OBLICON DIGEST REVIEWER CHAPTER 2

(Credits to all sources)

AUSTRIA vs COURT OF APPEALS (39 SCRA

527)
FACTS: Maria G. Abad received from Guillermo
Austria a pendant with diamonds to be sold on
a commission basis or to be returned on
demand. While walking home, the purse
containing the jewelry and cash was snatched
by two men. A complaint of the incident was
filed in the Court of First Instance against
certain persons. Abad failed to return the
jewelry or pay for its value despite demands
made by Austria. Austria brought an action
against the Abad spouses for the recovery of
the pendant or of its value and damages. Abad
spouses set up the defense that the alleged
robbery had extinguished their obligation.
ISSUE: Should the Abad spouse be held liable
for the loss of the pendant?
RULING: No. The Court ruled that the
exempting provision of Article 1174 of the Civil
Code is applicable in the case. It is a
recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from
responsibility, it is necessary that the event
must be independent of the human will or of
the obligors will; the occurrence must render it
impossible for the debtor to fulfill the obligation
in a normal manner; and that the obligor must
be free of participation in, or aggravation of,
the injury to the creditor. To avail of the
exemption granted, it is not necessary that the
persons responsible for the event should be
found or punished. It is sufficient that to
unforeseeable event which is the robbery took
place without concurrent fault or negligence on
the part of the obligor which can be proven by
preponderant evidence. It was held that the act
of Maria Abad in walking home alone carrying
the jewelry was not negligent for at that time
the incidence of crimes was not high.

REPUBLIC
vs
LUZON
STEVEDORING
CORPORATION (21 SCRA 279)
FACTS: In the early afternoon of August 17,
1960, barge L- 1892, owned by the Luzon
Stevedoring Corporation was being towed
down the Pasig River by two tugboats when the
barge rammed against one of the wooden piles
of the Nagtahan bailey bridge, smashing the
posts and causing the bridge to list. The river,
at the time, was swollen and the current swift,

on account of the heavy downpour in Manila

and the surrounding provinces on August 15
and 16, 1960. The Republic of the Philippines
sued Luzon Stevedoring for actual and
consequential
damage
caused
by
its
employees, amounting to Php 200,000.
Defendant Corporation disclaimed liability on
the grounds that it had exercised due diligence
in the selection and supervision of its
employees that the damages to the bridge
were caused by force majeure, that plaintif
has no capacity to sue, and that the Nagtahan
bailey bridge is an obstruction to navigation.
After due trial, the court rendered judgment on
June 11, 1963, holding the defendant liable for
the damage caused by its employees and
ordering it to pay plaintif the actual cost of the
repair of the Nagtahan bailey bridge which
amounted to Php 192,561.72, with legal
interest from the date of the filing of the
complaint.
ISSUE: Was the collision of appellant's barge
with the supports or piers of the Nagtahan
bridge caused by fortuitous event or force
majeure?
RULING: Yes. Considering that the Nagtahan
bridge was an immovable and stationary object
and uncontrovertibly provided with adequate
openings for the passage of water craft,
including barges like of appellant's, it was
undeniable that the unusual event that the
barge, exclusively controlled by appellant,
rammed the bridge supports raises a
presumption of negligence on the part of
appellant or its employees manning the barge
or the tugs that towed it. For in the ordinary
course of events, such a thing will not happen
if proper care is used. In Anglo- American
Jurisprudence, the inference arises by what is
known as the "res ipsa loquitur" rule. The
appellant strongly stressed the precautions
taken by it on the day in question: that it
assigned two of its most powerful tugboats to
tow down river its barge L-1892; that it
assigned to the task the more competent and
experienced among its patrons, had the
towlines, engines and equipment doublechecked and inspected' that it instructed its
patrons to take extra precautions; and
concludes that it had done all it was called to
do, and that the accident, therefore, should be
held due to force majeure or fortuitous event.
These very precautions, however, completely
destroyed the appellant's defense. For caso
fortuito or force majeure (which in law are
identical in so far as they exempt an obligor
from liability) by definition, are extraordinary
events not foreseeable or avoidable, "events
that could not be foreseen, or which, though

foreseen, were inevitable" (Art. 1174, Civ. Code

of the Philippines). It was, therefore, not
enough that the event should not have been
foreseen or anticipated, as was commonly
believed but it must be one impossible to
foresee or to avoid. The mere difficulty to
foresee the happening was not impossibility to
foresee the same. The very measures adopted
by appellant prove that the possibility of
danger was not only foreseeable, but actually
foreseen, and was not caso fortuito.

PANTALEON vs AMERICAN EXPRESS (G.R.

No. 174269, May 8 2009)
FACTS: After the Amsterdam incident that
happened involving the delay of American
Express Card to approve his credit card
purchases worth US $13,826.00 at the Coster
store, Pantaleon commenced a complaint for
moral and exemplary damages before the RTC
against American Express. He said that he and
his family experienced inconvenience and
humiliation due to the delays in credit
authorization. RTC rendered a decision in favor
of Pantaleon. CA reversed the award of
damages in favor of Pantaleon, holding that
AmEx had not breached its obligations to
Pantaleon, as the purchase at Coster deviated
from Pantaleon's established charge purchase
pattern.
ISSUE:
1. Whether or not AmEx had committed a
breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.

whether favorably or unfavorably. Even

assuming that AmExs credit authorizers did
not have sufficient basis on hand to make a
judgment, we see no reason why it could not
have promptly informed Pantaleon the reason
for the delay, and duly advised him that
resolving the same could take some time.
2. Yes. The reason why Pantaleon is entitled to
damages is not simply because AmEx incurred
delay, but because the delay, for which
culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the
Civil Code for which moral damages are
remunerative.
The
somewhat
unusual
attending circumstances to the purchase at
Coster that there was a deadline for the
completion of that purchase by petitioner
before any delay would redound to the injury of
his several traveling companions gave rise to
the moral shock, mental anguish, serious
anxiety,
wounded
feelings
and
social
humiliation sustained by Pantaleon, as
concluded by the RTC.

BARZAGA vs COURT OF APPEALS (G.R. No.

115129 February 12, 1997)
FACTS: The petitioners wife was sufering from
a debilitating ailment and with forewarning of
her impending death, she expressed her wish
to be laid to rest before Christmas day to spare
her family of the long vigils as it was almost
Christmas. After his wife passed away,
petitioner bought materials from herein private
respondents for the construction of her niche.
Private respondents however failed to deliver
on agreed time and date despite repeated
follow-ups. The niche was completed in the
afternoon of the 27th of December, and
Barzaga's wife was finally laid to rest. However,
it was two-and-a-half (2-1/2) days behind
schedule.

RULING:

ISSUE: Was there delay in the performance of

the private respondent's obligation?

1. Yes. The popular notion that credit card

purchases are approved within seconds,
there really is no strict, legally determinative
point of demarcation on how long must it take
for a credit card company to approve or
disapprove a customers purchase, much less
one specifically contracted upon by the parties.
One hour appears to be patently unreasonable
length of time to approve or disapprove a
credit card purchase. The culpable failure of
AmEx herein is not the failure to timely
approve petitioners purchase, but the more
elemental failure to timely act on the same,

RULING: Yes. Since the respondent was

negligent
and
incurred
delay
in
the
performance of his contractual obligations, the
petitioner is entitled to be indemnified for the
damage he sufered as a consequence of the
delay or contractual breach. There was a
specific time agreed upon for the delivery of
the materials to the cemetery. This is clearly a
case of non-performance of a reciprocal
obligation, as in the contract of purchase and
sale; the petitioner had already done his part,
which is the payment of the price. It was
incumbent upon respondent to immediately

fulfill his obligation to deliver the goods

otherwise delay would attach. An award of
moral damages is incumbent in this case as the
petitioner has sufered so much.

(2) NO. There was no evident bad faith or fraud

in upgrade of seat neither on overbooking of
flight as it is within 10% tolerance.
(3) YES. Nominal damages (Art. 2221, NCC)
were awarded in the amount of Php 5,000.00.
Moral damages (Art. 2220, NCC) and attorneys
fees were set aside and deleted from the Court
of Appeals ruling.

MANILA ELECTRIC CO. vs RAMOY (G.R. No.

158911, March 4, 2008)

CATHAY PACIFIC, vs SPOUSES VASQUEZ

(G.R. No. 150843. March 14, 2003)
FACTS: In respondents return flight to Manila
from Hong Kong, they were deprived of their
original seats in Business Class with their
companions because of overbooking. Since
respondents were privileged members, their
seats
were
upgraded
to
First
Class.
Respondents refused but eventually persuaded
to accept it. Upon return to Manila, they
demanded that they be indemnified in the
amount of P1million for the humiliation and
embarrassment caused by its employees.
Petitioners Country Manager failed to respond.
Respondents instituted action for damages.
The RTC ruled in favor of respondents. The
Court of Appeals affirmed the RTC decision with
modification in the award of damages.

FACTS: In the year 1987, the National Power

Corporation (NPC) filed with the MTC Quezon
City a case for ejectment against several
persons allegedly illegally occupying its
properties in Baesa, Quezon City. among the
defendants in the ejectment case was Leoncio
Ramoy, one of the plaintifs in the case at bar.
On April 28, 1989 the MTC rendered judgment
for MERALCO to demolish or remove the
building and structure they built on the land of
the plaintif and to vacate the premises. On
June 20, 1999 NPC wrote to MERALCO
requesting the immediate disconnection of
electric power supply to all residential and
commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City. In
a letter dated August 17, 1990 MERALCO
requested NPC for a joint survey to determine
all the establishments which are considered
under NPC property. In due time, the electric
service connection of the plaintifs was
disconnected. During the ocular inspection
ordered by the Court, it was found out that the
residence of the plaintifs-spouses was indeed
outside the NPC property.
ISSUES:
(1) W/N the Court of Appeals gravely erred
when it found MERALCO negligent when it
disconnected the subject electric service of
respondents.

ISSUE: Whether or not the petitioners (1)

breached the contract of carriage, (2) acted
with fraud and (3) were liable for damages.

(2) W/N the Court of Appeals gravely erred

when it awarded moral and exemplary
damages and attorneys fees against MERALCO
under the circumstances that the latter acted
in good faith in the disconnection of the
electric services of the respondents.

RULING:

RULING:

(1) YES. Although respondents have the priority

of upgrading their seats, such priority may be
waived, as what respondents did. It should
have not been imposed on them over their
vehement objection.

(1) NO. The Court agrees with the CA that

under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree
of care and diligence required of it, pursuant to
Articles 1170 & 1173 of the Civil Code. It was

not enough for MERALCO to merely rely on the

Decision of the MTC without ascertaining
whether it had become final and executory.
Verily, only upon finality of the said Decision
can it be said with conclusiveness that
respondents have no right or proper interest
over the subject property, thus, are not entitled
to the services of MERALCO.
(2) NO. MERALCO willfully caused injury to
Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which
they were entitled under the Service Contract.
This is contrary to public policy because,
MERALCO, being a vital public utility, is
expected to exercise utmost care and diligence
i the performance of its obligation. Thus,
MERALCOs failure to exercise utmost care and
diligence in the performance of its obligation to
Leoncio Ramoy is tantamount to bad faith.
Leoncio Ramoy testified that he sufered
wounded feelings because of MERALCOs
actions. Furthermore, due to the lack of power
supply, the lessees of his four apartments on
subject lot left the premises. Clearly, therefore
Leoncio Ramoy is entitled to moral damages in
the amount awarded by the CA. Nevertheless,
Leoncio is the sole person entitled to moral
damages as he is the only who testified on the
witness stand of his wounded feelings.
Pursuant to Article 2232 of the Civil Code,
exemplary damages cannot be awarded as
MERALCOs acts cannot be considered wanton,
fraudulent, reckless, oppressive or malevolent.
Since the Court does not deem it proper to
award exemplary damages in this case then
the CAs award of attorneys fees should
likewise be deleted, as pursuant to Article 2208
of the Civil Code of which the grounds were not
present.

AREOLA vs COURT OF APPEALS (G.R. No.

95641 September 22, 1994)
FACTS: Prudential Guarantee cancelled Areolas
personal accident insurance on the grounds
that the latter failed to pay his premiums 7
months after issuing the policy. Areola was
supposed to pay the total amount of Php
1,609.65 which included the premium of Php
1,470.00, documentary stamp of Php 110.25
and 2% premium tax of Php 29.40. The
statement of account had a stipulation not
considering it a receipt. It also reminded the
customer to ask for a receipt after payment.
There was also a stipulation calling for a
demand for a provisional receipt after payment

to an agent. A provisional receipt was sent to

petitioner telling him that the provisional
receipt would be confirmed by an official one.
The company then cancelled the policy for nonpayment of premiums. After being surprised,
Areola confronted a company agent and
demanded an official receipt. The latter told
him that it was a mistake, but never gave him
an official receipt. Areola sent a letter
demanding that he be reinstated or he would
file for damages if his demand was not met.
The company then told him that his payments
werent in full yet. The company replied to
Areola by telling him that there was reason to
believe that no payment has been made since
no official receipt was issued. The company
then told him that they would still hold him
under the policy. The company then confirmed
that he paid the premium and that they would
extend the policy by one year. Thereby, the
company ofered to reinstate same policy it
had previously cancelled and even proposed to
extend its lifetime on finding that the
cancellation was erroneous and that the
premiums were paid in full by petitionerinsured but were not remitted by the
company's branch manager, Mr. Malapit.
However, they were too late for Areola already
filed an action for breach of contract in the trial
court. The companys defense lay in rectifying
its omission; hence, there was no breach of
contract. The court ruled in favor of Areola and
asked Prudential to pay Php 250,000 in moral
and exemplary damages. The court held that
the company was in bad faith in cancelling the
policy. Had the insured met an accident at that
time, he wouldnt be covered by the policy.
This ruling was challenged on appeal by
respondent insurance company, denying bad
faith in unilaterally cancelling the policy. The
CA absolved Prudential on the grounds that it
was not motivated by negligence, malice or
bad faith in cancelling subject policy. Rather,
the cancellation of the insurance policy was
based on what the existing records showed.
The court even added that the errant manager
who didnt remit the profits was forced to
resign. Areola then filed for a petition in the
Supreme Court.

ISSUE:
(1) Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to
payment of damages?
(2) Did the subsequent act of reinstating the
wrongfully cancelled insurance policy by

respondent insurance company, in an efort to

rectify such error, obliterate whatever liability
for damages it may have to bear, thus
absolving it?

within the general scope of his authority even

though the agent is secretly abusing his
authority and attempting to perpetrate a fraud
upon his principal or some other person.

RULING:

Prudential is liable for damages for the

fraudulent
acts
committed
by
Malapit.
Reinstating the insurance policy cannot
obliterate the injury inflicted. A contract of
insurance creates reciprocal obligations for
both insurer and insured. Reciprocal obligations
are those which arise from the same cause and
in which each party is both a debtor and a
creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other.

(1) YES. Petitioner alleged that the managers

misappropriation of his premium payments is
the proximate cause of the cancellation of the
insurance policy. Subsequent reinstatement
could
not
possibly
absolve
respondent
insurance company from liability, due to the
breach of contract. He contended that damage
had already been done. Prudential averred that
the equitable relief sought by petitioner-insured
was granted to the filing of the complaint,
petitioner-insured is left without a cause of
action. Reinstatement efectively restored
petitioner-insured to all his rights under the
policy.
The court held that Malapit's fraudulent act of
misappropriating the premiums paid by
petitioner-insured is directly imputable to
respondent insurance company. A corporation,
such as respondent insurance company, acts
solely thru its employees. The latters' acts are
considered as its own. Malapit represented its
interest and acted in its behalf. His act of
receiving the premiums collected is well within
the province of his authority. Thus, his receipt
of said premiums is receipt by private
respondent insurance company who, by
provision of law is bound by the acts of its
agent. Article 1910 thus reads:
Art. 1910. The principal must comply with all
the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he
received cannot constitute a defense for
private respondent insurance company; no
exoneration
from
liability
could
result
therefrom. The fact that private respondent
insurance company was itself defrauded due to
the anomalies that took place does not free the
same from its obligation to petitioner Areola.
As held in Prudential Bank v. Court of Appeals:
A bank is liable for wrongful acts of its officers
done in the interests of the bank or in the
course of dealings of the officers in their
representative capacity but not for acts outside
the scope of their authority. Accordingly, a
banking corporation is liable to innocent third
persons where the representation is made in
the course of its business by an agent acting

(2) NO. Due to the agreement to enter into a

contract of insurance where Prudential
promised to extend protection to petitionerinsured against the risk insured, there was a
debtor creditor relationship between the two
parties. Under Article 1191, the injured party is
given a choice between fulfillment or rescission
of the obligation in case one of the obligors
fails to comply with what is incumbent upon
him. However, said article entitles the injured
party to payment of damages, regardless of
whether he demands fulfillment or rescission of
the obligation. The damages would be nominal
because the insurance company took steps to
rectify the contract. There was also no actual or
substantial damage inflicted. Nominal damages
are "recoverable where a legal right is
technically violated and must be vindicated
against an invasion that has produced no
actual present loss of any kind, or where there
has been a breach of contract and no
substantial
injury
or
actual
damages
whatsoever have been or can be shown.

JACINTO
TANGUILIG
vs
COURT
OF
APPEALS and VICENTE HERCE JR. (G.R. No.
125994; June 29, 2001)
FACTS: Herce contracted Tanguilig to construct
a windmill system for him, for consideration of
Php 60,000.00. Pursuant to the agreement
Herce paid the downpayment of Php 30,000.00
and installment of Php 15,000.00, leaving a
Php 15,000.00 balance. Herce refused to pay
the balance because he had already paid this
amount to SPGMI which constructed a deep
well to which the windmill system was to be
connected, and assuming that he owed the Php
15,000.00 this should be ofset by the defects
in the windmill system which caused the
structure to collapse after strong winds hit their
place. According to Tanguilig, the Php

60,000.00 consideration is only for the

construction of
the windmill and the
construction of the deep well was not part of it.
The collapse of the windmill cannot be
attributed to him as well, since he delivered it
in good and working condition and Herce
accepted it without protest. Herce contested
that the collapse is attributable to a typhoon, a
force majeure that relieved him of liability.

The RTC ruled in favor of Tanguilig, but this

decision was overturned by the Court of
Appeals which ruled in favor of Herce.
ISSUE: Can the collapse of the windmill be
attributed
to
force
majeure?
Thus,
extinguishing the liability of Tanguilig?
RULING: YES. In order for a party to claim
exemption from liability by reason of fortuitous
event under Art 1174 of the Civil Code the
event should be the sole and proximate cause
of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals, the
S.C. held that 4 requisites must concur that
there must be:
(a) the cause of the breach of the
obligation must be independent of the
will of debtor
(b) the event must be
unforeseeable or unavoidable;

either

(c) the event be such 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.
Tanguilig merely stated that there was a strong
wind, and a strong wind in this case is not
fortuitous, it was neither unforeseeable nor
unavoidable, places with strong winds are the
perfect locations to put up a windmill, since it
needs strong winds for it to work.

FAR EAST BANK vs COURT OF APPEALS

(G.R. No. 108164; February 23, 1995)
FACTS: Private respondent Luis A. Luna applied
for, and was accorded, a Far East card issued
by petitioner FEBTC. Clarita informed FEBTC
that she lost her credit card. In order to replace
the lost card, Clarita submitted an affidavit of
loss. In cases of this nature, the banks internal
security procedures and policy would be to
record the lost card, along with the principal
card, as a Hot Card or Cancelled Card in its
master file. Luis then tendered a despedida
lunch for a close friend. Then he presented his
Far East card to pay for the lunch, however, the
card was not honored, forcing him to pay the
bill in cash. Naturally, Luis felt embarrassed by
this incident. Private respondent Luis Luna,
through his counsel, demanded from FEBTC the
payment of damages. Adrian Festejo, a vice
president of the bank, expressed the banks
apologies, admitting that they have failed to
inform Luis about its security policy. Private
respondents then filed a complaint for
damages in the RTC, which rendered a decision
ordering FEBTC to pay private respondents
moral damages, exemplary damages, and
attorneys fees.
ISSUE: Whether or not private respondents are
entitled of moral damages.
HELD: NO. In culpa contractual, moral damages
may be recovered where the defendant is
shown to have acted in bad faith or with malice
in the breach of the contract. Concededly, the
bank was negligent for failing to inform Luis of
his own cards cancellation. Nothing in the
findings of the trial court and the appellate
court can sufficiently indicate any deliberate
intent on the part of FEBTC to cause harm to
private respondents. The failure to inform Luis
is not considered to be so gross that it would
amount to malice or bad faith. Malice or bad
faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or
moral obliquity; it is diferent from the negative
idea of negligence in that malice or bad faith
contemplates a state of mind affirmatively
operating with furtive design or ill-will. Article

23 of the Civil Code contemplates a conscious

act to cause harm. In relation to a breach of
contract, its application can be warranted only
when the defendants disregard of his
contractual obligation is so deliberate as to
approximate a degree of misconduct certainly
no less worse than fraud or bad faith. Most
importantly, Article 23 is a mere declaration of
a general principle in human relations that
clearly must, in any case, give way to the
specific provision of Article 2224 of the Civil
Code authorizing the grant of moral damages
in culpa contractual solely when the breach is
due to fraud or bad faith. The decision is
modified by deleting the award of moral and
exemplary damages to private respondents; in
its stead, petitioner is ordered to pay nominal
damages sanctioned under Article 2223 of the
Civil Code.

damage of Php 35,298.25, plus 6% interest per

annum from the filing of the case until the
finality of decision. After the execution, the rate
shall be 12% per annum until its satisfaction.
FEU was ordered to pay temperate damages in
the amount of Php 20,000. Moral damages for
Php 100,000, attorneys fees and litigation
expenses for Php 50,000. Galaxy was and its
presidents were ordered to jointly and severely
pay the respondent FEU damages equivalent to
the amount awarded to Saludaga.

SALUDAGA vs FAR EASTERN UNIVERSITY

(553 SCRA 741)
FACTS: It is the obligation of any college
institution to provide a safe and secure
environment for every student. As for the
students, they have the obligation to give back
the respect for their respective colleges and to
excel and do well with the institutions goals.
Far Eastern University failed to comply with
their obligation when a student of theirs, whose
name is Joseph Saludaga was shot inside the
campus by their security guard named
Alejandro Rosete. The victim petitioned a case
against FEU and Edilberto C. De Jesus,
president of FEU. The University also failed to
check the qualifications of the security guards
hired through Galaxy, the third party which
hires security guards for the university. From
there, there are also complaints for Galaxy
being the first employers of Rosete. It is also
said that the safety of the university should not
only be within the hands of the security guards.
Damages are taken by Saludaga by surprised
including physical and moral damages
obtained from the said accidental shooting by
Rosete who claimed that it was an accident.
ISSUE: Whether or not Far Eastern University
failed to comply with their obligation in
implementing a safe and secure learning
environment.
HELD: The court dismissed the petitioners
complaints for Edilberto De Jesus as well as the
counterclaims of the respondents. The Regional
Trial Court of Manila found FEU to be liable for
the damages and a breach of their obligation to
the petitioner. FEU was ordered to pay actual

FIL-ESTATE vs SPS RONQUILLO (G.R. No.

185798;
January 13, 2014)
FACTS: Petitioner Fil-Estate, owner and
developer of the Central Park Place Tower,
while co-petitioner Fil-Estate Network, Inc. is its
authorized marketing agent. Repondents
Spouses Conrado and Maria Vicotria Ronquillo
purchased from petitioners an 82-square meter
condominium unit at the Central Park Place
Tower in Mandaluyong City for a pre-selling
contract price of Php 5,174,000. On August 29,
1997, respondents entered into a reservation
agreement wherein they deposited P200, 000
as reservation fee. Respondents paid the full
down payment of Php 1,552,200 and had been
paying
the
Php
63,363.33
monthly
amortizations until September 1998.
Respondents also stopped paying their monthly
amortization
when
they
learned
that
construction works stopped. Claiming to have
paid a total of Php 2,198,949.96 to petitioners,
respondents demanded a full refund of their
payment with interest. When their demands
went unheeded, respondents were constrained
to file a Complaint for Refund and Damages
before the Housing and Land Use Regulatory
Board (HLURB). Respondents prayed for refund
of Php 2,198,949.96 representing the total

amortization payments, Php 200,000 as and by

way of moral damages, attorneys fees and
other litigation expenses. The HLURB issued an
Order of Default against petitioners for failing
to file their answer within the reglementary
period despite service of summons.
Petitioners filed a motion to lift order of default
and attached their position paper attributing
the delay in construction to the 1997 Asian
financial crisis. Petitioners denied committing
fraud or misrepresentation which could entitle
respondents to an award of moral damages.
The HLURB rendered judgment ordering
petitioners to jointly and severally pay
respondents the amount of Php 2,198,949.96,
as well as the attorneys fees, costs of suit and
administrative fine.
The Arbiter considered petitioners failure to
develop the condominium project as a
substantial breach of their obligation which
entitles respondents to seek for rescission with
payment of damages. He also stated that mere
economic hardship is not an excuse for
contractual and legal delay. The HLURB
reiterated that the depreciation of the peso as
a result of the Asian financial crisis is not a
fortuitous event which will exempt petitioners
from the performance of their contractual
obligation.
After the exhaustion of the remedies available,
petitioners sought relief from the Court of
Appeals through a petition for review under
Rule 43 containing the same arguments they
raised before the HLURB and the Office of the
President but was denied for lack of merit.
The appellate court agreed to the HLURB
Arbiters ruling. The appellate court supported
the HLURB Arbiters conclusion, which was
affirmed by the HLURB and the Office of the
President, that petitioners failure to develop
the condominium project is tantamount to a
substantial breach which warrants a refund of
the total amount paid, including interest. The
appellate court pointed out that petitioners
failed to prove that the Asian financial crisis
constitutes a fortuitous event which could
excuse them from the performance of their
contractual
and
statutory
obligations.
Petitioners sought reconsideration but it was
denied by the Court of Appeals. Aggrieved,
petitioners filed the instant petition advancing
substantially the same grounds for review.
ISSUE: Whether or not the Asian financial crisis
constitute a fortuitous event which would
justify delay by petitioners in the performance
of their contractual obligation.

HELD: It is apparent that these issues were

repeatedly raised by petitioners in all the legal
fora. The rulings were consistent that first, the
Asian financial crisis is not a fortuitous event
that would excuse petitioners from performing
their contractual obligation; second, as a result
of the breach committed by petitioners,
respondents are entitled to rescind the contract
and to be refunded the amount of
amortizations paid including interest and
damages and third petitioners are likewise
obligated to pay attorneys fees and the
administrative fine.
This petition did not present any justification
for us to deviate from the rulings of the HLURB,
the Office of the President and the Court of
appeals.
Indeed, the non-performance of
petitioners obligation entitles respondents to
rescission under Article 1191 of the New Civil
Code which states:
Article 1191. The power to rescind obligations
is implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him. The injured party may
choose between the fulfillment and the
rescission of the obligation, with payment of
damages in either case. He may also seek
rescission, even after he has chosen
fulfillment, if the latter should become
impossible.
Conformably with these provisions of law,
respondents are entitled to rescind the contract
and demand reimbursement for the payments
they had made to petitioners.

LORENZO SHIPPING vs BJ MARTHEL (443

SCRA 163; November 19, 2004)
FACTS: Petitioner Lorenzo Shipping is engaged
in coastwise shipping and owns the cargo M/V
Dadiangas Express. BJ Marthel is engaged in
trading,
marketing
and
selling
various
industrial commodities. Lorenzo Shipping
ordered for the second time cylinder lines from
the respondent stating the term of payment to
be 25% upon delivery, the balance payable in 5
bi-monthly equal installments, no again stating
the date of the cylinders delivery. It was
allegedly paid through postdated checks but

the same was dishonored due to insufficiency

of funds. Despite due demands by the
respondent, petitioner failed contending that
time was of the essence in the delivery of the
cylinders and that there was a delay since the
respondent committed said items within two
months after receipt of fir order. RTC held
respondents bound to the quotation with
respect to the term of payment, which was
reversed by the Court of appeals ordering
appellee to pay appellant Php 954,000 plus
interest. There was no delay since there was no
demand.
ISSUE: Whether or not respondent incurred
delay in performing its obligation under the
contract of sale
RULING: By accepting the cylinders when they
were delivered to the warehouse, petitioner
waived the claimed delay in the delivery of said
items. Supreme Court held that time was not of
the essence. There having been no failure on
the part of the respondent to perform its
obligations, the power to rescind the contract is
unavailing to the petitioner. Petition is denied.
Court of appeals decision is affirmed.

SOLAR
HARVEST
INC.
vs
DAVAO
CORRUGATED CARTON CORP. (G.R. no.
176868; July 26, 2010)
FACTS: Petitioners entered into an agreement
with the respondent for the purchase of
corrugated carton boxes specifically designed
for petitioner's business of exporting fresh
bananas. The agreement was not reduced into
writing. Petitioner deposited in respondent's US
Dollar Savings Account as full payment for the
ordered boxes. Despite such payment,
petitioner did not receive any boxes from
respondent. Petitioner wrote a demand letter
for reimbursement of the amount paid.
Respondent replied that the boxes had been
completed as early as April 3, 1998 and that
petitioner failed to pick them up from the

former's warehouse 30 days from completion,

as agreed upon. Petitioner filed a Complaint for
sum of money and damages against
respondent. The Complaint averred that the
parties agreed that the boxes will be delivered
within 30 days from payment but respondent
failed to manufacture and deliver the boxes
within such time.
ISSUE: Whether or not the petitioner would
have a cause of action for rescission against
the respondent.
HELD: No, the petitioner would not have a
cause of action for rescission against the
respondent. The Supreme Court ruled that in
reciprocal obligations, as in a contract of sale,
the general rule is that the fulfillment of the
parties' respective obligations should be
simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his
obligation and the other party does not fulfill
his, the latter automatically incurs in delay. But
when diferent dates for performance of the
obligations are fixed, the default for each
obligation must be determined by the rules
given in the first paragraph of the present
article, that is, the other party would incur in
delay only from the moment the other party
demands fulfillment of the former's obligation.
Thus, even in reciprocal obligations, if the
period for the fulfillment of the obligation is
fixed, demand upon the obligee is still
necessary before the obligor can be considered
in default and before a cause of action for
rescission will accrue. The
Complaint
only
alleged that petitioner made a "followup"
upon
respondent,
which, however,
would not qualify as a demand for the
fulfillment of the obligation. Without a previous
demand for the fulfillment of the obligation,
petitioner would not have a cause of action for
rescission against respondent as the latter
would not yet be considered in breach of its
contractual obligation.