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff will
suffer the following damages:
[a] As the radio transceivers ordered by the defendant are now in the hands of the plaintiff's Japanese
representative, the plaintiff will have to pay for them, thus he will have to suffer as total loss to him the
amount of P523,938.98 (converting the amount of $77,620.59 to pesos at the rate of P6.75 to the dollar) as
said radio transceivers were purposely made or manufactured solely for the use of the defendant herein and
cannot possibly be marketed by the plaintiff herein to the general public;
[b] The amount of P 52,393.89 or 10% of the purchase price by way of loss of expected profits from the
transaction or contract between plaintiff and the defendant;
[c] Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business
dealings with Japanese firms, thereby resulting also in loss of possible profits in the future which plaintiff
assess at no less than P200,000.00;
[d] That in view of the defendant's bad faith in inducing plaintiff to enter into the contract with him as set forth
hereinabove, defendant should be assessed by his Honorable Court in favor of the plaintiff the sum of
P200,000.00 as moral and exemplary damages;
[e] That in view of the defendant's fault and to protect his interests, plaintiff herein is constrained to retain the
services of counsel with whom he agreed to pay by way of attorney's fees the sum of P50,000.00".
ISSUES:
(1) Whether or not there is sufficiency of cause of action as determined on basis of facts alleged in the
complaint.
Page 20
(2) Whether or not the loss suffered by virtue of breach of contract becomes real, fixed and vested at the very
moment of breach.
(3) Whether or not the extent of damages recoverable depends on the presence or absence of bad faith
attendant in the breach.
(4) Whether or not the phrase "in any manner contravene the tenor" of the obligation includes any illicit act or
omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective
performance.
(5) Whether or not moral and exemplary damages are recoverable in cases of bad faith.
HELD:
(1) Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of
action, the sufficiency of the cause of action can only be determined on the basis of the facts alleged in the complaint;
that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom; and
that, admitting the facts as alleged, whether or not the court can render a valid judgment against the defendant upon
said facts in accordance with the prayer in the complaint. After a thorough examination of the complaint at bar, the
Supreme Court finds the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and
logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the
parties. It further avers that while petitioner had fulfilled his part of the bargain (paragraph 8 of the Complaint), private
respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the
goods ordered by him (paragraphs 11 & 12 of the Complainant), and that consequently, petitioner suffered not only
loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential
elements of a cause of action are present, to wit:
(1) the existence of a legal right of the plaintiff;
(2) a correlative duty of the defendant; and
(3) an act or omission of the defendant in violation of the plaintiffs right, with consequent injury or damage to
the latter for which he may maintain an action for recovery of damages or other appropriate relief. In fine, the
Supreme Court holds that on the basis of the facts alleged in the complaint, the Court could render a valid
judgment in accordance with the prayer thereof.
(2) Indisputably, the parties, both businessman, entered into the aforesaid contract with the evident intention of
deriving some profits there from. Upon breach of the contract by either of them, the other would necessarily suffer
loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed
and
vested
and
therefore,
recoverable
under
the
law.
(3) Article 1170 of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." The phrase
"in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and
faithful fulfillment of the obligation and every kind of defective performance.
(4) The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee (dao
emergente) but also the profits which the latter failed to obtain (lucro cesante). 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.
(5) The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter,
Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the
defendant acted in bad faith. The Supreme Court finds that the complaint sufficiently alleges bad faith on the part of
the defendant.
Antonio Vazquez Vs Francisco de Borja

Antonio Vazquez, petitioner vs. Francisco de Borja, respondent GR 48930 2/23/44Francisco de Borja,
petitioner vs. Antonio Vazquez, respondent GR 48931 2/23/44
Facts:
Page 21
Borja instituted a claim to recover 4,702.7 from 3 alleged causes from Vazquez(co. acting president and
manager) and Fernando Busuego (co. treasurer).
On Jan, 1932 Vazquez and Busuego obligated themselves to sell to Borja 4,000 cavans of palay at
P2.10/cavan. And they were able to receive the full, paymkent of P8400 from Borja.
Vazquez and Busuego were only able to deliver 2,488 cavans, equivalent to P5,224.
Borja cited 3 causes of action from his losses.
1st: They then refused to deliver the balance of 1,512 cavans or P3,175.2 of the money, after repeated
demands from Borja.
2nd:Borja suffered damages of P1,000 from their refusal.
3rd: Borja had an additional P150 damages when Vazquez and Busuego refused to return 1,510 of the
unused sacks consigned to them for the 4,000 cavans since only 2,488 was delivered and used.
Vazquez denied the contract entered either with or without Busuego. He alleges that the agreement was
between Natividad-Vazquez Sabani Devt (NVSD)Co. Inc. He was only an acting manager. He further claims
his own damages of P1000.
RTC ruled that Vazquez should pay Borja (plaintiff) P3,175.2 plus sum of P377.5 and legal interest. Busuego
was then absolved.
CA modified to reduce damages to come up with a total of P3,314.78 with legal interest and cost.
Then the defendant Vazquez filed for a motion for reconsideration.
CA ruled to set aside its decision and to remand the case.
Vazquez filed for certiorari to review and reverse the CA.
Borja filed for certiorari for CA to maintain decision.
SC denied Borjas filing for certiorari because the remanding was for his benefit, to allow him opportunity to
refute Vazquezs contention. SC said this was an action on a contract. CA was wrong in the case analysis.
SC then found the CAs decision of remanding the case wrong. Since they had no justification for ordering a
new trial. The parties themselves didnt demand it.
And the issue in the CA of WON the company had sufficient stock at the time the appellant sold1,500
cavans to another buyer (Kwong ah Poy) is irrelevant to the real issue.
Issue:
WON plaintiff. Borja entered into a contract with Vazquez in his personal capacity or as manager of the NVSD Co. Inc
/ Whether or not Vasquez, as mere agent, is liable for damages.
Ruling:
NO. The SC said that the CA itself admitted that accdg. to preponderance of evidence, Vazquez acted as acting
manger of the NVSD co. Inc., when he sold 4,000 cavans of palay.
Page 22
Instead of remanding the case, the CA should have dismissed the complaint because the real party which is the
company is not included in the case.
Even the plaintiffs argument that it was Vazquez who contracted and who received the money from Borja was
invalid and insufficient to hold the president of the corporation personally liable. Even if the corporation was an
artificial being by law, the mere fact that it is a legal fiction and only able to act through its agents doesnt make these
agents liable.
The RTC and CA held Vazquez negligent, but they are wrong. They have failed to distinguish a contractual from an
extra-contractual obligation.
The fault under Art. 1101-1104 of the CC are those incidental to the fulfillment or nonfulfillment of contractual
obligation. While the fault or negligence referred to in Art. 1902 is the culpa aquiliana of the civil law, w/c gives rise to
obligation independent of any contract.
The fact that the corporation acting thru Vazquez even if he is negligent will not make him liable whether principally
or subsidiarily. SINCE IT WAS THE CORPORATIONS CONTRACT, THEN IT IS LIABLE.
So if outside of the contract, Vazquez by a negligent act caused damage to Borja, then he would be liable under
Art.1902 CC. And Borjas cause of action must be culpa aquiliana and not contract. By then, Vazquez would have
been principally liable. As this was not alleged then the RTC could not have this in its jurisdiction.
* However, SC thinks it was Vasquezs moral duty towards the party with whom he contracted in said capacity to see
to it that the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price of which
it had already received. Recreant to such duty as a moral person, he has no legitimate cause for indignation. Under
the circumstances he not only has no cause of action against the plaintiff for damages but is not even entitled to
costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to
costs.
DISSENTING:
Paras, J. : It was his refusal to deliver the remaining obligations that warrant his negligence. But it was also his fault
that his own negligence prevented the fulfillment of the obligation. And when he made the sale, he knew the
corporation to be insolvent, and now dissolved. Since he owned a considerable part of the corporation, then if he isnt
punished, then he will profit from his own wrong
EUSEBIO DE LA CRUZ, Plaintiff-Appellee, v.

APOLONIO LEGASPI and CONCORDIA SAMPEROY, Defendants-Appellants
Doctrine:
- In the sale of real property, the subsequent non-payment of the price at the time agreed upon does not convert the
contract into one without cause or consideration: a nudum pactum.
- Vendors Remedy: to demand legal interest for the delay or to demand rescission in court.
Facts:
Plaintiff sued defendant Legaspi to compel delivery of the parcel of land sold to plaintiff. The complaint alleged the
defendants refusal to accept payment of the purchase price of P450 and undue retention of the realty.
The defendants alleged that before the document of sale was made, the plaintiff agreed to pay the defendants the
price right after the document is executed that very day but after the document was signed and ratified by the Notary
Public and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay. They
Page 23
asserted that for lack of consideration and for deceit, the document of said should be annulled. Their assertion is that
when plaintiff failed to pay the price after the execution of the document of sale as agreed previously, the contract
became null and void for lack of consideration.
Issue: Whether or not the contract of sale is void on the ground that it lacks consideration.
Held:
No. It cannot be denied that when the document was signed the cause or consideration existed: P450. The document
specifically said so. Subsequent non-payment of the price at the time agreed upon did not convert the contract into
one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil,
457). The situation was rather one in which there is failure to pay the consideration, with its resultant consequences.
In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants as he
previously promised, there was default on his part at most, and defendants right was to demand interest legal
interest.
CRISOSTOMO VS CA. 409 scra 528

YNARES-SANTIAGO, J. / AUGUST 25, 2003
NATURE:
Petition for review on certiorari of a decision of the Court of Appeals
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
traveldocuments 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
ISSUE:
WON a travel agency is bound under the law to observe extraordinary diligence in the performance of its obligation
Page 24
HELD:
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.
G.R. No. 108253 February 23, 1994

LYDIA L. GERALDEZ, petitioner,
vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.
Ponente: REGALADO, J.:
Facts:
An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against
private respondent Kenstar Travel Corporation of the Regional Trial Court of Quezon City, Branch 80. After the parties
failed to arrive at an amicable settlement, trial on the merits ensued.
Sometime in October, 1989, Petitioner came to know about private respondent from numerous
advertisements in newspapers of general circulation regarding tours in Europe. She then contacted private
respondent by phone and the latter sent its representative, Alberto Vito Cruz, who gave her the brochure for the tour
and later discussed its highlights. The European tours offered were classified into four, and petitioner chose the
classification denominated as "VOLARE 3" covering a 22-day tour of Europe for $2,990.00. She paid the total
equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores.
Petitioners contention:
During the tour, she was very uneasy and disappointed when it turned out that, contrary to what was stated
in the brochure, there was no European tour manager for their group of tourists, the hotels in which she and the
group were billeted were not first-class, the UGC Leather Factory which was specifically added as a highlight of the
tour was not visited, and the Filipino lady tour guide by private respondent was a first timer, that is, she was
performing her duties and responsibilities as such for the first time.
Private Respondents contention:
"European Tour Manager" does not refer to an individual but to an organization, allegedly the Kuoni Travel of
Switzerland which supposedly prepared the itinerary for its "Volare Europe Tour," negotiated with all the hotels in
Europe, selected tourist spots and historical places to visit, and appointed experienced local tour guides for the tour
group.
Delimitation of its responsibility as printed on the face of its brochure on the Volare 3 program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT, THEIR EMPLOYEES OR SUBAGENTS SHALL BE RESPONSIBLE ONLY FOR BOOKING AND MAKING ARRANGEMENTS AS YOUR AGENTS.
Kenstar Travel Corporation, your travel Agent, their employees or sub-agents assume no responsibility or liability
arising out of or in connection with the services or lack of services, of any train, vessel, other conveyance or station
whatsoever in the performance of their duty to the passengers or guests, neither will they be responsible for any act,
error or omission, or of any damages, injury, loss, accident, delay or irregularity which may be occasioned by reason
(of) or any defect in . . . lodging place or any facilities . . . . (Emphasis by private respondent.)
Page 25
That the tour was satisfactory, considering that only petitioner, out of eighteen participants in the Volare 3
Tour Program, actually complained.
Merely provided such "first class" hotels which are commensurate to the tourists budget, or which were,
under the given circumstances, the "best for their money."
RTC: Moved for the issuance of a writ of preliminary attachment against private respondent on the ground that it
committed fraud in contracting an obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to which
no opposition by the latter appears on the record.
CA: Respondent court, contrary to the findings of the trial court, ruled that no malice or bad faith could be imputed to
private respondent, hence there is no justification for the award of moral and exemplary damages.
Issue:
WON private respondent acted in bad faith or with gross negligence in discharging its obligations under the
contract.
WON an award of Moral and Exemplary damages justifiable.
Held:
Private respondent did commit fraudulent misrepresentations amounting to bad faith, to the prejudice of
petitioner and the members of the tour group. By providing the Volare 3 tourist group, of which petitioner was a
member, with an inexperienced and a first timer tour escort, private respondent manifested its indifference to the
convenience, satisfaction and peace of mind of its clients during the trip, despite its express commitment to provide
such facilities under the Volare 3 Tour Program which had the grandiose slogan "Let your heart sing.
Private respondent had the obligation to provide the tour group not only with a European tour manager, but
also with local European tour guides. Word "he" was used in the aforequoted advertisement, private respondent
maintains that the pronoun "he" also includes the word "it," as where it is used as a "nominative case form in general
statements (as in statutes) to include females, fictitious persons (as corporations)."
In situations like these, when a party imposes upon another a ready-made form of contract, and the other is
reduced to the alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing, a contract of adhesion results. While it is true that an adhesion contract is not
necessarily void, it must nevertheless be construed strictly against the one who drafted the same. Private respondent
likewise committed a grave misrepresentation when it assured in its Volare 3 tour package that the hotels it had
chosen would provide the tourists complete amenities and were conveniently located along the way for the daily
itineraries. It was private respondent, in the first place, which fixed the charges for the package tour and determined
the services that could be availed of corresponding to such price. Hence, it cannot now be heard to complain that it
only made a putative marginal profit out of the transaction.
In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions became
patent in the light of after-events when, contrary to its representations, it employed an inexperienced tour guide,
housed the tourist group in substandard hotels, and reneged on its promise of a European tour manager and the visit
to the leather factory, it is indubitably liable for damages to petitioner.
On the foregoing considerations, 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. These, to our mind, justify the award for moral damages, which are in the category of an award designed to
compensate the claimant for that injury which she had suffered, and not as a penalty on the wrongdoer, we believe
that an award of P100,000.00 is sufficient and reasonable. Exemplary damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. According to the
code Commission, exemplary damages are required by public policy, for wanton acts must be suppressed. An award,
therefore, of P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with
the intention of realizing considerable profit at the expense of the public, without ensuring compliance with their
express commitments.
Page 26

Philippine Supreme Court case on rescission of contract for sale of property with mortgage

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Philippine Supreme Court case on rescission of contract for sale of property with mortgage

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CASE 1: SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO.

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Case 9: VAZQUEZ VS. BORJA

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

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1. There was delay in paying the balance; and

1. It had already paid its obligation to the petitioner;

Case 17: VASQUEZ vs. AYALA CORPORATION

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

Obligations and Contracts

MAGAT, petitioner, vs.

Obligations and Contracts

Obligations and Contracts

Antonio Vazquez Vs Francisco de Borja

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Borja cited 3 causes of action from his losses.

2nd:Borja suffered damages of P1,000 from their refusal.

Then the defendant Vazquez filed for a motion for reconsideration.

CA ruled to set aside its decision and to remand the case.

Vazquez filed for certiorari to review and reverse the CA.

Borja filed for certiorari for CA to maintain decision.

Obligations and Contracts

EUSEBIO DE LA CRUZ, Plaintiff-Appellee, v.

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CRISOSTOMO VS CA. 409 scra 528

Obligations and Contracts

G.R. No. 108253 February 23, 1994

Obligations and Contracts

Obligations and Contracts

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