Case Digests

Civil Law Review 2 1
General Concepts up to Breach of Obligations

Villaroel vs Estrada
71 Phil 140
(PLEASE NOTE THAT THIS IS A ROUGH DIGEST FROM SPANISH LANGUAGE)
Facts: On May 9, 1912, Alexandra F. Callao, mother of defendant John F. Villarroel, obtained from
the spouses Mariano Estrada and Severina a loan of P1, 000 payable after seven years. Alexandra
died, leaving the defendant her only heir. Spouses Mariano Estrada and Severina died as well,
leaving the plaintiff Bernardino Estrada as the only heir. Villaroel assumed the responsibility by
making another contract to pay the P1,000 plus 12% interest, however, he has defaulted. The
defendant filed for the collection of P1, 000, with an interest of 12 percent per year. This action
relates to the collection of this amount.
The Court of First Instance of Laguna, condemn the Villaroel to pay the claimed amount of P1,
000 with legal interest of 12 percent per year from the August 9, 1930 until fully pay.
Issue: Whether the obligation arising from the original contract of loan, being prescribed would
still be demandable from the only heir of the original debtor.
Held: Yes because the prescribed debt of the deceased mother of the debtor was held to be a
sufficient consideration to make valid and effective the promise of the son to pay the same.
Although the action to recover the original debt has prescribed and when the lawsuit was filed in
this case, the question that arises in this appeal is primarily whether, notwithstanding such
prescription is from the action filed. However, this action is based on the original obligation
contracted by the mother of the defendant, who has prescribed, but in which the
defendant contracted on August 9, 1930 to assume the fulfillment of that obligation,
as prescribed. Being the only defendant of the primitive heir debtor entitled to succeed him in
his inheritance, that debt legally brought by his mother, but lost its effectiveness by prescription,
is now, however, for him a moral obligation, which is consideration enough to create and
effective and enforceable his obligation voluntarily contracted the August 9, 1930.
Ansya vs. NDC
107 Phil 997
Facts: On July 25, 1956, appellants filed against appellees in the Court of First Instance of
Manila a complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a
quo does not see how petitioners may have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial
powers to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party
to comply with a moral obligation (Art. 142, New Civil Code.).
Appellants contend that there exists a cause of action in their complaint because their claim rests
on moral grounds or what in brief is defined by law as a natural obligation.
Since appellants admit that appellees are not under legal obligation to give such claimed bonus;
that the grant arises only from a moral obligation or the natural obligation that they discussed in
their brief, this Court feels it urgent to reproduce at this point, the definition and meaning of
natural obligation.
Issue: Whether the appellees have the legal obligation to give the claimed bonus despite the fact
that the same has been granted arising from a moral obligation or the natural obligation to do the
same.
Held: No. Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil
obligations are a right of action to compel their performance. Natural obligations, not being based
on positive law but on equity and natural law, do not grant a right of action to enforce their
Trinidad, Calo, Lagon, Bautista, Barcena, Bo, Pascual, Ayong, Rafi, Vela, Tayco, Versoza, Guevarra, Agarin, Uy, Lleva, Reyes, Ong, Bercasio,
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performance, but after voluntary fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable
by the court is voluntary fulfillment by the obligor. Certainly retention can be ordered
but only after there has been voluntary performance. But here there has been no
voluntary performance. In fact, the court cannot order the performance.
At this point, we would like to reiterate what we said in the case of Philippine Education Co. vs.
CIR and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278)
xxx
xxx
xxx
From the legal point of view a bonus is not a demandable and enforceable obligation.
It is so when it is made a part of the wage or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al., 95
Phil., 553; 50 Off. Gaz., 4253, we stated that:
Even if a bonus is not demandable for not forming part of the wage, salary or
compensation of an employee, the same may nevertheless, be granted on equitable
consideration as when it was given in the past, though withheld in succeeding two
years from low salaried employees due to salary increases.
Still the facts in said Heacock case are not the same as in the instant one, and hence the
ruling applied in said case cannot be considered in the present action.
FALLO:
Premises considered, the order appealed from is hereby affirmed, without pronouncement as to
costs.
Development Bank of the Philippines vs. Spouses Patricio Confessor
161 SCRA 307
Facts: On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an
agricultural loan from the Agricultural and Industrial Bank (AIB), now the Development of the
Philippines (DBP), in the sum of P2, 000.00, Philippine Currency, as evidenced by a promissory
note of said date whereby they bound themselves jointly and severally to pay the account in ten
(10) equal yearly amortizations. As the obligation remained outstanding and unpaid even after
the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the Congress
of the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging
said loan and promising to pay the same on or before June 15, 1961. Said spouses not having
paid the obligation on the specified date; the DBP filed a complaint dated September 11, 1970 in
the City Court of Iloilo City against the spouses for the payment of the loan.
RTC of Iloilo: Decided in favor of DBP, ordering the defendants Patricio Confesor and Jovita
Villafuerte Confesor to pay the DBP, jointly and severally, (a) the sum of P5,760.96 plus additional
daily interest of P l.04 from September 17, 1970, the date Complaint was filed, until said amount
is paid; (b) the sum of P576.00 equivalent to ten (10%) of the total claim by way of attorney's fees
and incidental expenses plus interest at the legal rate as of September 17,1970, until fully paid;
and (c) the costs of the suit.
Upon appeal by Sps. Confesor CFI reversed the decision
MR - Denied
Issue: Whether the validity of a promissory note, which was executed in consideration of a
previous promissory note, the enforcement of which is barred by prescription, may still be
demandable.
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Held: Yes. The right to prescription may be waived or renounced. Article 1112 of Civil Code
provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results
from acts which imply the abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the second promissory note on April 11,
1961 whereby he promised to pay the amount covered by the previous promissory
note on or before June 15, 1961, and upon failure to do so, agreed to the foreclosure
of the mortgage, said respondent thereby effectively and expressly renounced and
waived his right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that
... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new
contract recognizing and assuming the prescribed debt would be valid and enforceable ... (Refer
to the Estrada case)
Thus, it has been held
Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the
same has prescribed and with full knowledge of the prescription he thereby waives the benefit of
prescription.
This is not a mere case of acknowledgment of a debt that has prescribed but a new
promise to pay the debt. The consideration of the new promissory note is the preexisting obligation under the first promissory note. The statutory limitation bars the
remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of the
statute of limitations as this proceeds upon the ground that as a statutory limitation merely bars
the remedy and does not discharge the debt, there is something more than a mere moral
obligation to support a promise, to wit a pre-existing debt which is a sufficient consideration for
the new the new promise; upon this sufficient consideration constitutes, in fact, a new cause of
action.
... It is this new promise, either made in express terms or deduced from an acknowledgement as a
legal implication, which is to be regarded as reanimating the old promise, or as imparting vitality
to the remedy (which by lapse of time had become extinct) and thus enabling the creditor to
recover upon his original contract.
Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership.
As such administrator, all debts and obligations contracted by the husband for the benefit of the
conjugal partnership, are chargeable to the conjugal partnership. No doubt, in this case,
respondent Confesor signed the second promissory note for the benefit of the conjugal
partnership. Hence the conjugal partnership is liable for this obligation.
FALLO:
WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is
hereby rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976,
without pronouncement as to costs in this instance. This decision is immediately executory and
no motion for extension of time to file motion for reconsideration shall be granted.
Faustino Cruz vs. J.M. Tuason & Company, Inc. and Gregorio Araneta, Inc
76 SCRA 543
Gachalian

Facts: Plaintiff-appellant's complaint below shows that he alleged two separate causes of action,
namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the
land in question on the strength of an "informacion posesoria") plaintiff made permanent
improvements valued at P30,400.00 on said land having an area of more or less 20
quinones and for which he also incurred expenses in the amount of P7,781.74, and since
defendants-appellees are being benefited by said improvements, he is entitled
to reimbursement from them of said amounts and
(2) that in 1952, defendants availed of plaintiff's services as an intermediary with the Deudors
to work for the amicable settlement of Civil Case No. Q-135, then pending also in the Court
of First Instance of Quezon City, and involving 50 quinones of land, of Which the 20
quinones aforementioned form part, and notwithstanding his having performed his
services, as in fact, a compromise agreement entered into on March 16, 1963 between the
Deudors and the defendants was approved by the court, the latter have refused to
convey to him the 3,000 square meters of land occupied by him, (a part of the
20 quinones above) which said defendants had promised to do "within ten years
from and after date of signing of the compromise agreement", as consideration
for his services.
Defendant filed a separate motion to dismiss alleging that:
1. As regards that improvements made by plaintiff, that the complaint states no cause
of action, the agreement regarding the same having been made by plaintiff with
the Deudors and not with the defendants, hence the theory of plaintiff based on
Article 2142 of the Code on unjust enrichment is untenable
2. Anent the alleged agreement about plaintiffs services as intermediary in

consideration of which, defendants promised to convey to him 3,000 square meters
of land, that the same is unenforceable under the Statute of Frauds, there being
nothing in writing about it, and, in any event
3. that the action of plaintiff to compel such conveyance has already prescribed.
RTC: Dismissed the case: It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the clearing and
improvement of the 50 quinones. Furthermore in order that the alleged improvement may be
considered a lien or charge on the property, the same should have been made in good faith and
under the mistake as to the title. The Court can take judicial notice of the fact that the tract of
land supposedly improved by the plaintiff had been registered way back in 1914 in the name of
the predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This fact is confirmed in the
decision rendered by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M.
Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the case; the plaintiff cannot claim
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good faith and mistake as to the title of the land. The RTC also dismissed the case because the
plaintiffs action has already prescribed.
MR: Denied because their MR was a mere repetition of the initial allegation, which the court has
already resolved.
Issue: Whether or not Faustino Cruz can claim reimbursement for the expenses and services
rendered.
Held: NO. We hold that the allegations in his complaint do not sufficiently Appellants' reliance on
Article 2142 of Civil Code is misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefited at the expense of another.
From the very language of this provision, it is obvious that a presumed quasi-contract cannot
emerge as against one party when the subject mater thereof is already covered by an existing
contract with another party. Predicated on the principle that no one should be allowed to unjustly
enrich himself at the expense of another, Article 2124 creates the legal fiction of a quasi-contract
precisely because of the absence of any actual agreement between the parties concerned.
Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract
with a third party, his cause of action should be against the latter, who in turn may, if there is any
ground therefor, seek relief against the party benefited. It is essential that the act by which the
defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. As one
distinguished civilian puts it, "The act is voluntary because the actor in quasi-contracts is
not bound by any pre-existing obligation to act. It is unilateral, because it arises from
the sole will of the actor who is not previously bound by any reciprocal or bilateral
agreement. The reason why the law creates a juridical relations and imposes certain
obligation is to prevent a situation where a person is able to benefit or take advantage
of such lawful, voluntary and unilateral acts at the expense of said actor." (Ambrosio
Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant has a clearer
and more direct recourse against the Deudors with whom he had entered into an
agreement regarding the improvements and expenditures made by him on the land of
appellees it Cannot be said, in the sense contemplated in Article 2142, that appellees
have been enriched at the expense of appellant.
FALLO:
WHEREFORE, the appeal of Faustino Cruz in this case is dismissed
Gutierrez Hermanos vs. Engracio Orense

December 4, 1914, J. Torres.
Facts: Engracio Orense is the owner of a parcel of land situated in Albay. On February 14, 1907,
Jose Duran, Orenses nephew, with the latters knowledge and consent, sold and conveyed to
Hermanos company for P1, 500 the aforementioned land with the reservation of the former the
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right to repurchase it for the same price within a period of 4 years. But the same land was not
repurchased by Jose Duran, who is insolvent; which correspondingly caused damage to the firm of
Hermanos. Despite repeated demand upon Jose Duran, the latter never vacated nor transferred
ownership to Hermanoss firm, the said land. His refusal was based on the allegations that
he had been and was then the owner of the said property, which was registered in his
name in the property registry; that he had not executed any written power of attorney
to Jose Duran, nor had he given the latter any verbal authorization to sell the said
property to the plaintiff firm in his name; and that, prior to the execution of the deed
of sale, the defendant performed no act such as might have induced the plaintiff to
believe that Jose Duran was empowered and authorized by the defendant to effect the
said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of Albay,
with estafa, for having represented himself in the said deed of sale to be the absolute owner of
the aforesaid land and improvements, whereas in reality they did not belong to him, but to the
defendant Orense.
CFI: Acquitted Duran. At the trial of the case, Engracio Orense who was called as a witness, being
interrogated by the fiscal as to whether he and consented to Duran's selling the said property
under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this
statement by the defendant, the court acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio
Orense, the owner of the property, to the effect that he had consented to his nephew
Duran's selling the property under right of repurchase to Gutierrez Hermanos, counsel
for this firm filed a complainant praying, among other remedies, that the defendant Orense be
compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the
right, title and interest with Orense had in the property sold, and to pay to the same the rental of
the property due from February 14, 1911.
Issue: Whether or not Orense can be compelled to deliver the property to Hermanos as premised
above.
Held: YES. It having been proven at the trial that he gave his consent to the said sale, it follows
that the defendant conferred verbal, or at least implied, power of agency upon his nephew Duran,
who accepted it in the same way by selling the said property. The principal must therefore fulfill
all the obligations contracted by the agent, who acted within the scope of his authority. (Civil
Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it
is unquestionable that the defendant, the owner of the property, approved the action
of his nephew, who in this case acted as the manager of his uncle's business, and
Orense'r ratification produced the effect of an express authorization to make the said
sale. (Civil Code, arts. 1888 and 1892.)
Article 1259 of the Civil Code prescribes: "No one can contract in the name of another
without being authorized by him or without his legal representation according to law.
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A contract executed in the name of another by one who has neither his authorization nor
legal representation shall be void, unless it should be ratified by the person in whose name
it was executed before being revoked by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at
the trial of Duran for estafa, virtually confirms and ratifies the sale of his property
effected by his nephew, Duran, and, pursuant to article 1313 of the Civil Code,
remedies all defects which the contract may have contained from the moment of its
execution.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in
the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at
its execution by the confirmation solemnly made by the said owner upon his stating under oath to
the judge that he himself consented to his nephew Jose Duran's making the said sale. Moreover,
pursuant to article 1309 of the Code, the right of action for nullification that could have been
brought became legally extinguished from the moment the contract was validly confirmed and
ratified, and, in the present case, it is unquestionable that the defendant did confirm the said
contract of sale and consent to its execution.
If the defendant Orense acknowledged and admitted under oath that he had
consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is
not just nor is it permissible for him afterward to deny that admission, to the prejudice
of the purchaser, who gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February 14,
1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of
the Code of Civil Procedure, because the authority which Orense may have given to Duran
to make the said contract of sale is not shown to have been in writing and signed by
Orense, but the record discloses satisfactory and conclusive proof that the defendant
Orense gave his consent to the contract of sale executed in a public instrument by his
nephew Jose Duran. Such consent was proven in a criminal action by the sworn testimony of
the principal and presented in this civil suit by other sworn testimony of the same principal and by
other evidence to which the defendant made no objection. Therefore the principal is bound to
abide by the consequences of his agency as though it had actually been given in writing (Conlu
vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle &
Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in two
actions, wherein he affirmed that he had given his consent to the sale of his property,
meet the requirements of the law and legally excuse the lack of written authority, and,
as they are a full ratification of the acts executed by his nephew Jose Duran, they
produce the effects of an express power of agency.
FALLO:
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The judgment appealed from is hereby affirmed, with the costs against the appellant
Rustico Adille vs. CA

January 29, 1988, J. Sarmiento.
Facts: Feliza Azul owns a parcel of land. She married twice in her lifetime; the first, with one
Bernabe Adille with whom she had as an only child, herein defendant Rustico Adille; in her second
marriage with one Procopio Asejo, her children were herein plaintiffs. Sometime in 1939, said
Felisa sold the property in pacto de retro to certain 3rd persons, period of repurchase being 3
years, but she died in 1942 without being able to redeem and after her death, but during the
period of redemption, herein defendant repurchased, by himself alone, and after that, he
executed a deed of extra-judicial partition representing himself to be the only heir and child of his
mother Felisa with the consequence that he was able to secure title in his name alone also, so
that OCT. No. 21137 in the name of his mother was transferred to his name, that was in 1955;
that was why after some efforts of compromise had failed, his half-brothers and sisters, herein
plaintiffs (The Asejo siblings), filed present case for partition with accounting on the position
that he was only a trustee on an implied trust when he redeemed,-and this is the evidence, but as
it also turned out that one of plaintiffs, Emeteria Asejo was occupying a portion, defendant
counterclaimed for her to vacate that.
RTC: Sustained defendant in his position that he was and became absolute owner, he was not a
trustee, and therefore, dismissed case and also condemned plaintiff occupant, Emeteria to
vacate.
CA: Reversed the decision.
Issue: Whether or not Adille can acquire exclusive ownership over the land.
Held: NO. It is the view of the respondent Court that the petitioner, in taking over the property,
did so either on behalf of his co-heirs, in which event, he had constituted himself a
negotiorum gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in
which case, he is guilty of fraud, and must act as trustee, the private respondents
being the beneficiaries, under the Article 1456. The evidence, of course, points to the
second alternative the petitioner having asserted claims of exclusive ownership over the property
and having acted in fraud of his co-heirs. He cannot therefore be said to have assume the
mere management of the property abandoned by his co-heirs, the situation Article
2144 of the Code contemplates. In any case, as the respondent Court itself affirms, the result
would be the same whether it is one or the other. The petitioner would remain liable to the Private
respondents, his co-heirs.
FALLO:
WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the
petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.
Dometila Andres, doing business under the name and style IRENES WEARING
APPAREL vs. Manufacturers Hanover & Trust Corporation, CA, September 15, 1989, J.
Cortes.
Gachalian

Facts: Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the
manufacture of ladies garments, children's wear, men's apparel and linens for local and foreign
buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of
the United States. In the course of the business transaction between the two, FACETS from time to
time remitted certain amounts of money to petitioner in payment for the items it had purchased.
Sometime in August 1980, FACETS instructed the First National State Bank of New Jersey, Newark,
New Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via
Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust
Corporation to effect the above- mentioned transfer through its facilities and to charge the
amount to the account of FNSB with private respondent. Although private respondent was able to
send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner had
an account, the payment was not effected immediately because the payee designated in the
telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB another telex
dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing Apparel." On
August 28, 1980, petitioner received the remittance of $10,000.00 through Demand Draft No.
225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to
petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that
petitioner had already received the remittance, FACETS informed private respondent about the
delay and at the same time amended its instruction by asking it to effect the payment through
the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the
remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on
September 11, 1980, petitioner received a second $10,000.00 remittance.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the
latter refused to pay.
Regional Trial Court, Branch CV, Quezon City decided in favor of petitioner as defendant. The
trial court ruled that Art. 2154 of the New Civil Code is not applicable to the case because the
second remittance was made not by mistake but by negligence and petitioner was not unjustly
enriched by virtue thereof.
Court of Appeals held that Art. 2154 is applicable and reversed the RTC decision.
Issue: Whether or not Mantrust can recover the second remittance worth $10,000.
Held: YES. The contract of petitioner, as regards the sale of garments and other textile products,
was with FACETS. It was the latter and not private respondent, which was indebted to petitioner.
On the other hand, the contract for the transmittal of dollars from the United States to petitioner
was entered into by private respondent with FNSB. Petitioner, although named as the payee was
not privy to the contract of remittance of dollars. Neither was private respondent a party to the
contract of sale between petitioner and FACETS. There being no contractual relation between
them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake by
private respondent to the outstanding account of FACETS.
Art. 2154. If something received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through an error,
has been unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained
the nature of this article thus:
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Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solution indebiti, is one of the concrete
manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of
another. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum est,
neminem cum alterius detrimento et injuria fieri locupletiorem." And the Partidas declared:
"Ninguno non deue enriquecerse tortizeramente con dano de otro." Such axiom has grown
through the centuries in legislation, in the science of law and in court decisions. The lawmaker
has found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded in many
articles scattered in the Spanish Civil Code. (NOTE, articles, 360, 361, 464, 647, 648, 797, 1158,
1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored aphorism has also been
adopted by jurists in their study of the conflict of rights. It has been accepted by the courts, which
have not hesitated to apply it when the exigencies of right and equity demanded its assertion. It
is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the
statutory laws are inadequate because they do not speak or do so with a confused voice.
For this article to apply the following requisites must concur: "(1) that he who paid was not under
obligation to do so; and, (2) that payment was made by reason of an essential mistake of fact"
[City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However,
petitioner contends that the doctrine of solutio indebiti, does not apply because its requisites are
absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter allegedly still had a
balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in
payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by
the wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law specifically
applicable to a case. ... The common law principle that where one of two innocent persons must
suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which
is covered by an express provision of the new Civil Code, specifically Article 559. Between a
common law principle and a statutory provision, the latter must prevail in this jurisdiction. [at p.
135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio
indebiti, applies in the case at bar, the Court must reject the common law principle
invoked by petitioner.
FALLO:
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
Gonzalo Puyat & Sons, Inc. vs. City of Manila and Marcelo Sarmiento, as City Treasurer
April 30, 1963, J. Paredes.
Facts: Gonzalo Puyat & Sons, Inc. is engaged in the business of manufacturing and selling all kinds
of furniture at its factory in Manila. Pursuant to Ordinance No. 3364, Manila assessed from Puyat
retail dealers tax which the latter paid without protest in the erroneous belief that it was liable
therefore. Puyat subsequently found that it was exempt from said taxes as provided under
Ordinance No. 3816, Puyat claimed for refund.
Issue: Whether the taxes paid without protest are refundable.
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Held: YES. Appellants do not dispute the fact that appellee-company is exempted from the
payment of the tax in question. This is manifest from the reply of appellant City Treasurer stating
that sales of manufactured products at the factory site are not taxable either under the
Wholesalers Ordinance or under the Retailers' Ordinance. With this admission, it would seem clear
that the taxes collected from appellee were paid, thru an error or mistake, which places said act
of payment within the pale of the new Civil Code provision on solutio indebiti. The appellant City
of Manila, at the very start, notwithstanding the Ordinance imposing the Retailer's Tax, had no
right to demand payment thereof.
"If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligationto retun it arises" (Art. 2154, NCC).
Appellee categorically stated that the payment was not voluntarily made, (a fact found
also by the lower court), but on the erroneous belief, that they were due. Under this
circumstance, the amount paid, even without protest is recoverable. "If the payer was
in doubt whether the debt was due, he may recover if he proves that it was not due"
(Art. 2156, NCC). Appellee had duly proved that taxes were not lawfully due. There is,
therefore, no doubt that the provisions of solutio indebtiti, the new Civil Code, apply to the
admitted facts of the case.
With all, appellant quoted Manresa as saying: "x x x De la misma opinion son el Sr. Sanchez
Roman y el Sr. Galcon, et cual afirma que si la paga se hizo por error de derecho, ni existe el
cuasi-contrato ni esta obligado a la restitucion el que cobro, aunque no se debiera lo que se pago"
(Manresa, Tomo 12, paginas 611-612). This opinion, however, has already lost its persuasiveness,
in view of the provisions of the Civil Code, recognizing "error de derecho" as a basis for the quasicontract, of solutio indebiti. .
"Payment by reason of a mistake in the construction or application of a doubtful or

difficult question of law may come within the scope of the preceding article" (Art.
21555).
There is no gainsaying the fact that the payments made by appellee was due to a mistake in the
construction of a doubtful question of law.
Joseph Saludaga vs. far Eastern University and Edilberto De Jesus (President of FEU),
April 30, 2008, J. Ynares-Santiago.
Facts: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern
University when he was shot by Alejandro Rosete, one of the security guards on duty at the school
premises on August 18, 1996. Rosete was brought to the police station where he explained that
the shooting was accidental. He was eventually released considering that no formal complaint
was filed against him.
Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management
Corporation (Galaxy), the agency contracted by respondent FEU to provide security services
within its premises and Mariano D. Imperial (Galaxys President), to indemnify them for whatever
would be adjudged in favor of petitioner.
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Petitioner is suing the respondents for damages based on the alleged breach of student-school
contract for a safe and secure environment and an atmosphere conducive to learning.
RTC: Ruled in favor of the petitioner

CA: Reversed the decision and dismissed the initial complaint.
Issue: Whether or not FEU could be held liable.
Held: YES. When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which both
parties are bound to comply with. For its part, the school undertakes to provide the student
with an education that would presumably suffice to equip him with the necessary tools and skills
to pursue higher education or a profession. On the other hand, the student covenants to abide by
the schools academic requirements and observe its rules and regulations.
Respondent FEU failed to discharge the burden of proving that they exercised due diligence in
providing a safe learning environment for their students. It failed to show that they undertook
steps to ascertain and confirm that the security guards assigned to them actually possess the
qualifications required in the Security Service Agreement. It was not proven that they
examined the clearances, psychiatric test results, 201 files, and other vital documents
enumerated in its contract with Galaxy. Total reliance on the security agency about
these matters or failure to check the papers stating the qualifications of the guards is
negligence on the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the security
agency it hired. To do so would result to contracting away its inherent obligation to ensure a
safe learning environment for its students.
Respondent FEU is liable to petitioner for damages.
FEU cannot be held liable for damages under Art. 2180 of the Civil Code because
respondents are not the employers of Rosete. The latter was employed by Galaxy. The
instructions issued by respondents Security Consultant to Galaxy and its security guards are
ordinarily no more than requests commonly envisaged in the contract for services entered into by
a principal and a security agency. They cannot be construed as the element of control as to treat
respondents as the employers of Rosete. It had no hand in selecting thesecurity guards. Thus, the
duty to observe the diligence of a good father of a family cannot be demanded from the said
client.
FALLO
For these acts of negligence and for having supplied respondent FEU with an unqualified security
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guard, which resulted to the latters breach of obligation to petitioner, it is proper to hold Galaxy
liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded
to petitioner. Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for
being grossly negligent in directing the affairs of the security agency.
Sagrada Orden De Predicadores Del Santismo Rosario De Filipinas vs. National Coconut
Corporation, June 30, 1952, J. Labrador.
Facts: Plaintiff owned disputed property in Pandacan, Manila which was acquired during the
Japanese occupation by Taiwan Tekkosho for the sum of P140. 00, and thereupon title thereto issued
in its name (TCT in Register of Deeds, Manila). After liberation, (April 4, 1946), the Alien Property
Custodian of the United States of America took possession, control, and custody thereof under
section 12 of the Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged to an
enemy national. During the year 1946 the property was occupied by the Copra Export Management
Company under a custodianship agreement with United States Alien Property Custodian, and when
it vacated the property it was occupied by the defendant herein. The Philippine Government made
representations with the Office Alien Property Custodian for the use of property by the Government.
On March 31, 1947, the defendant was authorized to repair the warehouse on the land, and actually
spent thereon the repairs the sum of P26, 898.27. In 1948, defendant leased one-third of the
warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later raised to P1, 000 a
month. Sarile did not pay the rents, so action was brought against him. It is not shown, however, if
the judgment was ever executed.
Plaintiff made claim to the property before the Alien Property Custodian of the United States, but
as this was denied, it brought an action in court of First Instance of Manila, to annul the sale of
property of Taiwan Tekkosho, and recover its possession. The RP was allowed to intervene in the
action. The case did not come for trial because the parties presented a joint petition in which it
is claimed by plaintiff that the sale in favor of the Taiwan Tekkosho was null and void because it
was executed under threats, duress, and intimidation, and it was agreed that the title issued
in the name of the Taiwan Tekkosho be cancelled and the original title of plaintiff reissued; that the claims, rights, title, and interest of the Alien Property Custodian be cancelled and
held for naught; that the occupant National Coconut Corporation has until February 28, 1949, to
recover its equipment from the property and vacate the premises; that plaintiff, upon entry of
judgment, pay to the Philippine Alien Property Administration the sum of P140,000; and that the
Philippine Alien Property Administration be free from responsibility or liability for any act of the
National Coconut Corporation, etc. Pursuant to the agreement the court rendered judgment
releasing the defendant and the intervenor from liability, but reversing to the plaintiff the right to
recover from the National Coconut Corporation reasonable rentals for the use and occupation of
the premises.
ISSUE: WON NACOCO is liable to pay back rentals?
HELD: If defendant-appellant is liable at all, its obligations must arise from any of the 4 sources of
obligations, namely, law, contract or quasi contract, crime, or negligence. (Article 1089, Old Civil
Code.) To determine such, the following must be understood:
As to crimes: Defendant-appellant is not guilty of any offense at all, because it entered into the
premises & occupied it with the permission of the entity which had the legal control &
administration thereof, the Alien Property Administration (APA).
As to Quasi-Delict: Neither was there any negligence on its part.
As to Contract: There was also no privity (of contract or obligation) between the APA & Taiwan
Tekkosho, which had secured the possession of the property from the plaintiff-appellee by the use of
duress, such that the Alien Property Custodian or its permittee (defendant-appellant) may be held
responsible for the supposed illegality of the occupation of the property by said Tekkosho.
The APA had the control & administration of the property not as successor to the interests of the
enemy holder of the title, the Taiwan Tekkosho, but by express provision of law.
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Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of the US
Govt., in its own right, to the exclusion of, & against the claim or title of, the enemy owner. From
Aug. 1946, when def.-appellant took possession, to the date of the judgment on 2/28/48, the APA
had the absolute control of the property as trustee of the US Govt., with power to dispose of it by
sale or otherwise, as though it were the absolute owner.
Therefore, even if defendant were liable to the APA for rentals, these would not accrue to the
benefit of the plaintiff the old owner, but the US Govt.
FALLO:
Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.
PEOPLES CAR INC. VS COMMANDO SECURITY SERVICE AGENCY
G.R. No. L-36840 May 22, 1973
FACTS:
Peoples Car entered into a contract with Commando Security to safeguard and protect the
business premises of the plaintiff from theft, pilferage, robbery, vandalism, and all other
unlawful acts of any person/s prejudicial to the interest of the plaintiff.
On April 5, 1970, around 1:00am, defendants security guard on duty at plaintiffs
premises, without any authority, consent, approval, or orders of the plaintiff and/or
defendant brought out the compound of the plaintiff a car belonging to its customer and
drove said car to a place or places unknown, abandoning his post and while driving the car
lost control of it causing it to fall into a ditch.
As a result of these wrongful acts of defendant's security guard, the car of plaintiff's
customer, Joseph Luy, which had been left with plaintiff for servicing and maintenance,
"suffered extensive damage in the total amount of P7,079 plus P1,410 for the amount of
the car rental totaling to P8,489.10.
Plaintiff instituted a claim against defendant for the actual damages it incurred due to the
unlawful act of defendants personnel citing paragraph 5 of the contract wherein
defendant accepts sole responsibility for the acts done during their watch hours.
Defendant claimed that they may be liable but its liability is limited under paragraph 4 of
the contract which provides that its liability shall not exceed P1,000 per guard post for loss
or damage through the negligence of its guards during the watch hours provided that it is
reported within 24 hours of the incident.
ISSUE: W/N Commando Security is obliged to indemnify Peoples Car Inc. for the entire costs as
result of the incident.
HELD: YES.
Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or
damage to any property of plaintiff to "P1,000.00 per guard post," is by its own terms
applicable only for loss or damage 'through the negligence of its guards ... during the
watch hours" provided that the same is duly reported by plaintiff within 24 hours of the
occurrence and the guard's negligence is verified after proper investigation with the
attendance of both contracting parties. Said paragraph is manifestly inapplicable to the
stipulated facts of record, which involve neither property of plaintiff that has been
lost or damaged at its premises nor mere negligence of defendant's security
guard on duty.
o
Here, instead of defendant, through its assigned security guards, complying with its
contractual undertaking 'to safeguard and protect the business premises of
(plaintiff) from theft, robbery, vandalism and all other unlawful acts of any person
or persons," defendant's own guard on duty unlawfully and wrongfully drove out of
plaintiffs premises a customer's car, lost control of it on the highway causing it to
fall into a ditch, thereby directly causing plaintiff to incur actual damages in the
total amount of P8,489.10.
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Plaintiff was in law liable to its customer for the damages caused the customer's car, which
had been entrusted into its custody. Plaintiff therefore was in law justified in making good
such damages and relying in turn on defendant to honor its contract and indemnify it for
such undisputed damages, which had been caused directly by the unlawful and wrongful
acts of defendant's security guard in breach of their contract. As ordained in Article 1159,
Civil Code, "obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."
Plaintiff in law could not tell its customer, as per the trial court's view, that "under the
Guard Service Contract it was not liable for the damage but the defendant" since the
customer could not hold defendant to account for the damages as he had no privity of
contract with defendant.
CANGCO VS MANILA RAILROAD CO.
G.R. No. L-12191 October 14, 1918
FACTS:
Jose Cangco, was in the employment of Manila Railroad Company. He uses the train to
reach the office.
January 20, 1915 The plaintiff arose from his seat in the second class-car where he was
riding and, making, his exit through the door, took his position upon the steps of the
coach, seizing the upright guardrail with his right hand for support. As the train slowed
down another passenger, named Emilio Zuiga, also an employee of the railroad company
got off the same car, alighting safely at the point where the platform begins to rise from
the level of the ground.
When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but
one or both of his feet came in contact with a sack of watermelons with the result that his
feet slipped from under him and he fell violently on the platform. It appears that after the
plaintiff alighted from the train the car moved forward possibly six meters before it came
to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station
was lighted dimly by a single light located some distance away, objects on the platform
where the accident occurred were difficult to discern especially to a person emerging from
a lighted car.
Cangco then filed a complaint to recover damages from the company. Judgment was
rendered in favor of the railroad company ruling that Cangco was negligent in alighting the
train.
ISSUE: W/N Manila Railroad Co. is liable for damages.
HELD: YES.
It cannot be doubted that the employees of the railroad company were guilty of negligence
in piling these sacks on the platform in the manner above stated; that their presence
caused the plaintiff to fall as he alighted from the train; and that they therefore constituted
an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that
the defendant company is liable for the damage thereby occasioned unless recovery is
barred by the plaintiff's own contributory negligence.
Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only
to extra-contractual obligations or to use the technical form of expression, that article
relates only to culpa aquiliana and not to culpa contractual.
The liability arising from extra-contractual culpa is always based upon a voluntary act or
omission which, without willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in the selection of his
servant, taking into consideration the qualifications they should possess for the discharge
of the duties which it is his purpose to confide to them, and directs them with equal
diligence, thereby performs his duty to third persons to whom he is bound by no
contractual ties, and he incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third person suffer damage.
True it is that under article 1903 of the Civil Code the law creates a presumption that he
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has been negligent in the selection or direction of his servant, but the presumption is
rebuttable and yield to proof of due care and diligence in this respect.
From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in
selection and supervision he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved from liability.
Extra-contractual obligation has its source in the breach or omission of those mutual duties
which civilized society imposes upon it members, or which arise from these relations, other
than contractual, of certain members of society to others, generally embraced in the
concept of status.
The breach of these general duties whether due to willful intent or to mere inattention, if
productive of injury, give rise to an obligation to indemnify the injured party. The
fundamental distinction between obligations of this character and those which arise from
contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or
negligent act or omission itself which creates the vinculum juris, whereas in contractual
relations the vinculum exists independently of the breach of the voluntary duty assumed
by the parties when entering into the contractual relation.
Whether negligence occurs an incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual undertaking obligation, its
essential characteristics are identical. There is always an act or omission productive of
damage due to carelessness or inattention on the part of the defendant. Consequently,
when the court holds that a defendant is liable in damages for having failed to exercise
due care, either directly, or in failing to exercise proper care in the selection and direction
of his servants, the practical result is identical in either case.
The field of non- contractual obligation is much more broader than that of contractual
obligations, comprising, as it does, the whole extent of juridical human relations. These
two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is
bound to another by contract does not relieve him from extra-contractual liability to such
person. When such a contractual relation exists the obligor may break the contract under
such conditions that the same act which constitutes the source of an extra-contractual
obligation had no contract existed between the parties.
GUTIERREZ VS GUTIERREZ
G.R. No. 34840
September 23, 1941
FACTS:
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 Pias, 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 will
several other members of the Gutierrez family, seven in all, were accommodated therein.
The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a
fracture right leg, passenger of the bus driven by Velasco.
ISSUE:
1. W/N the father of Bonifacio Gutierrez, a minor, is liable for the negligence of his son.
2. W/N Saturnino Cortez is liable for the negligence of driver Abelardo Velasco.
HELD:
1. YES. he youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive
rate of speed, and that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. 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
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the Civil Code, the father alone and not the minor or the mother, would be liable for the
damages caused by the minor.
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.
2. YES. 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.
HONGKONG & SHANGHAI BANKING CORP. (HSBC) VS SPOUSES BROQUEZA
G.R. No. 178610
November 17, 2010
FACTS:
Editha Broqueza and Gerong are employees of HSBC and are members of the HSBCL-SRP,
a retirement plan established by the HSBC through its Board of Trustees, for the benefit of
the employees.
October 1, 1990 Editha obtained a car loan amounting to P175,000; December 12, 1991
Editha obtained an appliance loan amounting to P24,000; June 2, 1993 Gerong
obtained an emergency loan amounting to P35,780. The loans are paid through automatic
salary deduction.
In 1993, a labor dispute arose between HSBC and its employees. Editha and Gerong were
among the terminated employees.
Because of their dismissal, Editha and Gerong were not able to pay the monthly
amortizations of their respective loans. Thus, HSBCL-SRP considered the accounts of
Editha and Gerong delinquent. Demands to pay the respective obligations were made
upon Editha and Gerong, but they failed to pay.
HSBC-SRP instituted an action for recovery and collection of sum of money.
The MTC ruled in favor of HSBC-SRP ruling that the demands for payment is civil and has
no connection with the ongoing labor dispute. Thus, the loans secured by their future
retirement benefits to which they are no longer entitled are reduced to unsecured and
pure civil obligations. As unsecured and pure obligations, the loans are immediately
demandable.
The RTC sustained the decision ruling that the obligation is pure and demandable at once.
The CA reversed the decision ruling that the HSBCL-SRPs complaints for recovery of sum
of money against Gerong and the spouses Broqueza are premature as the loan obligations
have not yet matured.
ISSUES: W/N the loan obligations by Gerong and Broqueza are pure and demandable at once.
HELD: YES.
Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once.
There is no date of payment indicated in the Promissory Notes. The RTC is correct in ruling
that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to
demand immediate payment. Article 1179 of the Civil Code applies. The spouses
Broquezas obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was
content with the prior monthly check-off from Editha Broquezas salary is of no moment.
Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to
enforce a pure obligation.
The payroll deduction is merely a convenient mode of payment and not the sole source of
payment for the loans. HSBCL-SRP never agreed that the loans will be paid only through
salary deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP can
immediately demand payment of the loans at any time because the obligation to pay has
no period. Moreover, the spouses Broqueza have already incurred in default in paying the
monthly installments.
The enforcement of a loan agreement involves "debtor-creditor relations founded on
contract and does not in any way concern employee relations. As such it should be
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enforced through a separate civil action in the regular courts and not before the Labor
Arbiter.
PAY VS PALANCA
G.R. No. L-29900 June 28, 1974
FACTS:
George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The
claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the
late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay
the amount of P26,900.00, with interest thereon at the rate of 12% per annum.
George Pay is now before this Court, asking that Segundina Chua vda. de Palanca be
appointed as administratrix. The idea is that once said property is brought under
administration, George Pay, as creditor, can file his claim against the administratrix.
The court ruled that the petition could not prosper as the property no longer belongs to the
late Justo Palanca and that the right to collect has already prescribed. The wording of the
promissory note being "upon demand," the obligation was immediately due. Since it was
dated January 30, 1952, it was clear that more "than ten (10) years has already transpired
from that time until to date. The action, therefore, of the creditor has definitely prescribed
ISSUE: W/N the right of Pay to collect from Palanca has already prescribed.
HELD: YES.
What is undeniable is that on August 26, 1967, more than fifteen years after the execution
of the promissory note on January 30, 1952, this petition was filed.
Article 1179 of the Civil Code provides: "Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once." The obligation being due and demandable, it would appear that the
filing of the suit after fifteen years was much too late.
SMITH, BELL, & CO. VS SOTELLO MATTI
G.R. No. L-16570 March 9, 1922
FACTS:
In August 1918, the plaintiff corporation and the defendant, Mr. Sotelo, entered into
contracts whereby the former obligated itself to sell, and the latter to purchase from it, two
steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be
shipped from New York and delivered at Manila "within three or four months;" two
expellers at the price of twenty five thousand pesos (P25,000) each, which were to be
shipped from San Francisco in the month of September, 1918, or as soon as possible; and
two electric motors at the price of two thousand pesos (P2,000) each, as to the delivery of
which stipulation was made, couched in these words: "Approximate delivery within ninety
days. This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of
October, 1918; and the motors on the 27th of February, 1919.The plaintiff corporation
notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to
receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant
The defendant alleged in their answer that the plaintiff company only notified the former in
May 1919 (delay in delivery) and that some of the goods delivered were incomplete.
The court below absolved the defendants from the complaint insofar as the tanks and the
electric motors were concerned, but rendered judgment against them, ordering them to
"receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos
(P50,00), the price of the said goods, with legal interest thereon from July 26, 1919, and
costs."
ISSUE: W/N plaintiff corporation is liable for delay in the fulfillment of its obligations.
HELD: NO.
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Under the stipulations in the contract, it cannot be said that any definite date was fixed for
the delivery of the goods. As to the tanks, the agreement was that the delivery was to be
made "within 3 or 4 months," but that period was subject to the contingencies referred to
in a subsequent clause. With regard to the expellers, the contract says "within the month
of September, 1918," but to this is added "or as soon as possible." And with reference to
the motors, the contract contains this expression, "Approximate delivery within ninety
days," but right after this, it is noted that "this is not guaranteed."
From the record it appears that these contracts were executed at the time of the world war
when there existed rigid restrictions on the export from the United States of articles like
the machinery in question, and maritime, as well as railroad, transportation was difficult,
which fact was known to the parties. At the time of the execution of the contracts, the
parties were not unmindful of the contingency of the United States Government not
allowing the export of the goods, nor of the fact that the other foreseen circumstances
therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that the
term which the parties attempted to fix is so uncertain that one cannot tell just whether,
as a matter of fact, those articles could be brought to Manila or not. If that is the case, as
we think it is, the obligations must be regarded as conditional.
o Art. 1125, Civil Code - Obligations for the performance of which a day certain has
been fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even though
its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day,
the obligation is conditional and shall be governed by the rules of the
next preceding section. (Referring to pure and conditional obligations).
And as the export of the machinery in question was, as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as to railroad embargoes, then
the delivery was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly provided for,
but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.
CHAVES VS GONZALES
G.R. No. L-27454 April 30, 1970
FACTS:
July 1963 Chaves delivered to the Gonzales, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. Gonzales was not able to finish the job after
some time despite repeated reminders made by Chaves. Gonzales merely gave
assurances, but failed to comply with the same.
In October 1963 Gonzales asked from Chaves the sum of P6.00 for the purchase of spare
parts.
October 26, 1963 after getting exasperated with the delay of the repair of the typewriter,
Chaves went to the house of Gonzales and asked for the return of the typewriter. Gonzales
delivered the package. Chaves examined the typewriter returned to him and found out
that the same was in shambles.
October 29, 1963 Chaves sent a letter to Gutierrez formally demanding the return of the
missing parts, the interior cover and the sum of P6.00. The following day, Gonzales
returned to Chaves some missing parts, the interior cover and the P6.00.
August 29, 1964 Chaves had his typewriter repaired by Freixas Business Machines, and
the repair job cost him a total of P89.85, including labor and materials.
August 23, 1965 The plaintiff commenced this action before the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and compensatory
damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as
attorneys fees.
Gachalian

The trial court ruled that the repair done on the typewriter by Freixas Business Machines
with the total cost of P89.85 should not be fully chargeable against the defendant. The
repair invoice shows that the missing parts had a total value of only P31.10
ISSUE: W/N Gonzales is liable to the whole cost of labor and materials that went into the repair of
the machine.
HELD: YES.
ART. 1167 If a person obliged to do something fails to do it, the same shall be executed
at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he undone.
It is clear that the Gonzales contravened the tenor of his obligation because he not only
did not repair the typewriter but returned it "in shambles". For such contravention, he is
liable under Article 1167 of the Civil Code for the cost of executing the obligation in a
proper manner. The cost of the execution of the obligation in this case should be the cost
of the labor or service expended in the repair of the typewriter, which is in the amount of
P58.75 because the obligation or contract was to repair it.
In addition, Gonzales is likewise liable, under Article 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the same condition it was when he received
it.
*Note (Other Doctrines):
Where the time for compliance had expired and there was breach of contract by nonperformance, it was academic for the plaintiff to have first petitioned the court to fix a
period for the performance of the contract before filing his complaint.
Where the defendant virtually admitted non-performance of the contract by returning the
typewriter that he was obliged to repair in a non-working condition, with essential parts
missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a
period would thus be a mere formality and would serve no purpose than to delay.
Claims for damages and attorneys fees must be pleaded, and the existence of the actual
basis thereof must be proved. As no findings of fact were made on the claims for damages
and attorneys fees, there is no factual basis upon which to make an award therefor.
ENCARNACION VS BALDOMAR
G.R. No. L-264
October 4, 1946
FACTS:
Vicente Encarnacion, owner of a house, some six years ago, leased said house to Jacinto
Baldomar and her son, Lefrado Fernando, upon a month-to-month basis for the monthly
rental of P35. Encarnacion notified defendants to vacate the house above-mentioned on or
before April 15, 1945 because plaintiff needed it for his offices.
Despite this demand, defendants insisted on continuing their occupancy. However, the
rentals were paid before the trial in the MTC began.
The MTC ruled in favor of plaintiff ordering restitution and payment of rentals until
defendants completely vacate the lot.
In the CFI, the defendant filed a motion to dismiss based upon the ground that the
municipal court had no jurisdiction over the subject matter due to the aforesaid claim for
damages and that, therefore, the Court of First Instance had no appellate jurisdiction over
the subject matter of the action. The motion was denied on the ground that the plaintiff
already waived the claim for damages.
ISSUE: W/N the contract perfected between the parties authorized the defendants to continue
occupying the house indefinitely should
They faithfully comply with the payment of the rentals.
HELD: NO.
The lease had always and since the beginning been upon a month-to-month basis as found
by the CFI.
Gachalian

The defense set up by defendant would leave to the sole and exclusive will of one of the
contracting parties (defendants in this case) the validity and fulfillment of the contract of
lease, within the meaning of article 1256 of the Civil Code, since the continuance and
fulfillment of the contract would then depend solely and exclusively upon their free and
uncontrolled choice between continuing paying the rentals or not, completely depriving
the owner of all say in the matter.
If this defense were to be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals. This, of course, is prohibited by the
aforesaid article of the Civil Code.
ELEIZEGUI VS LAWN TENNIS CLUB
G.R. No. 967 May 19, 1903
FACTS:
A contract of lease was executed on January 25, 1980 over a piece of land owned by the
plaintiffs Eleizegui (Lessor) to the Manila Lawn Tennis Club, an English association
(represented by Mr. Williamson) for a fixed consideration of P25 per month and
accordingly, to last at the will of the lessee.
Under the contract, the lessee can make improvements deemed desirable for the comfort
and amusement of its members.
It appeared that the plaintiffs terminated the lease right on the first month. The defendant
is in the belief that there can be no other mode of terminating the lease than by its own
will, as what they believe has been stipulated.
As a result the plaintiff filed a case for unlawful detainer for the restitution of the land
claiming that article 1569 of the Civil Code provided that a lessor may judicially dispossess
the lessee upon the expiration of the conventional term or of the legal term.
o The conventional term the one agreed upon by the parties.
o The legal term, in defect of the conventional, fixed for leases by articles 1577 and
1581.
The Plaintiffs argued that the duration of the lease depends upon the will of the lessor on
the basis of Art. 1581 which provides that, "When the term has not been fixed for the
lease, it is understood to be for years when an annual rental has been fixed, for months
when the rent is monthly. . . ." The second clause of the contract provides as follows: "The
rent of the said land is fixed at 25 pesos per month."
The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code,
the law which was in force at the time the contract was entered into. It is of the opinion
that the contract of lease was terminated by the notice given by the plaintiff. The
judgment was entered upon the theory of the expiration of a legal term which does not
exist, as the case requires that a term be fixed by the courts under the provisions of article
1128 with respect to obligations which, as is the present, are terminable at the will of the
obligee.
ISSUE:
1. W/N the legal term provided for in Article 1581 of the Civil Code is applicable.
2. W/N the lease depends upon the will of the lessee.
HELD:
1. NO. The parties have agreed upon a term hence Article 1581 is not applicable. The legal
term cannot be applied under Art 1581 as it appears that there was actually an agreement
between the parties as to the duration of the lease, albeit implied that the lease is to be
dependent upon the will of the lessee. It would be absurd to accept the argument of the
plaintiff that the contract was terminated at its notice, given this implication.
It having been demonstrated that the legal term cannot be applied, there being a
conventional term, this destroys the assumption that the contract of lease was
wholly terminated by the notice given by the plaintiffs, this notice being necessary
only when it becomes necessary to have recourse to the legal term.
Gachalian

Interestingly, the contract should not be understood as one stipulated as a life

tenancy, and still less as a perpetual lease since the terms of the contract express
nothing to this effect, even if they implied this idea. If the lease could last during
such time as the lessee might see fit, because it has been so stipulated by the
lessor, it would last, first, as long as the will of the lessee that is, all his life;
second, during all the time that he may have succession, inasmuch as he who
contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease
in question does not fall within any of the cases in which the rights and obligations
arising from a contract cannot be transmitted to heirs, either by its nature, by
agreement, or by provision of law. Moreover, being a lease, then it must be for a
determinate period. (Art. 1543.) By its very nature it must be temporary, just as by
reason of its nature, an emphyteusis must be perpetual, or for an unlimited period.
(Art. 1608.)
2. NO. The duration of the lease does not depend solely upon the will of the lessee.
It cannot be concluded that the termination of the contract is to be left completely
at the will of the lessee simply because it has been stipulated that its duration is to
be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In
speaking in general of obligations with a term it has supplied the deficiency of the
former law with respect to the "duration of the term when it has been left to the will
of the debtor," and provides that in this case the term shall be fixed by the courts.
(Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is
always a creditor who is entitled to demand the performance, and a debtor upon
whom rests the obligation to perform the undertaking. In bilateral contracts the
contracting parties are mutually creditors and debtors. Thus, in this contract of
lease, the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles 1555
and 1561. The term within which performance of the latter obligation is due is what
has been left to the will of the debtor. This term it is which must be fixed by the
courts.
NOTE: The only action which can be maintained under the terms of the contract is that by which it
is sought to obtain from the judge the determination of this period, and not the unlawful detainer
action which has been brought an action which presupposes the expiration of the term and
makes it the duty of the judge to simply decree an eviction.
PHILIPPINE BANKING CORP. VS LUI SHE
G.R. No. L-17587 September 12, 1967
FACTS:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a
piece of land in Manila.
In it are two residential houses with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses, while
Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-time
lessee of a portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire property as her
sister died with no other heir. Since she was blind and already 90 years old, she trusted
Wong various amounts for safekeeping including the rentals. Wong also took care of the
payment of Justinas obligations.
In grateful acknowledgment of the personal services of the lessee to her," Justina Santos
executed on November 15, 1957 a contract of lease in favor of Wong. The lease was for 50
years, although the lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120.
On December 21, 1957 Justina executed another contract giving Wong the option to buy
the leased premises for P120,000, payable within ten years at a monthly installment of
P1,000. The option, written in Tagalog, imposed on him the obligation to pay for the food of
the dogs and the salaries of the maids in her household, the charge not to exceed P1,800
Gachalian

a month. The option was conditioned on his obtaining Philippine citizenship. The said
petition was withdrawn since Wong was not a resident of Rizal.
On November 18, 1958 she executed two other contracts, one extending the term of the
lease to 99 years, and fixing the term of the option of 50 years. Both contracts are written
in Tagalog.
In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the
contracts she had entered into with Wong, but in a codicil of a later date (November 4,
1959) she appears to have a change of heart. Claiming that the various contracts were
made by her because of machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts.
An action was then filed in the CFI alleging that the contracts were obtained by Wong
through fraud. In his Answer, Wong admitted that he received certain amounts from
Justina which led to the amendment of the complaint for the collection of various amounts.
The trial court ruled that the contracts were null and void except the lease contract
executed in November 15, 1957. Wong was also declared to pay certain amounts.
Both parties appealed. During the appeal, both parties died. Wong was substituted by his
wife, Lui She, the other defendant in this case, while Justina Santos was substituted by the
Philippine Banking Corporation.
Philippine Banking Corp reiterated that the lease contract should have been annulled
along with the four other because it lacks mutuality. Paragraph 5 of the lease contract
states that "The lessee may at any time withdraw from this agreement."
ISSUE: W/N the insertion in the contract of a resolutory condition, permitting the cancellation of
the contract by one of the parties, valid.
HELD: YES.
Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a stipulation, as can be readily
seen, does not make either the validity or the fulfillment of the contract dependent upon
the will of the party to whom is conceded the privilege of cancellation; for where the
contracting parties have agreed that such option shall exist, the exercise of the option is
as much in the fulfillment of the contract as any other act which may have been the
subject of agreement. Indeed, the cancellation of a contract in accordance with conditions
agreed upon beforehand is fulfillment.
A "provision in a lease contract that the lessee, at any time before he erected any building
on the land, might rescind the lease, can hardly be regarded as a violation of article 1256
[now art. 1308] of the Civil Code.
The right of the lessee to continue the lease or to terminate it is so circumscribed by the
term of the contract that it cannot be said that the continuance of the lease depends upon
his will. At any rate, even if no term had been fixed in the agreement, this case would at
most justify the fixing of a period but not the annulment of the contract.
NOTE (Doctrine not related to ObliCon which may be helpful in recitation):
Taken singly, the contracts show nothing that is necessarily illegal, but considered
collectively, they reveal an insidious pattern to subvert by indirection what the
Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is
valid. So is an option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property,21 this to
last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the
land ( jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) rights the sum total of which make up ownership.
It does not follow from what has been said, however, that because the parties are in pari
delicto they will be left where they are, without relief. For one thing, the original parties
who were guilty of a violation of the fundamental charter have died and have since been
substituted by their administrators to whom it would be unjust to impute their guilt. For
Gachalian

another thing, and this is not only cogent but also important, article 1416 of the Civil Code
provides, as an exception to the rule on pari delicto, that "When the agreement is not
illegal per se but is merely prohibited, and the prohibition by law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he
has paid or delivered." The Constitutional provision that "Save in cases of hereditary
succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public
domain in the Philippines" is an expression of public policy to conserve lands for the
Filipinos.
o That policy would be defeated and its continued violation sanctioned if, instead of
setting the contracts aside and ordering the restoration of the land to the estate of
the deceased Justina Santos, this Court should apply the general rule of pari delicto.
G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
FACTS: On January 10, 1966, Lourdes Valerio Lim went to the house of Maria Ayroso and
proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of Lim to sell her tobacco
consisting of 615 kilos at P1.30 a kilo. The Lim was to receive the overprice for which she could
sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva
Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the
amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon
as it was sold.
Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on
three different times. Demands for the payment of the balance of the value of the tobacco were
made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug
further testified that she had gone to the house of Lim several times, but Lim often eluded her.
Although the appellant denied that demands for payment were made upon her, it is a fact that on
October 19, 1966, she wrote a letter to Salud Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera,
magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung
gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon.
Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng
puesto. Huwag kang mabahala at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Pursuant to this letter, Lim sent a money order for P100.00 on October 24, 1967, Exh. 4, and
another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the
receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the
complainant filed a complaint against the appellant for estafa.
Gachalian

According to petitioner, the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended in which case the only action that can
be maintained is a petition to ask the court to fix the duration thereof.
ISSUES:
1. Whether or not the foregoing document (Exhibit "A") "fixed a period" and "the obligation was
therefore, immediately demandable as soon as the tobacco was sold" as against the theory of the
petitioner;
2. Whether or not Art. 1197 of the New Civil Code applies.
HELD: YES. It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the obligation
was immediately demandable as soon as the tobacco was disposed of. Corollary , Article 1197 of
the New Civil Code, which provides that the courts may fix the duration of the obligation if it does
not fix a period, does not apply.
GREGORIO ARANETA, INC., petitioner,
vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.
FACTS: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise
known as the Sta. Mesa Heights Subdivision. On July 28, 1950, through Gregorio Araneta, Inc., it
(Tuason & Co.) sold a portion thereof with an area of 43,034.4 square meters, more or less, for the
sum of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties stipulated,
among in the contract of purchase and sale with mortgage, that the buyer will
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be
a block surrounded by streets on all four sides; and the street on the NE side shall be named "Sto.
Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto.
Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing
the streets, is unable to finish the construction of the street in the Northeast side named (Sto.
Domingo Avenue) because a certain third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the same; hence, on May 7, 1958,
Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc.,
and seeking to compel the latter to comply with their obligation,
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the
latter particularly setting up the principal defense that the action was premature since its
obligation to construct the streets in question was without a definite period which needs to he
fixed first by the court in a proper suit for that purpose before a complaint for specific
performance will prosper.
Gachalian

Plaintiff moved that the court fix a period within which defendants will comply with their
obligation to construct the streets in question. Defendant Gregorio Araneta, Inc. opposed said
motion.
ISSUE: W/N the court may fix the period within which the defendants will comply with their
obligation to construct the street in question.
HELD: NO, it cannot. The fixing of a period by the courts under Article 1197 of the Civil Code of
the Philippines is sought to be justified on the basis that petitioner (defendant below) placed the
absence of a period in issue by pleading in its answer that the contract with respondent Philippine
Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time
within which to comply with its obligation to construct and complete the streets." Neither of the
courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue
was not whether the court should fix the time of performance, but whether or not the parties
agreed that the petitioner should have reasonable time to perform its part of the bargain. If the
contract so provided, then there was a period fixed, a "reasonable time;" and all that the court
should have done was to determine if that reasonable time had already elapsed when suit was
filed if it had passed, then the court should declare that petitioner had breached the contract, as
averred in the complaint, and fix the resulting damages. On the other hand, if the reasonable time
had not yet elapsed, the court perforce was bound to dismiss the action for being premature. But
in no case can it be logically held that under the plea above quoted, the intervention of the court
to fix the period for performance was warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must
first determine that "the obligation does not fix a period" (or that the period is made to depend
upon the will of the debtor)," but from the nature and the circumstances it can be inferred that a
period was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must
then proceed to the second step, and decide what period was "probably contemplated by the
parties" (Do., par. 3). So that, ultimately, the Court fix a period merely because in its opinion it is
or should be reasonable, but must set the time that the parties are shown to have intended. As
the record stands, the trial Court appears to have pulled the two-year period set in its decision out
of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by
the Civil Code.
It follows that there is no justification in law for the setting the date of performance at any other
time than that of the eviction of the squatters occupying the land in question; and in not so
holding, both the trial Court and the Court of Appeals committed reversible error. It is not denied
that the case against one of the squatters, Abundo, was still pending in the Court of Appeals when
its decision in this case was rendered.
G.R. No. L-55480 June 30, 1987

PACIFICA MILLARE, petitioner,
vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance of
Abra, Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents.
FACTS:
Gachalian

On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare
as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written
agreement, which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent
out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a commercial
establishment located at the corner of McKinley and Pratt Streets in Bangued, Abra.
The present dispute arose from events which transpired during the months of May and July in
1980. According to the Co spouses, sometime during the last week of May 1980, the lessor
informed them that they could continue leasing the People's Restaurant so long as they were
amenable to paying creased rentals of P1, 200.00 a month. In response, a counteroffer of P700.00
a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount
of monthly rentals could be resolved at a later time since "the matter is simple among us", which
alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had
been renewed, prompting them to continue occupying the subject premises and to forego their
search for a substitute place to rent. 2 In contrast, the lessor flatly denied ever having considered,
much less offered, a renewal of the Contract of Lease.
On 22 July 1980, Mrs. Millare wrote the Co spouses requesting them to vacate the leased
premises as she had no intention of renewing the Contract of Lease which had, in the meantime,
already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the Pl,200.00
monthly rentals.
Paragraph 13 of the Contract of Lease reads as follows:
13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and that this
contract of lease may be renewed after a period of five (5) years under the terms and conditions
as will be mutually agreed upon by the parties at the time of renewal; ... (Emphasis supplied.)
The respondent judge, in his Answer and Comment to the Petition, urges that under paragraph 13
quoted above there was already a consummated and finished mutual agreement of the parties to
renew the contract of lease after five years; In short, the lease contract has never expired
because paragraph 13 thereof had expressly mandated that it is renewable.
In the "Judgment by Default" he rendered, it falls squarely within the coverage and command of
Articles 1197 and 1670 of the New Civil Code.And since the original lease was fixed for five (5)
years, it follows, therefore, that the lease contract is renewable for another five (5) years and the
lessee is not required before hand to give express notice of this fact to the lessor because it was
expressly stipulated in the original lease contract to be renewed;Article 1197 and 1670 of the New
Civil Code must therefore govern the case at bar and whereby this Court is authorized to fix the
period thereof by ordering the renewal of the lease contract to another fixed term of five (5)
years.
ISSUE: W/N the Court may fix the term pursuant to Art. 1197(1)
Article 1197 of the Civil Code provides as follows:
If the obligation does not fix a period, but from its nature and the circumstances it can be inferred
that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
Gachalian

In every case, the courts shall determine such period as may, under the circumstances, have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them
Held: NO. The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease
did in fact fix an original period of five years, which had expired. It is also clear from paragraph 13
of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the
period of the renewal contract. The second paragraph of Article 1197 is equally clearly
inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone,
but rather to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only
where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in
fact no contract at all the period of which could have been fixed.
Contractual terms and conditions created by a court for two parties are a contradiction in terms. If
they are imposed by a judge who draws upon his own private notions of what morals, good
customs, justice, equity and public policy" demand, the resulting "agreement" cannot, by
definition, be consensual or contractual in nature. It would also follow that such coerced terms
and conditions cannot be the law as between the parties themselves. Contracts spring from the
volition of the parties. That volition cannot be supplied by a judge and a judge who pretends to do
so, acts tyrannically, arbitrarily and in excess of his jurisdiction. At around 2:00 p.m. of April 22,
1989, Rolito
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC.,
Petitioners,
versus PEOPLE OF THE PHILIPPINES,
Respondent
FACTS: Calang was driving Philtranco Bus No. 7001, owned by Philtranco along Daang Maharlika
Highway in Barangay Lambao, Sta. Margarita, Samar when its rear left side hit the front left
portion of a Sarao jeep coming from the opposite direction. As a result of the collision, Cresencio
Pinohermoso, the jeeps driver, lost control of the vehicle, and bumped and killed Jose Mabansag,
a bystander who was standing along the highways shoulder. The jeep turned turtle three (3) times
before finally stopping at about 25 meters from the point of impact. Two of the jeeps passengers,
Armando Nablo and an unidentified woman, were instantly killed, while the other passengers
sustained serious physical injuries.
The prosecution charged Calang with multiple homicide, multiple serious physical injuries and
damage to property thru reckless imprudence before the Regional Trial Court (RTC), Branch 31,
Calbayog City. The RTC, found Calang guilty beyond reasonable doubt and ordered Calang and
Philtranco, jointly and severally, to pay P50,000.00 as death indemnity to the heirs of
Armando; P50,000.00 as death indemnity to the heirs of Mabansag; and P90,083.93 as actual
damages to the private complainants.
Appealed the RTC decision to the Court of Appeals. The CA, in its decision dated November 20,
2009, affirmed the RTC decision in toto.The CA added that the RTC correctly held Philtranco jointly
and severally liable with petitioner Calang, for failing to prove that it had exercised the diligence
of a good father of the family to prevent the accident.
In the motion for reconsideration, the petitioners claim that there was no basis to hold Philtranco
jointly and severally liable with Calang because the former was not a party in the criminal case.
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ISSUE: W/N can be held jointly and severally liable.
HELD: NO. Philtranco was not a direct party in that criminal case. Since the cause of action
against Calang was based on delict, both the RTC and the CA erred in holding Philtranco jointly
and severally liable with Calang, based on quasi-delict under Articles 2176 and 2180 of the Civil
Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer for
quasi-delicts that an employee has committed. Such provision of law does not apply to civil
liability arising from delict.
If at all, Philtrancos liability may only be subsidiary. Article 102 of the Revised Penal Code
states the subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of
establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any other
persons or corporations shall be civilly liable for crimes committed in their establishments,
in all cases where a violation of municipal ordinances or some general or special police
regulations shall have been committed by them or their employees.
Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft
within their houses from guests lodging therein, or for the payment of the value thereof,
provided that such guests shall have notified in advance the innkeeper himself, or
the
person representing him, of the deposit of such goods within the inn; and shall
furthermore have followed the directions which such innkeeper or his
representative may have given them with respect to the care of and vigilance over such goods.
No liability
shall attach in case of robbery with violence against or intimidation of
persons unless
committed by the innkeepers employees.
The foregoing subsidiary liability applies to employers, according to Article 103 of the Revised
Penal Code, which reads:
The subsidiary liability established in the next preceding article shall also
apply to
employers, teachers, persons, and corporations engaged in any kind of industry for
felonies committed by their servants, pupils, workmen, apprentices, or employees
in the
discharge of their duties.
RONQUILLO V. CA
[132 S 274, Sept. 28, 1983]
FACTS: In a collection case, parties entered into a compromise agreement wherein the plaintiff
Antonio So areed to reduce its total claim of P117, 498.95 to only P110,000 and defendants
Ernesto Ronquillo, Offshore Catertrade Inc., Johnny Tan and Pilar Tan agreed to acknowledge the
validity of such claim and further bind themselves to initially pay out of the total indebtedness,
the amount of P55,000 on or before December 24, 1979, the balance of P55,000, defendants,
individually and jointly agree to pay within a period of 6 months from January 30, 1980.
However, defendants failed to pay the initial sum on December 24, 1979. Ronquillo asked that his
share of P13, 750 be accepted as payment. But So nevertheless asked for the execution of the
decision in its entirety against all defendants, jointly and severally. Ronquillo opposed it by saying
that it was not expressly declared that it was solidary. The trial court ruled that liability was
solidary.
ISSUE: Whether the nature of liability as termed jointly and severally of the defendants means
being solidary; hence the full payment can be demanded by anyone of the defendant and thereby
correctly rejecting the tender of payment of Ronquillo of his share only.
HELD: YES.
In this regard, Article 1207 and 1208 of the Civil Code provides
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Art. 1207. The concurrence of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the prestation. Then is a solidary
liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligation to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and debtors,
the credits or debts being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants
agree to acknowledge the validity of such claim and further bind themselves to initially pay out of
the total indebtedness of P110,000.00, the amount of P5,000.00 on or before December 24,
1979, the balance of P55,000.00, defendants individually and jointly agree to pay within a period
of six months from January 1980 or before June 30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the decision based upon it,
the defendants obligated themselves to pay their obligation "individually and jointly".
The term "individually" has the same meaning as "collectively", "separately",
"distinctively", respectively or "severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several obligation is one by which
one individual binds himself to perform the whole obligation.
In the case of Parot vs. Gemora, We therein ruled that "the phrase juntos or separadamente or in
the promissory note is an express statement making each of the persons who signed it
individually liable for the payment of the fun amount of the obligation contained therein."
Likewise in Un Pak Leung vs. Negorra, We held that "in the absence of a finding of facts that the
defendants made themselves individually hable for the debt incurred they are each liable only for
one-half of said amount
The obligation in the case at bar being described as "individually and jointly", the same is
therefore enforceable against one of the numerous obligors.
MALAYAN INSURANCE V. CA
[165 SCRA 536]
Facts: Malayan Insurance on March 29, 1967 issued in favor of Sio Choy, a Private Car
Comprehensive Policy effective from April 18, 1967 to April 18, 1968 covering a Willys jeep. The
insurance coverage for third-party liability was P20,000. During the effectivity of the said policy,
the insured jeep while being driven by one Juan Campollo, an employee of San Leon Rice Mill,
collided with a passenger bus owned by Pangasinan Transportation Co. (Pantranco) causing
damage to the insured vehicle and injuries to the driver and Martin Vallejos who was riding in an
ill-fated jeep. Vallejos sued for damages against Sio Choy, Malayan Insurance and Pantranco.
However the trial court only ordered Sio Choy, Malayan and San Leon to pay Vallejos a total of
P29,103 (jointly and severally liable) but Malayan will be liable only up to P20,000, the
consideration in the policy. CA affirmed the judgment of the trial court that Sio Choy, the San Leon
Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages
awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has
no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it
has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance company.
Issue: Whether or not Malayan Insurance is solidarily liable with Sio Choy and San Leon Rice Mill
to Vallejos.
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Held: NO. We hold instead that it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to
the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the damages
awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the illfated Willys jeep, pursuant to Article 2184 of the Civil Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former,
who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is
disputably presumed that a driver was negligent, if he had been found guilty of reckless driving
or violating traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to
plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the
motor vehicle mishap, is Article 2180 of the Civil Code which reads:
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged ill any
business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein mentioned proved
that they observed all the diligence of a good father of a family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors
who are primarily liable to respondent Vallejos. The law states that the responsibility of two or
more persons who are liable for a quasi-delict is solidarily.
On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio
Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than
P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third
party liability clause included in the private car comprehensive policy existing between petitioner
and respondent Sio Choy at the time of the complained vehicular accident.
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer
is based on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot,
as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily
liable with said two (2) respondents by reason of the indemnity contract against third party
liability-under which an insurer can be directly sued by a third party this will result in a violation
of the principles underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability arising from an unknown or
contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon
Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the
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qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary
obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of
P29,013.00, notwithstanding the qualification made by the trial court. But, how can petitioner
be obliged to pay the entire obligation when the amount stated in its insurance policy
with respondent Sio Choy for indemnity against third party liability is only P20,000.00?
Moreover, the qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary,
is an evident breach of the concept of a solidary obligation. Thus, we hold that the trial court, as
upheld by the Court of Appeals, erred in holding petitioner, solidarily liable with respondents Sio
Choy and San Leon Rice Mill, Inc. to respondent Vallejos.
PNB V. INDEPENDENT PLANTERS [122 SCRA 113]
Facts: Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First
Instance of Manila (Branch XX) in its Civil Case No. 46741 dismissing PNB's complaint against
several solidary debtors for the collection of a sum of money on the ground that one of the
defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had
presented its evidence) and therefore the complaint, being a money claim based on contract,
should be prosecuted in the testate or intestate proceeding for the settlement of the estate of the
deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent. the obligation of the decedent is solidary with another
debtor, the claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor. In a joint
obligation of the decedent, the claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against one, some or all
of its solidary debtors under Article 1216 of the Civil Code
ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected.
Issue: Whether in an action for collection of a sum of money based on contract against all the
solidary debtors, the death of one of the defendants deprives the court of jurisdiction to proceed
with the case against the surviving defendants.
Held: It is now settled that the quoted Article 1216 grants the creditor the substantive right to
seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or
convenient for the protection of his interests; and if, after instituting a collection suit based on
contract against some or all of them and, during its pendency, one of the defendants dies, the
court retains jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants.
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897 , this
Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision
(Sec. 6, Rule 86) was taken, this Court held that where two persons are bound in solidum for the
same debt and one of them dies, the whole indebtedness can be proved against the estate of the
latter, the decedent's liability being absolute and primary; and if the claim is not presented within
the time provided by the rules, the same will be barred as against the estate. It is evident from
the foregoing that Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor
desire to go against the deceased debtor, but there is certainly nothing in the said provision
making compliance with such procedure a condition precedent before an ordinary action against
the surviving solidary debtors, should the creditor choose to demand payment from the latter,
could be entertained to the extent that failure to observe the same would deprive the court
jurisdiction to take cognizance of the action against the surviving debtors. Upon the other hand,
the Civil Code expressly allows the creditor to proceed against any one of the solidary debtors or
some or all of them simultaneously. There is, therefore, nothing improper in the creditor's filing of
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an action against the surviving solidary debtors alone, instead of instituting a proceeding for the
settlement of the estate of the deceased debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr. Justice
Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein
prevents a creditor from proceeding against the surviving solidary debtors. Said provision merely
sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim
against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter.
Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or
some or all of them simultaneously.' The choice is undoubtedly left to the solidary, creditor to
determine against whom he will enforce collection. In case of the death of one of the solidary
debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors
without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for
him to have the case dismissed against the surviving debtors and file its claim in the estate of the
deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court were applied
literally, Article 1216 of the New Civil Code would, in effect, be repealed since under the Rules of
Court, petitioner has no choice but to proceed against the estate of Manuel Barredo only.
Obviously, this provision diminishes the Bank's right under the New Civil, Code to proceed against
any one, some or all of the solidary debtors. Such a construction is not sanctioned by the
principle, which is too well settled to require citation, that a substantive law cannot be amended
by a procedural rule. Otherwise stared, Section 6, Rule 86 of the Revised Rules of Court cannot be
made to prevail over Article 1216 of the New Civil Code, the former being merely procedural,
while the latter, substantive.
FALLO:
WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. 46741 is
hereby set aside in respect of the surviving defendants; and the case is remanded to the
corresponding Regional Trial Court for proceedings.
BACHRACH V. ESPIRITU
[52 Phil. 346]
FACTS: Faustino Espiritu purchased from Bachrach Motor in JULY 1925 a two-ton White truck on
installment basis. This truck was mortgaged, including two other white trucks owned by
defendant which are fully paid for, to secure the loan.
In FEBRUARY 1925 defendant also purchased another one-ton white truck from same plaintiff
corp. with down-payment balance on installment basis also, placing this truck on mortgage for
security and including the 2 above mortgaged trucks also. Again, defendant failed to pay this
debt.
In both sales, a 12% annual interest was agreed upon the unpaid portion of the contracts, and
upon maturity, when due, non-payment of total remaining debt would give rise to 25% penalty;
aside from mortgage deed, there was a Promissory Note, co-signed by defendant brother Rosario
Espiritu solidarily. Thus, Rosario appeared as intervenor in the collection suits alleging to be the
sole owner of the two other trucks mortgaged. He alleged that he did not sign the mortgage and
did not consent to the inclusion of his two trucks therein.
While the cases were pending in lower court, the trucks were sold by virtue of the mortgage and
brought in a net sum not enough to settle the debts due. The Lower court directed payments of
all the sums due and in both two cases ordered the payment of 12% interest p.a. until fully paid
and a penalty of 25% in addition as appearing in the contracts. To these matters the defendants
alleged that these amounts to usury.
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ISSUE: Whether or not the 12% interest p.a. plus additional penalty of 25% makes the contract
usurious?
HELD: NO. Article 1152 of the Old Civil Code permits the agreement upon a penalty apart from
the interest. Should there be such an agreement, the penalty xxx does not include the
interest, & as such the two are different & distinct things which may be demanded
separately. The penalty is not to be added to the interest for the determination of whether the
interest exceeds the rate fixed by law, since said rate was fixed only for the interest.
BUT, considering partial performance, SC reduced penalty to 10% in accord with Article
1154. (Article 1229, NCC)
ROBES-FRANCISCO V. CFI
[86 SCRA 59]
Facts: In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner, agreed to
sell to private respondent Lolita Millan for and in consideration of the sum of P3, 864.00, payable
in installments, a parcel of land containing an area of approximately 276 square meters, situated
in Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its Franville Subdivision.
Millan complied with her obligation under the contract and paid the installments stipulated
therein, the final payment having been made on December 22, 1971. The vendee made a total
payment of P5, 193.63 including interests and expenses for registration of title.
Thereafter, Lolita Millan made repeated demands upon the corporation for the execution of the
final deed of sale and the issuance to her of the transfer certificate of title over the lot. On March
2, 1973, the parties executed a deed of absolute sale of the aforementioned parcel of land. The
deed of absolute sale contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate of title of the above-described
parcel of land shall be transferred in the name of the VENDEE within the period of six (6) months
from the date of full payment and in case the VENDOR fails to issue said transfer certificate of
title, it shall bear the obligation to refund to the VENDEE the total amount already paid for, plus
an interest at the rate of 4% per annum. (record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months, the
corporation failed to cause the issuance of the corresponding transfer certificate of title over the
lot sold to Millan, hence, the latter filed on August 14, 1974 a complaint for specific performance
and damages against Robes-Francisco Realty & Development Corporation.
Issue: Whether or not the petitioner is correct in invoking Article 1226 of the Civil Code which
provides that in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary.
Held: NO. We would agree with petitioner if the clause in question were to be considered as a
penal clause. Nevertheless, for very obvious reasons, said clause does not convey any penalty,
for even without it, pursuant to Article 2209 of the Civil Code, the vendee would be entitled to
recover the amount paid by her with legal rate of interest which is even more than the 4%
provided for in the clause.
It is therefore inconceivable that the afore-cited provision in the deed of sale is a penal clause
which will preclude an award of damages to the vendee Millan. In fact the clause is so worded as
to work to the advantage of petitioner corporation.
PAMINTUAN V. CA
[94 SCRA 556]
FACTS: This is a case for Recovery of compensatory damages for breach of contract of sale in
addition to liquidated damages.
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In 1960, MARIANO C. PAMINTUAN, with his barter license, was authorized to export to Japan 1000
metric tons of white flint corn valued at USD 47K, in exchange for collateral importation of plastic
sheetings of equal value. As such he entered into contract with TOKYO MENKA KAISHA, LTD. of
OSAKA, JAPAN. He also entered into a contract TO SELL the plastic sheetings to YU PING KUN, CO.,
INC. for Php 265K, thus the latter undertook to open an irrevocable domestic letter of credit in
favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings to bodegas of Yu Ping in
Manila and suburbs within one month upon arrival of carrying vessels; & that upon breach,
aggrieved party may collect liquidated damages of Php 10K.
Pamintuan made incomplete deliveries, and then asked the President of the Co. for cash payment
and adjustments in price, which the company agreed to. When Pamintuan refused to complete his
deliveries, he invoked that the contract was novated and Co. failed to comply thereto.
Co filed for damages against Pamintuan. The lower court awarded actual damages, liquidated
damages as stipulated, and moral damages.
Pamintuan appealed and assert that Yu Ping is only entitled to recover liquidated damages. CA
found Pamintuan guilty of fraud, and sustained the Lower court.
ISSUE: Whether or not the Co. is entitled only to liquidated damages as appearing in the contract
of sale.
HELD: We hold that appellant's contention cannot be sustained because the second sentence of
Article 1226 itself provides that "nevertheless, damages shall be paid if the obligor xxx is
guilty of fraud in the fulfillment of the obligation." xxx The trial court & the CA found that
Pamintuan was guilty of fraud because he did not make a complete delivery of the plastic
sheeting & he overpriced the same. Xxx There is no justification for the Civil Code to make an
apparent distinction between penalty and liquidated damages because the settled rule is that
there is no difference between penalty and liquidated damages insofar as legal results are
concerned and that either may be recovered without the necessity of proving actual damages and
both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil Code. See observations of
Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251). The penalty clause is strictly
penal or cumulative in character and does not partake of the nature of liquidated
damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir, en el supuesto
incumplimiento o mero retardo de la obligacion principal, ademas de la pena, los danos y
perjuicios. Se habla en este caso de pena cumulativa, a differencia de aquellos otros ordinarios,
en que la pena es sustitutiva de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as found by Court of Appeals and the
trial court, and after reflecting on the/tenor of the stipulation for liquidated damages herein, the
true nature of which is not easy to categorize, we further hold that justice would be adequately
done in this case by allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven and
not to award to it the stipulated liquidated damages of ten thousand pesos for any breach of the
contract. The proven damages supersede the stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were the bases of the new
matter found in article 1226, not found in article 1152 of the old Civil Code) that in case of fraud
the difference between the proven damages and the stipulated penalty may be recovered (Vol. 8,
part. 1, Codigo Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety thousand five hundred fiftynine pesos and twenty-eight centavos (P90,559.28), with six percent interest a year from the
filing of the complaint.
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,

vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
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G.R. No. L-15645
January 31, 1964
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 Burmess
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 to open a letter
of credit by forwarding to the Philippine National Bank its Application for Commercial Letter
Credit.
As it turned out, however, the appellant corporation was not in any financial position to
meet the condition. As matter of fact, 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 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 aproximately
$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. In this
connection, it must be made of record that although the Burmese authorities had set August 4,
1952, as the deadline for the remittance of the required letter of credit, the cancellation of the
allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a
full half month after the expiration of the deadline. And yet, even with the 15-day grace, appellant
corporation was unable to make good its commitment to open the disputed letter of credit.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for
the damages caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit.
Issue:
Whether appellant's failure to open immediately the letter of credit in dispute amounted to
a breach of the contract of July 1, 1952 for which it may be held liable in damages.
Contention of petitioner:
Appellant corporation disclaims responsibility for the delay in the opening of the letter of
credit. On the contrary, it insists that the fault lies with the appellee. Appellant contends that the
disputed negotiable instrument was not promptly secured because the appellee , failed to
seasonably furnish data necessary and required for opening the same, namely,
"(1) the amount of the letter of credit,
(2) the person, company or corporation in whose favor it is to be opened, and

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(3) the place and bank where it may be negotiated."

Appellant would have this Court believe, therefore, that had these informations been forthwith
furnished it, there would have been no delay in securing the instrument.
Ruling of the Court: Yes, appellants failure to open x x x amounted to a breach of
contract.
Appellant's explanation has neither force nor merit.
In the first place, the explanation reaches into an area of the proceedings into which We
are not at liberty to encroach. The explanation refers to a question of fact. Nothing in the record
suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the
ruling. His conclusion on the matter is sufficiently borne out by the evidence presented. We are
denied, therefore, the prerogative to disturb that finding, consonant to the time-honored tradition
of this Tribunal to hold trial judges better situated to make conclusions on questions of fact. For
the record, We quote hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to the failure of
plaintiff to name the supplier, the amount and the bank is not tenable. Plaintiff stated in
Court that these facts were known to defendant even before the contract was executed
because these facts were necessarily revealed to the defendant before she could qualify
as a bidder. She stated too that she had given the necessary data immediately after the
execution of Exh. "A" (the contract of July 1, 1952) to Mr. GABRIEL BELMONTE, General
Manager of the NARIC, both orally and in writing and that she also pressed for the opening
of the letter of credit on these occasions. These statements have not been controverted
and defendant NARIC, notwithstanding its previous intention to do so, failed to present Mr.
Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part of the
record of this case, it is clear that what singularly delayed the opening of the
stipulated letter of credit and which, in turn, caused the cancellation of the allocation
in Burma, was the inability of the appellant corporation to meet the condition
importation by the Bank for granting the same. We do not think the appellant corporation
can refute the fact that had it been able to put up the 50% marginal cash deposit demanded by
the bank, then the letter of credit would have been approved, opened and released as early as
August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that
as of the said date, appellant's "application for a letter of credit ... has been approved by the
Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are
to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to
satisfy the requirements of the bank. Its culpability arises from its willful and deliberate
assumption of contractual obligations even as it was well aware of its financial
incapacity to undertake the prestation. We base this judgment upon the letter which
accompanied the application filed by the appellant with the bank, a part of which letter was
quoted earlier in this decision. In the said accompanying correspondence, appellant admitted and
owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover
the amount required to be deposited as a condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First,
that the appellant knew the bank requirements for opening letters of credit; second, that
appellant also knew it could not meet those requirement. When, therefore, despite this awareness
that was financially incompetent to open a letter of credit immediately, appellant agreed in
paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirm and
assignable letter of credit," it must be similarly held to have bound itself to answer for all and
every consequences that would result from the representation. aptly observed by the trial court:
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... Having called for bids for the importation of rice involving millions, $4,260,000.00 to be
exact, it should have a certained its ability and capacity to comply with the inevitably
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 the supplier the 90day period within which the shipment of the rice must be brought into the Philippines.
Having entered in 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.
In relation to the aforequoted observation of the trial court, We would like to make
reference also to Article 11 of the Civil Code which 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 in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in the
performance of obligations a decreed liable; in general, every debtor who fails in performance of
his obligations is bound to indemnify for the losses and damages caused thereby (De la Cruz
Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada
v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003;
Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657). The phrase "any
manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind or defective performance. (IV Tolentino, Civil
Code of the Philippines, citing authorities, p. 103.)
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery
of damages for breach of contract, even if the obligation assumed by the defendant was to pay
the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should
be expressed in Philippine currency at the rate of exchange at the time of the judgment rather
than at the rate of exchange prevailing on the date of defendant's breach. This ruling, however,
can neither be applied nor extended to the case at bar for the same was laid down when there
was no law against stipulating foreign currencies in Philippine contracts. But now we have
Republic Act No. 529 which expressly declares such stipulations as contrary to public policy, void
and of no effect. And, as We already pronounced in the case of Eastboard Navigation, Ltd. v. Juan
Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement to pay an
obligation in a currency other than Philippine legal tender, the same is null and void as contrary to
public policy (Republic Act 529), and the most that could be demanded is to pay said obligation in
Philippine currency "to be measured in the prevailing rate of exchange at the time the obligation
was incurred.
Gachalian

TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,
vs.
IGNACIO CASTRO, SR etal. respondents.
G.R. No. 73867 February 29, 1988
Facts:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and
mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her
daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a telegram to
plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing
Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia
in attendance. Neither the husband nor any of the other children of the deceased, then all
residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had
caused the defendant to send, had not been received. She and the other plaintiffs
thereupon brought action for damages arising from defendant's breach of contract.
The only defense of the defendant was that it was unable to transmit the telegram because of
"technical and atmospheric factors beyond its control." 1 No evidence appears on record that
defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not
transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to
pay the plaintiffs (now private respondents) damages.
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision
Petitioner appeals from the judgment of the appellate court, contending that the award of moral
damages should be eliminated as defendant's negligent act was not motivated by "fraud, malice
or recklessness."
Issue: Whether or not petitioner is not liable for damages.
Ruling: Petitioner's contention is without merit. Petitioner is liable for breach of
contract.
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 damages."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a
contract whereby, for a fee, petitioner undertook to send said private respondent's
message overseas by telegram. This, petitioner did not do, despite performance by said
private respondent of her obligation by paying the required charges. Petitioner was therefore
guilty of contravening its obligation to said private respondent and is thus liable for damages.
[G.R. No. 119121. August 14, 1998]

NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS, Fifteenth Division
and PHESCO INCORPORATED, respondents.
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Facts:
On July 22, 1979, a convoy of four (4) dump trucks owned by the National Power Corporation
(NPC) left Marawi city bound for Iligan city. Unfortunately, enroute to its destination, one of
the trucks with plate no. RFT-9-6-673 driven by a certain Gavino Ilumba figured in a
head-on-collision with a Toyota Tamaraw. The incident resulted in the death of three (3)
persons riding in the Toyota Tamaraw, as well as physical injuries to seventeen other passengers.
On June 10, 1980, the heirs of the victims filed a complaint for damages against National
Power Corporation (NPC) and PHESCO Incorporated (PHESCO) before the then Court of First
Instance of Lanao del Norte, Marawi City.
When defendant PHESCO filed its answer to the complaint it contended that it was
not the owner of the dump truck which collided with the Toyota Tamaraw but
NPC. Moreover, it asserted that it was merely a contractor of NPC with the main duty of
supplying workers and technicians for the latters projects. On the other hand, NPC denied any
liability and countered that the driver of the dump truck was the employee of PHESCO. The trial
court rendered a decision dated July 25, 1988 absolving NPC of any liability. Dissatisfied, PHESCO
appealed to the Court of Appeals, which on November 10, 1994 reversed the trial courts
judgment. Chagrined by the sudden turnaround, NPC filed a motion for reconsideration of said
decision which was, however, denied on February 9, 1995. [1] Hence, this petition.
Issue: Was the relationship one of employer and job (independent) contractor or one of employer
and labor only contractor?
Ruling of the Court: PHESCO was engaged in labor only contracting.
Issue: The principal query to be resolved is, as between NPC and PHESCO, who is the employer
of Ilumba, driver of the dumptruck which figured in the accident and which should, therefore,
would be liable for damages to the victims.
Contention of petitioner NPC:
As earlier stated, NPC denies that the driver of the dump truck was its employee.
Ruling of the Court:
Under this factual milieu, there is no doubt that PHESCO was engaged in labor-only
contracting vis--vis NPC and as such, it is considered merely an agent of the latter. In labor-only
contracting, an employer-employee relationship between the principal employer and the
employees of the labor-only contractor is created. Accordingly, the principal employer is
responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer. Since PHESCO is only a labor-only contractor, the
workers it supplied to NPC, including the driver of the ill-fated truck, should be
considered as employees of NPC. After all, it is axiomatic that any person (the principal
employer) who enters into an agreement with a job contractor, either for the performance of a
specified work or for the supply of manpower, assumes responsibility over the employees of the
latter.
Contention of petitioner NPC:
However, NPC maintains that even assuming that a labor only contract exists between it and
PHESCO, its liability will not extend to third persons who are injured due to the tortious acts of the
employee of the labor-only contractor.[16] Stated otherwise, its liability shall only be limited to
violations of the Labor Code and not quasi-delicts.
In other words, NPC posits the theory that its liability is limited only to compliance with the
substantive labor provisions on working conditions, rest periods, and wages and shall not extend
to liabilities suffered by third parties.
Issue: What law will govern, Labor Code or Civil Code?
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Ruling: Civil Code.
It bears stressing that the action was premised on the recovery of damages as a result of
quasi-delict against both NPC and PHESCO, hence, it is the Civil Code and not the Labor Code
which is the applicable law in resolving this case.
To be sure, the pronouncement of this Court in Filamer Christian Institute v. IAC,[18] is most
instructive:
The present case does not deal with a labor dispute on conditions of employment between an
alleged employee and an alleged employer. It invokes a claim brought by one for damages for
injury caused by the patently negligent acts of a person, against both doer-employee and his
employer. Hence, the reliance on the implementing rule on labor to disregard the primary liability
of an employer under Article 2180 of the Civil Code is misplaced. An implementing rule on labor
cannot be used by an employer as a shield to avoid liability under the substantive provisions of
the Civil Code.
Corollarily from the above doctrine, the ruling in Cuison v. Norton & Harrison Co.,[19] finds
applicability in the instant case, viz.:
It is well to repeat that under the civil law an employer is only liable for the negligence of his
employees in the discharge of their respective duties. The defense of independent contractor
would be a valid one in the Philippines just as it would be in the United States. Here Ora was a
contractor, but it does not necessarily follow that he was an independent contractor. The reason
for this distinction is that the employer retained the power of directing and controlling the
work. The chauffeur and the two persons on the truck were the employees of Ora, the contractor,
but Ora, the contractor, was an employee of Norton & Harrison Co., charged with the duty of
directing the loading and transportation of the lumber. And it was the negligence in loading the
lumber and the use of minors on the truck which caused the death of the unfortunate boy. On the
facts and the law, Ora was not an independent contractor, but was the servant of the defendant,
and for his negligence defendant was responsible.
Given the above considerations, it is apparent that Article 2180 of the Civil Code
and not the Labor Code will determine the liability of NPC in a civil suit for damages
instituted by an injured person for any negligent act of the employees of the labor
only contractor. This is consistent with the ruling that a finding that a contractor was a laboronly contractor is equivalent to a finding that an employer-employee relationship existed between
the owner (principal contractor) and the labor-only contractor, including the latters workers. [20]
With respect to the liability of NPC as the direct employer, Article 2180 of the Civil Code
explicitly provides:
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
In this regard, NPCs liability is direct, primary and solidary with PHESCO and the driver. [21] Of
course, NPC, if the judgment for damages is satisfied by it, shall have recourse against PHESCO
and the driver who committed the negligence which gave rise to the action.
BERNARDINO JIMENEZ, petitioner,

vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents
G.R. No. 71049 May 29, 1987
The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15,
1974 he, together with his neighbors, went to Sta. Ana public market to buy "bagoong" at the
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time when the public market was flooded with ankle deep rainwater. After purchasing the
"bagoong" he turned around to return home but he stepped on an uncovered opening
which could not be seen because of the dirty rainwater, causing a dirty and rusty fourinch nail, stuck inside the uncovered opening, to pierce the left leg of plaintiffpetitioner penetrating to a depth of about one and a half inches. After administering first
aid treatment at a nearby drugstore, his companions helped him hobble home. He felt ill and
developed fever and he had to be carried to Dr. Juanita Mascardo. Despite the medicine
administered to him by the latter, his left leg swelled with great pain. He was then rushed to the
Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever
and severe pain.
Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15)
days. His injury prevented him from attending to the school buses he is operating.
Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had been placed
by virtue of a Management and Operating Contract.
The lower court decided in favor of respondents.
As above stated, on appeal, the Intermediate Appellate Court held the Asiatic Integrated
Corporation liable for damages but absolved respondent City of Manila.
Hence this petition.
Issue: whether or not the Intermediate Appellate Court erred in not ruling that respondent City of
Manila should be jointly and severally liable with Asiatic Integrated Corporation for the injuries
petitioner suffered.
Ruling: No.
As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff
suffered injuries when he fell into a drainage opening without any cover in the Sta. Ana Public
Market. Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated
Corporation tries to minimize the extent of the injuries, claiming that it was only a small puncture
and that as a war veteran, plaintiff's hospitalization at the War Veteran's Hospital was free.
Contention of respondent:
Respondent City of Manila maintains that it cannot be held liable for the injuries sustained
by the petitioner because under the Management and Operating Contract, Asiatic Integrated
Corporation assumed all responsibility for damages which may be suffered by third persons for
any cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article 1,
Section 4 of Republic Act No. 409
Ruling of the Court: R.A. 409 v. Article 2189 of the Civil Code.
This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272
[1968]) where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general
rule regulating the liability of the City of Manila for "damages or injury to persons or property
arising from the failure of city officers" to enforce the provisions of said Act, "or any other law or
ordinance or from negligence" of the City "Mayor, Municipal Board, or other officers while
enforcing or attempting to enforce said provisions."
Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:
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Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by any person by reason of defective conditions of roads, streets,
bridges, public buildings and other public works under their control or supervision.
constitutes a particular prescription making "provinces, cities and municipalities ... liable for
damages for the death of, or injury suffered by any person by reason" specifically "of the
defective condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision."
In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in
general, regardless of the object, thereof, while Article 2189 of the Civil Code governs liability due
to "defective streets, public buildings and other public works" in particular and is therefore
decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil
Code, it is not necessary for the liability therein established to attach, that the defective public
works belong to the province, city or municipality from which responsibility is exacted. What said
article requires is that the province, city or municipality has either "control or supervision" over
the public building in question.
Issue: Whether or not the City of Manila is liable for damages.
Ruling: Yes.
To recapitulate, it appears evident that the City of Manila is likewise liable for damages
under Article 2189 of the Civil Code, respondent City having retained control and supervision over
the Sta. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of the
passageways and if any, that they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the negligence of the City of Manila is the
proximate cause of the injury suffered, the City is therefore liable for the injury suffered by the
peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the
Management and Operating Contract between respondent City and Asiatic Integrated Corporation
remained under the control of the former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the SECOND PARTY shall start
the painting, cleaning, sanitizing and repair of the public markets and talipapas and
within ninety (90) days thereof, the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and reconstruction of the city public
markets and talipapas subject to prior approval of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas shall be retained
by the SECOND PARTY as long as their services remain satisfactory and they shall
be extended the same rights and privileges as heretofore enjoyed by them.
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Provided, however, that the SECOND PARTY shall have the right, subject to prior
approval of the FIRST PARTY to discharge any of the present employees for cause.
(Rollo, p. 45).
VII
That the SECOND PARTY may from time to time be required by the FIRST PARTY, or
his duly authorized representative or representatives, to report, on the activities
and operation of the City public markets and talipapas and the facilities and
conveniences installed therein, particularly as to their cost of construction,
operation and maintenance in connection with the stipulations contained in this
Contract. (lbid)
The fact of supervision and control of the City over subject public market was admitted by Mayor
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and Operating
Contract entered into on December 28, 1972 by and between the City of Manila
and the Asiatic Integrated Corporation, whereby in consideration of a fixed service
fee, the City hired the services of the said corporation to undertake the physical
management, maintenance, rehabilitation and development of the City's public
markets and' Talipapas' subject to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of these powers visa-vis the existence of the contract, inasmuch as the City retains the power of
supervision and control over its public markets and talipapas under the terms of
the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose
primary duty is to take direct supervision and control of that particular market, more specifically,
to check the safety of the place for the public.
The contention of respondent City of Manila that petitioner should not have ventured to go
to Sta. Ana Public Market during a stormy weather is indeed untenable. As observed by
respondent Court of Appeals, it is an error for the trial court to attribute the negligence to
herein petitioner. More specifically stated, the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market on a rainy day just
to buy bagoong. A customer in a store has the right to assume that the
owner will comply with his duty to keep the premises safe for customers.
If he ventures to the store on the basis of such assumption and is injured
because the owner did not comply with his duty, no negligence can be
imputed to the customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have exercised the
diligence of a good father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to exercise reasonable care to
keep the public market reasonably safe for people frequenting the place for their marketing
needs.
While it may be conceded that the fulfillment of such duties is extremely
difficult during storms and floods, it must however, be admitted that ordinary
precautions could have been taken during good weather to minimize the dangers to
life and limb under those difficult circumstances.
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For instance, the drainage hole could have been placed under the stalls instead of on the
passage ways. Even more important is the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates that long before petitioner fell into the
opening, it was already uncovered, and five (5) months after the incident happened, the opening
was still uncovered. (Rollo, pp. 57; 59). Moreover, while there are findings that during floods the
vendors remove the iron grills to hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo,
p. 17), there is no showing that such practice has ever been prohibited, much less penalized by
the City of Manila. Neither was it shown that any sign had been placed thereabouts to warn
passersby of the impending danger.
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and
the PHILIPPINE BAR ASSOCIATION, respondents
G.R. No. L-47851 October 3, 1986
The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp.
269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association decided to construct an office building. The
construction was undertaken by the United Construction, Inc. on an "administration" basis,
on the suggestion of Juan J. Carlos, the president and general manager of said corporation.. The
plans and specifications for the building were prepared by the other third-party defendants Juan F.
Nakpil & Sons. The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit
Manila and its environs and the building in question sustained major damage.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages
arising from the partial collapse of the building against United Construction, Inc. and its President
and General Manager Juan J. Carlos as defendants.
Plaintiff alleges that the collapse of the building was accused by defects in the construction, the
failure of the contractors to follow plans and specifications and violations by the defendants of the
terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the
plans and specifications, alleging in essence that the collapse of the building was due to the
defects in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party defendant.
After the protracted hearings, the Commissioner eventually submitted his
report on September 25, 1970 with the findings that while the damage sustained by
the PBA building was caused directly by the August 2, 1968 earthquake whose
magnitude was estimated at 7.3 they were also caused by the defects in the plans and
specifications prepared by the third-party defendants' architects, deviations from said
plans and specifications by the defendant contractors and failure of the latter to
observe the requisite workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite degree of
supervision in the construction of subject building.
The trial court agreed with the findings of the Commissioner except as to the holding that
the owner is charged with full nine supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed decision which was
modified by the Intermediate Appellate Court on November 28, 1977.
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All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence,
these petitions.
Issue:
The pivotal issue in this case is whether or not an act of God-an unusually strong
earthquake-which caused the failure of the building, exempts from liability, parties who are
otherwise liable because of their negligence.
Ruling of the Court:
No. petitioners are liable because of the deviations from the contract in erecting the
buildings.
The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the
New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a
building is liable for damages if within fifteen years from the completion of the
structure the same should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The contractor is likewise
responsible for the damage if the edifice fags within the same period on account of
defects in the construction or the use of materials of inferior quality furnished by
him, or due to any violation of the terms of the contract. If the engineer or architect
supervises the construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any of the
causes of action by reason of any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the collapse of the building.
On the other hand, the general rule is that no person shall be responsible for events which
could not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and exclusively to natural
causes without human intervention, which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous event
or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an
obligation due to an "act of God," the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation
in a normal manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to the
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21
SCRA 279; Lasam v. Smith, 45 Phil. 657).
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Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or contravention in any
manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were,
and removed from the rules applicable to the acts of God.
Thus it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate cause of
the damage was the act of God. To be exempt from liability for loss because of an act of God, he
must be free from any previous negligence or misconduct by which that loss or damage may have
been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants petitioners was
established beyond dispute both in the lower court and in the Intermediate Appellate Court.
Defendant United Construction Co., Inc. was found to have made substantial deviations from the
plans and specifications. and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans and specifications prepared
by them. As correctly assessed by both courts, the defects in the construction and in the plans
and specifications were the proximate causes that rendered the PBA building unable to withstand
the earthquake of August 2, 1968. For this reason the defendant and third-party
defendants cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).
There should be no question that the NAKPILS and UNITED are liable for the damage
resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes.
Again, the Court concurs in the findings of the Commissioner on these issues and fails to
find any sufficient cause to disregard or modify the same. As found by the Commissioner, the
"deviations made by the defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also aggravated the damage
caused by the defects in the plans and specifications prepared by third-party defendants. (Rollo,
Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of both the defendant
and the third-party defendants in effecting the plans, designs, specifications, and construction of
the PBA building and We hold such negligence as equivalent to bad faith in the performance of
their respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which
may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape liability for the natural
and probable consequences thereof, although the act of a third person, or an act of God for which
he is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds
of ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith, without which the damage would
not have occurred.
Gachalian

Gachalian

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Civil Law Review 2 1

General Concepts up to Breach of Obligations

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Defendant filed a separate motion to dismiss alleging that:

2. Anent the alleged agreement about plaintiffs services as intermediary in

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Gutierrez Hermanos vs. Engracio Orense

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Rustico Adille vs. CA

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"Payment by reason of a mistake in the construction or application of a doubtful or

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RTC: Ruled in favor of the petitioner

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Respondent FEU is liable to petitioner for damages.

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Interestingly, the contract should not be understood as one stipulated as a life

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G.R. No. L-55480 June 30, 1987

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PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,

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January 31, 1964

(2) the person, company or corporation in whose favor it is to be opened, and

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(3) the place and bank where it may be negotiated."

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[G.R. No. 119121. August 14, 1998]

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BERNARDINO JIMENEZ, petitioner,

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