QUASI-DELICT

SPOUSES VILORIA vs. CONTINENTAL AIRLINES, INC.

G.R. No. 188288; January 16, 2012

REYES, J.:

FACTS:

Fernando purchased for himself and his wife, Lourdes, on or about July 21,
1997 and while in the United States, two (2) round trip airline tickets from San
Diego, California to Newark, New Jersey on board Continental Airlines. Fernando
purchased the tickets at US$400.00 each from a travel agency called Holiday
Travel and was attended to by a certain Mager. Fernando agreed to buy the said
tickets after Mager informed them that there were no available seats at Amtrak,
passenger train service provider in the US. Per the tickets, Spouses Viloria were
scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.

Fernando requested Mager to reschedule their flight to Newark to an earlier

date. Mager informed him that flights to Newark were already fully booked and
offered the alternative of a round trip flight via Frontier Air. Since flying with
Frontier Air called for a higher fare of US$526.00 per passenger and would mean
traveling by night, Fernando opted to request for a refund. Mager denied his
request as the subject tickets are non-refundable and the only option that
Continental Airlines can offer is the re-issuance of new tickets within one (1) year
from the date the subject tickets were issued. Fernando decided to reserve two (2)
seats with Frontier Air.

Having a second thought of traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made
inquiries and was told that there are seats available and he can travel on Amtrak
anytime and any day he pleased. Fernando then purchased two (2) tickets for
Washington, D.C. From Amtrak, Fernando went to Holiday Travel and confronted
Mager with the Amtrak tickets that she had misled them into buying the
Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm that the
subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI demanding a

refund and that Mager had deluded them into purchasing the subject tickets.
Continental Micronesia denied Fernandos request for a refund and advised him
that he may take the subject tickets to any Continental ticketing location for the re-
issuance of new tickets within 2 years from the date issued; that the subject tickets
may be used as a form of payment for the purchase of another Continental ticket,
albeit with a re-issuance fee.

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 Fernando went to Continentals ticketing office at Makati City to have the
subject tickets replaced by a single round trip ticket to Los Angeles, California
under his name. Fernando was informed that Lourdes ticket was non-transferable,
thus, cannot be used for the purchase of a ticket in his favor; he would have to pay
what will not be covered by the value of his San Diego to Newark round trip ticket.

Fernando demanded for the refund of the subject tickets. Fernando claimed
that CAIs act of charging him with US$1,867.40 for a round trip ticket to Los
Angeles, which other airlines priced at US$856.00, and refusal to allow him to use
Lourdes ticket, breached its undertaking.

Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal
interest. CAI interposed the following defenses: (a) Spouses Viloria have no right to
ask for a refund as the subject tickets are non-refundable; (b) Fernando cannot
insist on using the ticket in Lourdes name for the purchase of a round trip ticket to
Los Angeles since the same is non-transferable; (c) as Mager is not a CAI
employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents
did not act in bad faith as to entitle Spouses Viloria to moral and exemplary
damages and attorneys fees.

According to CAI, one of the conditions attached to their contract of carriage

is the non-transferability and non-refundability of the subject tickets.

ISSUE:

1. Whether or not contrary to Spouses Vilorias claim, the contractual

relationship between Holiday Travel and CAI is not an agency but that of a sale.
(Does a principal-agent relationship exist between CAI and Holiday Travel?)
AGENCY

2. Whether or not CAI can be held liable for Holiday Travels employees fault
or negligence even if it has not been established that the principal was also at fault
or negligent or that the principal exercise control and supervision over them. NO

3. Whether or not CAI the representation of Mager as to unavailability of

seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria
in the purchase of the subject tickets?

HELD:

1. A principal-agent relationship exists between CAI and Holiday Travel.

Contrary to the findings of the CA, all the elements of an agency exist in this

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case. The first and second elements are present as CAI does not deny that it
concluded an agreement with Holiday Travel, whereby Holiday Travel would enter
into contracts of carriage with third persons on CAIs behalf. The third element is
also present as it is undisputed that Holiday Travel merely acted in a
representative capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf. The fourth
element is also present considering that CAI has not made any allegation that
Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday Travel
executed with Spouses Viloria and that Mager was not guilty of any fraudulent
misrepresentation. That CAI admits the authority of Holiday Travel to enter into
contracts of carriage on its behalf is easily discernible from its February 24, 1998
and March 24, 1998 letters, where it impliedly recognized the validity of the
contracts entered into by Holiday Travel with Spouses Viloria. When Fernando
informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI
did not deny that Holiday Travel is its authorized agent.

As to how the CA have arrived at the conclusion that the contract between
CAI and Holiday Travel is a sale is certainly confounding, considering that CAI is the
one bound by the contracts of carriage embodied by the tickets being sold by
Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is
the party to the contracts of carriage executed by Holiday Travel with third persons
who desire to travel via Continental Airlines, and this conclusively indicates the
existence of a principal-agent relationship. That the principal is bound by all the
obligations contracted by the agent within the scope of the authority granted to
him is clearly provided under Article 1910 of the Civil Code and this constitutes the
very notion of agency.

2. In actions based on quasi-delict, a principal can only be held liable for the
tort committed by its agents employees if it has been established by
preponderance of evidence that the principal was also at fault or negligent or that
the principal exercise control and supervision over them.

Considering that Holiday Travel is CAIs agent, does it necessarily follow that
CAI is liable for the fault or negligence of Holiday Travels employees? Citing China
Air Lines, Ltd. v. Court of Appeals, et al., CAI argues that it cannot be held liable for
the actions of the employee of its ticketing agent in the absence of an employer-
employee relationship.

Spouses Vilorias cause of action on the basis of Magers alleged fraudulent

misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing
contractual relationship between them. Therefore, it was incumbent upon Spouses
Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAIs alleged
liability can be substantiated. Apart from their claim that CAI must be held liable

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for Magers supposed fraud because Holiday Travel is CAIs agent, Spouses Viloria
did not present evidence that CAI was a party or had contributed to Magers
complained act either by instructing or authorizing Holiday Travel and Mager to
issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria
bound by the terms and conditions of the subject contracts, which Mager entered
into with them on CAIs behalf, in order to deny Spouses Vilorias request for a
refund or Fernandos use of Lourdes ticket for the re-issuance of a new one, and
simultaneously claim that they are not bound by Magers supposed
misrepresentation for purposes of avoiding Spouses Vilorias claim for damages
and maintaining the validity of the subject contracts. It may likewise be argued
that CAI cannot deny liability as it benefited from Magers acts, which were
performed in compliance with Holiday Travels obligations as CAIs agent.

However, a persons vicarious liability is anchored on his possession of

control, whether absolute or limited, on the tortfeasor. Without such control, there
is nothing which could justify extending the liability to a person other than the one
who committed the tort.

It is incumbent upon Spouses Viloria to prove that CAI exercised control or

supervision over Mager by preponderant evidence. The existence of control or
supervision cannot be presumed and CAI is under no obligation to prove its denial
or nugatory assertion.

Therefore, without a modicum of evidence that CAI exercised control over

Holiday Travels employees or that CAI was equally at fault, no liability can be
imposed on CAI for Magers supposed misrepresentation.

3. Even on the assumption that CAI may be held liable for the acts of Mager,
still, Spouses Viloria are not entitled to a refund. Magers statement cannot be
considered a causal fraud that would justify the annulment of the subject contracts
that would oblige CAI to indemnify Spouses Viloria and return the money they paid
for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract is
considered voidable and may be annulled within four (4) years from the time of the
discovery of the fraud. Once a contract is annulled, the parties are obliged under
Article 1398 of the same Code to restore to each other the things subject matter of
the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernandos consent to the subject contracts was supposedly secured by Mager
through fraudulent means, it is plainly apparent that their demand for a refund is
tantamount to seeking for an annulment of the subject contracts on the ground of

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vitiated consent.

Whether the subject contracts are annullable, this Court is required to

determine whether Magers alleged misrepresentation constitutes causal fraud.
Similar to the dispute on the existence of an agency, whether fraud attended the
execution of a contract is factual in nature and this Court, as discussed above, may
scrutinize the records if the findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious
words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. In order
that fraud may vitiate consent, it must be the causal (dolo causante), not merely
the incidental (dolo incidente), inducement to the making of the contract. In
Samson v. Court of Appeals, causal fraud was defined as a deception employed by
one party prior to or simultaneous to the contract in order to secure the consent of
the other. Also, fraud must be serious and its existence must be established by
clear and convincing evidence.

After meticulously poring over the records, this Court finds that the fraud
alleged by Spouses Viloria has not been satisfactorily established as causal in
nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria
failed to prove by clear and convincing evidence that Magers statement was
fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed
available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time
they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that
she purposely informed them otherwise.

This Court finds the only proof of Magers alleged fraud, which is Fernandos
testimony that an Amtrak had assured him of the perennial availability of seats at
Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it
was possible that during the intervening period of three (3) weeks from the time
Fernando purchased the subject tickets to the time he talked to said Amtrak
employee, other passengers may have cancelled their bookings and reservations
with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the
existence of fraud cannot be proved by mere speculations and conjectures. Fraud
is never lightly inferred; it is good faith that is. Under the Rules of Court, it is
presumed that "a person is innocent of crime or wrong" and that "private
transactions have been fair and regular." Spouses Viloria failed to overcome this
presumption.

OBLIGATIONS; SOLIDARY OBLIGATIONS

PETRON CORPORATION vs. SPOUSES CUDILLA

G.R. No. 151038; January 18, 2012
SERENO, J.:

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FACT:

Rubin Uy entered into a Contract of Lease (25 April 1984) with Cesar J. Jovero
over a property located at Estancia, Iloilo for the purpose of operating a gasoline
station for a period of five (5) years.

Petitioner, a domestic corporation entered into a Retail Dealer Contract on 30

April 1984, with Rubin Uy for 1 May 1984 to 30 April 1989. Under the dealership
contract, petitioner sold its products in quantities as ordered by the dealer; to
deliver the products to the dealer at the places agreed upon by the parties. The
dealer obligated himself to exclusively maintain petitioners brand names in his
gasoline station. The parties also agreed that the dealer shall make good, settle
and pay, and hold petitioner harmless against all losses and claims including their
agents and employees for death, personal injury or property damage arising out
of any use or condition of the dealers premises or the equipment and facilities
regardless of any defects therein; the dealers non-performance of the contract; or
the storage and handling of products on the premises.

To comply with its obligation to deliver to the dealer, petitioner contracted

the hauling services of Jose Villaruz, who did business under the name Gale Freight
Services. The hauling contract was executed in March 1988 for a period of three
years, renewable for another three upon agreement of the parties. Under the
hauling contract, Villaruz specifically assigned three (3) units of tank trucks
exclusively for the hauling requirements of petitioner for the delivery of the latters
products, namely tank trucks with the plate numbers FVG 605, FVG 581 and FVG
583. Delivery includes not only transportation but also proper loading and
unloading and delivery. The parties also agreed that Villaruz shall save petitioner
from any and all claims of third persons arising out of, but not limited to, his
performance of the terms and conditions of the contract; to be answerable to
petitioner for damage to its plant, equipment and facilities, including those of its
employees, dealers and customers, resulting from his negligence and/or lack of
diligence.

On 27 October 1988, Rubin Uy executed a SPA in favor of Chiong Uy

authorizing the latter to manage and administer the gasoline station. Chiong Uy
and his wife, Dortina, operated the gasoline station as agents of Rubin Uy.
On 3 January 1991, around 10 a.m. in the morning, Ronnie Allanaraiz, an
employee of the gasoline station, ordered petitioner various petroleum products.
Petitioner requested the services of Villaruz for the delivery to the gasoline station
in Estancia, Iloilo. He, however, used a tank truck different from the trucks
specifically enumerated in the hauling contract. Petitioner allowed the delivery of
its products to Estancia in the tank truck driven by Pepito Igdanis.

During the unloading of the petroleum from the tank truck into the fill pipe,
for reasons unknown, a fire started in the fill pipe and spread to the rubber hose

6
connected to the tank truck. During this time, driver Igdanis was nowhere to be
found. Bystanders then tried to put out the flames. It was then that Igdanis
returned to the gasoline station with a bag of dried fish in hand. Seeing the fire, he
got into the truck without detaching the rubber hose from the fill pipe and drove in
reverse, dragging the burning fuel hose along the way. As a result, a conflagration
started and consumed the nearby properties of herein defendants, spouses Jovero,
spouses Tan and of spouses Limpoco

Herein respondents filed separate actions for damages against petitioner,

Villaruz, Rubin Uy, and Dortina Uy, at the RTC of Iloilo City. Respondents alleged
that the negligence of petitioner and its co-defendants in the conduct of their
businesses caused the fire that destroyed the formers properties. Petitioner Petron
alleged that the petroleum products were already paid for and owned by Rubin Uy.
It alleged that Villaruz was responsible for the safe delivery of the products by
virtue of the hauling contract. Thus, petitioner asserted, liability for the damages
caused by the fire rested on Rubin Uy and Villaruz.

The RTC ruled in favor of respondents and found petitioner and its co-
defendants solidarily liable for damages. The RTC held that Igdanis, as the driver of
the tank truck, was negligent in the performance of his work when he left the tank
truck while it was in the process of unloading the petroleum and negligent when he
drove the truck in reverse without detaching the burning fuel hose. The trial court
stated that defendant Villaruz failed to convince the court that he had exercised
due diligence in the hiring and supervision of his employees; petitioner was
negligent in allowing Villaruz to use a tank truck that was not included among the
trucks specifically enumerated under the hauling contract. Finally, the court ruled
that the gasoline station was owned and operated by Rubin Uy and Dortina Uy at
the time of the incident. The CA affirmed that of the trial court.

ISSUE:
1. Whether or not Petron may be considered at fault for continuing to do
business with Rubin Uy, an independent petroleum dealer, without renewing or
extending their expired dealership agreement; respondents have a claim against
petitioner based on the dealership agreement.

2. Whether or not Petron is liable for the fire that occurred during the
unloading by an independent hauler of the fuel it sold to an equally independent
dealer at the latters gas station.

HELD:

1. Respondents have a claim against petitioner based on the dealership

agreement.

We agree with petitioner that the expiration or nonexistence of a dealership

7
contract did not ipso facto transform the relationship of the dealer and petitioner
into one of agency. As far as the parties to the dealership contract were concerned,
the rights and obligations as to them still subsisted, since they continued to
mutually benefit from the agreement. Thus, neither party can claim that it is no
longer bound by the terms of the contract and the expiration thereof.

We then judiciously reviewed the terms of the contract and found that
petitioner is liable to respondents for the damages caused by the fire. As petitioner
itself points out, it owns the equipment relevant to the handling and storage of
gasoline, including the gasoline pumps and the underground tank. It is also
responsible for the delivery of the petroleum to the dealer. The incident occurred at
the time the petroleum was being unloaded to the underground tank petitioner
owned. Aside from failing to show the actual cause of the fire, it also failed to rebut
the presumption that it was negligent in the maintenance of its properties and in
the conduct of its business.

While both parties to the contract have the right to provide a clause for non-
liability, petitioner admits that they both share the maintenance of its equipment.
Petitioner states that its responsibility extended to the operating condition of the
gasoline station, e.g. whether the fuel pumps were functioning properly.

Moreover, it cannot be denied that petitioner likewise obligated itself to

deliver the products to the dealer. When the incident occurred, petitioner, through
Gale Freight Services, was still in the process of fulfilling its obligation to the dealer.
We disagree with its contention that delivery was perfected upon payment of the
goods at its depot. There was yet no complete delivery of the goods as evidenced
by the aforementioned hauling contract petitioner executed with Villaruz. That
contract made it clear that delivery would only be perfected upon the complete
unloading of the gasoline.

Thus, with regard to the delivery of the petroleum, Villaruz was acting as the
agent of petitioner Petron. For a fee, he delivered the petroleum products on its
behalf. Notably, petitioner even imposed a penalty clause in instances when there
was a violation of the hauling contract, wherein it may impose a penalty ranging
from a written warning to the termination of the contract. Therefore, as far as the
dealer was concerned with regard to the terms of the dealership contract, acts of
Villaruz and his employees are also acts of petitioner. Both the RTC and the CA held
that Villaruz failed to rebut the presumption that the employer was negligent in the
supervision of an employee who caused damages to another; and, thus, petitioner
should likewise be held accountable for the negligence of Villaruz and Igdanis.

2. To reiterate, petitioner, the dealer Rubin Uy acting through his agent,

Dortina Uy shared the responsibility for the maintenance of the equipment used
in the gasoline station and for making sure that the unloading and the storage of
highly flammable products were without incident. As both were equally negligent in
those aspects, petitioner cannot pursue a claim against the dealer for the incident.

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Therefore, both are solidarily liable to respondents for damages caused by the fire.

Petitioner was likewise negligent in allowing a tank truck different from that
specifically provided under its hauling contract with Villaruz. The enumeration and
specification of particular tank trucks in the contract serve a purpose to ensure
the safe transportation, storage and delivery of highly flammable products.

With respect to the claims of third persons, it is not enough for petitioner to
allege that the tank truck met the same requirements provided under the contract;
it must duly prove its allegations. This, petitioner failed to do. To reiterate, it was
not able to prove the proximate cause of the fire, only the involvement of the tank
truck and the underground storage tank. Notably, both pieces of equipment were
under its responsibility. Absent any positive determination of the cause of the fire,
a presumption exists that there was something wrong with the truck or the
underground storage tank, or both. Petitioner, which had the obligation to ensure
that the truck was safe, is likewise liable for the operation of that truck.

Villaruz is also liable to petitioner based on the hauling contract.

Nonetheless, this is not the same as saying that Villaruz is no longer solidarily
liable to respondents.

Petitioner may only claim contribution from him in accordance with Article
1217 of the Civil Code, and not by virtue of its hauling contract, in the event that
respondents decide to proceed against petitioner alone for the satisfaction of
judgment.

To put it simply, based on the ruling of the lower courts, there are four (4)
persons who are liable to pay damages to respondents. The latter may proceed
against any one of the solidary debtors or some or all of them simultaneously,
pursuant to Article 1216 of the Civil Code. These solidary debtors are petitioner
Petron, the hauler Villaruz, the operator Dortina Uy and the dealer Rubin Uy. To
determine the liability of each defendant to one another, the amount of damages
shall be divided by four, representing the share of each defendant. Supposedly,
under the hauling contract, petitioner may require Villaruz to indemnify it for its
share. However, because it was not able to maintain the cross-claim filed against
him, it shall be liable for its own share under Article 1208 and can no longer seek
indemnification or subrogation from him under its dismissed cross-claim. Petitioner
may not pursue its cross-claim against Rubin Uy and Dortina Uy, because the
cross-claims against them were also dismissed; moreover, they were all equally
liable for the conflagration as discussed herein.

CONTRACTS; PERFECTION

STARBRIGHT SALES ENTERPRISES, INC. vs. PHILIPPINE REALTY

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 CORPORATION
G.R. No. 177936; January 18, 2012
ABAD, J.:

FACTS:

Ramon Licup wrote Msgr. Cirilos, on April 17, 1988, offering to buy 3
contiguous parcels of land in Paraaque that The Holy See and Philippine Realty
Corporation (PRC) owned for P1,240.00 per sq.m. Licup accepted the responsibility
for removing the illegal settlers on the land and enclosed a check for P100,000.00
to close the transaction. He undertook to pay the balance upon presentation of
the title for transfer and once the property has been cleared of its occupants.

Msgr. Cirilos, representing The Holy See and PRC, signed his name on the
conforme portion of the letter and accepted the check. But the check could not be
encashed due to Licups stop-order payment. Licup wrote Msgr. Cirilos on April 26,
1988, requesting that the titles to the land be instead transferred to petitioner
Starbright Sales Enterprises, Inc. (SSE). He enclosed a new check for the same
amount. SSEs representatives, Mr. and Mrs. Cu, did not sign the letter.

Msgr. Cirilos wrote SSE on November 29, 1988, requesting it to remove the
occupants on the property and, should it decide not to do this, Msgr. Cirilos would
return to it the P100,000.00 he received. SSE replied with an updated proposal.
-willing to comply with Msgr. Cirilos condition provided the purchase price is
lowered to P1,150.00 per sq. m. Msgr. Cirilos rejected the updated proposal. He
said that other buyers were willing to acquire the property on an as is, where is
basis at P1,400.00 per sq. m. He gave SSE seven days within which to buy the
property at P1,400.00 per sq. m, otherwise, Msgr. Cirilos would take it that SSE has
lost interest in the same. He enclosed a check for P100,000.00 in his letter as
refund of what he earlier received.

SSE wrote Msgr. Cirilos that they already had a perfected contract of sale in
the April 17, 1988 letter which he signed and that, consequently, he could no
longer impose amendments such as the removal of the informal settlers at the
buyers expense and the increase in the purchase price. SSE claimed that it got no
reply from Msgr. Cirilos and that the next thing they knew, the land had been sold
to Tropicana Properties on March 30, 1989. SSE demanded rescission of that sale.
Meanwhile, on August 4, 1989 Tropicana Properties sold the three parcels of land to
Standard Realty.

Its demand for rescission unheeded, SSE filed a complaint for annulment of
sale and reconveyance with damages before the RTC of Makati against The Holy
See, PRC, Msgr. Cirilos, and Tropicana Properties. SSE impleaded Standard Realty
as additional defendant. The Holy See sought dismissal claiming that as a foreign
government, it cannot be sued without its consent. The RTC held otherwise but the
Court reversed the ruling of the RTC and ordered the case against The Holy See

10
dismissed.

SSE alleged that Licups original letter of April 17, 1988 to Msgr. Cirilos
constituted a perfected contract. Licup even gave an earnest money of
P100,000.00. His offer to rid the land of its occupants was a mere gesture of
accommodation if only to expedite the transfer of its title. Further, SSE claimed
that, in representing The Holy See and PRC, Msgr. Cirilos acted in bad faith when
he set the price of the property at P1,400.00 per square meter when in truth, sold
to Tropicana Properties for only P760.68 per sq. m. Msgr. Cirilos maintained that
based on their exchange of letters, no contract of sale was perfected between SSE
and the parties he represented. And, only after the negotiations between them fell
through did he sell the land to Tropicana Properties.

The RTC treated the April 17, 1988 letter between Licum and Msgr. Cirilos as
a perfected contract of sale between the parties. On appeal to the Court of
Appeals, the latter rendered judgment reversing the RTC decision

Issue:

Whether or not there was no perfected contract of sale existed between SSE
and the land owners, represented by Msgr. Cirilos based on their exchange of
letters

Held:

Three elements are needed to create a perfected contract: 1) the consent of

the contracting parties; (2) an object certain which is the subject matter of the
contract; and (3) the cause of the obligation which is established. Under the law
on sales, a contract of sale is perfected when the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to the buyer,
over which the latter agrees. From that moment, the parties may demand
reciprocal performance.

The Court believes that the April 17, 1988 letter between Licup and Msgr.
Cirilos, the representative of the propertys owners, constituted a perfected
contract. When Msgr. Cirilos affixed his signature on that letter, he expressed his
conformity to the terms of Licups offer appearing on it. There was meeting of the
minds as to the object and consideration of the contract.

But when Licup ordered a stop-payment on his deposit and proposed in his
April 26, 1988 letter to Msgr. Cirilos that the property be instead transferred to SSE,
a subjective novation took place.

A subjective novation results through substitution of the person of the debtor

11
or through subrogation of a third person to the rights of the creditor. To accomplish
a subjective novation through change in the person of the debtor, the old debtor
needs to be expressly released from the obligation and the third person or new
debtor needs to assume his place in the relation. Novation serves two functions
one is to extinguish an existing obligation, the other to substitute a new one in its
place requiring concurrence of four requisites: 1) a previous valid obligation; 2)
an agreement of all parties concerned to a new contract; 3) the extinguishment of
the old obligation; and 4) the birth of a valid new obligation.

Notably, Licup and Msgr. Cirilos affixed their signatures on the original
agreement embodied in Licups letter of April 26, 1988. No similar letter
agreement can be found between SSE and Msgr. Cirilos. The proposed substitution
of Licup by SSE opened the negotiation stage for a new contract of sale as
between SSE and the owners. The succeeding exchange of letters between Mr.
Stephen Cu, SSEs representative, and Msgr. Cirilos attests to an unfinished
negotiation. Msgr. Cirilos referred to his discussion with SSE regarding the
purchase as a pending transaction. Cu, on the other hand, regarded SSEs first
letter to Msgr. Cirilos as an updated proposal. This proposal took up two issues:
which party would undertake to evict the occupants on the property and how much
must the consideration be for the property. These are clear indications that there
was no meeting of the minds between the parties. As it turned out, the parties
reached no consensus regarding these issues, thus producing no perfected sale
between them.

Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the
property to Tropicana even if it was for a lesser consideration. More than a month
had passed since the last communication between the parties on February 4, 1989.
It is not improbable for prospective buyers to offer to buy the property during that
time. The P100,000.00 that was given to Msgr. Cirilos as deposit cannot be
considered as earnest money. Where the parties merely exchanged offers and
counter-offers, no contract is perfected since they did not yet give their consent to
such offers. Earnest money applies to a perfected sale. SSE cannot revert to the
original terms stated in Licups letter to Msgr. Cirilos dated April 17, 1988 since it
was not privy to such contract. The parties to it were Licup and Msgr. Cirilos.
Under the principle of relativity of contracts, contracts can only bind the parties
who entered into it. It cannot favor or prejudice a third person. Petitioner SSE
cannot, therefore, impose the terms Licup stated in his April 17, 1988 letter upon
the owners.

SURETY; LIABILITY

FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT

PRIME INSURANCE CORPORATION) vs. CHEVRON PHILIPPINES, INC.
(formerly known as CALTEX [PHILIPPINES], INC.)
G.R. No. 177839; January 18, 2012
VILLARAMA, JR., J.:

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FACTS:

Respondent Chevron Philippines, Inc. sued petitioner First Lepanto-Taisho

Insurance Corporation for the payment of unpaid oil and petroleum purchases
made by its distributor Fumitechniks. Fumitechniks, represented by Ms. Apostol,
had applied for and was issued Surety Bond by petitioner for the amount of
P15.7M. As stated in the attached rider, the bond was in compliance with the
requirement for the grant of a credit line with the respondent to guarantee
payment/remittance of the cost of fuel products withdrawn within the stipulated
time in accordance with the terms and conditions of the agreement. The surety
bond was executed on October 15, 2001 and will expire on October 15, 2002.

Fumitechniks defaulted on its obligation. The check dated December 14,

2001 it issued to respondent was dishonored for reason of Account Closed. In a
letter, respondent notified petitioner of Fumitechniks unpaid purchases. In its
letter-reply, petitioner requested that it be furnished copies of the documents such
as delivery receipts. Respondent complied by sending copies of invoices showing
deliveries of fuel and petroleum products between November 11 to December 1,
2001.

A letter was sent to Fumitechniks demanding that the latter submit to

petitioner: (1) its comment on respondents letter; (2) copy of the agreement
secured by the Bond (3) information including the terms and conditions, of any
arrangement that [Fumitechniks] might have made or any ongoing negotiation
with Caltex in connection with the settlement of the obligations subject of the
Caltex letter.

Fumitechniks wrote petitioners counsel informing that it cannot submit the

requested agreement since no such agreement was executed between
Fumitechniks and respondent. Fumitechniks also enclosed a copy of another
surety bond issued by CICI General Insurance Corporation in favor of respondent to
secure the obligation of Fumitechniks and/or Prime Asia Sales and Services, Inc. in
the amount of P15M. Consequently, petitioner advised respondent of the non-
existence of the principal agreement as confirmed by Fumitechniks. Petitioner
explained that being an accessory contract, the bond cannot exist without a
principal agreement as it is essential that the copy of the basic contract be
submitted to the proposed surety for the appreciation of the extent of the
obligation to be covered by the bond applied for.

Respondent formally demanded from petitioner the payment of its claim

under the surety bond. However, petitioner reiterated its position that without the
basic contract subject of the bond, it cannot act on respondents claim; petitioner
also contested the amount of Fumitechniks supposed obligation. Alleging that
petitioner unjustifiably refused to heed its demand for payment, respondent
prayed that petitioner be ordered to pay a certain sum plus interest. Petitioner

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asserted that the Surety Bond was issued for the purpose of securing the
performance of the obligations embodied in the Principal Agreement stated
therein, which contract should have been attached and made part thereof.

The RTC rendered judgment dismissing the complaint. Said court found that
the terms and conditions of the oral credit line agreement between respondent and
Fumitechniks have not been relayed to petitioner and neither were the same
conveyed even during trial.

The CA ruled in favor of respondent. Hence, this petition.

ISSUE:

Whether or not the CA erred in its interpretation of the provisions of the

surety bond when it held that the surety bond secured an oral credit line
agreement notwithstanding the stipulations therein clearly showing beyond
reasonable doubt that what was being secured was a written agreement,
particularly, the written copy of which was even required to be attached to the
surety bond and made part thereof. Stated differently, whether or not a surety is
liable to the creditor in the absence of a written contract with the principal

HELD:

The law is clear that a surety contract should be read and interpreted
together with the contract entered into between the creditor and the principal.
(Section 176 of the Insurance Code)

A surety contract is merely a collateral one, its basis is the principal contract
or undertaking which it secures. Necessarily, the stipulations in such principal
agreement must at least be communicated or made known to the surety
particularly in this case where the bond expressly guarantees the payment of
respondents fuel products withdrawn by Fumitechniks in accordance with the
terms and conditions of their agreement. The bond specifically makes reference to
a written agreement. It is basic that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. Moreover, being an onerous undertaking, a surety
agreement is strictly construed against the creditor, and every doubt is resolved in
favor of the solidary debtor. Having accepted the bond, respondent as creditor
must be held bound by the recital in the surety bond that the terms and conditions
of its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety. Such non-compliance by the creditor
(respondent) impacts not on the validity or legality of the surety contract but on
the creditors right to demand performance.

It bears stressing that the contract of suretyship imports entire good faith
and confidence between the parties in regard to the whole transaction, although it

14
has been said that the creditor does not stand as a fiduciary in his relation to the
surety. The creditor is generally held bound to a faithful observance of the rights of
the surety and to the performance of every duty necessary for the protection of
those rights. Moreover, in this jurisdiction, obligations arising from contracts have
the force of law between the parties and should be complied with in good faith.
Respondent is charged with notice of the specified form of the agreement or at
least the disclosure of basic terms and conditions of its distributorship and credit
agreements with its client Fumitechniks after its acceptance of the bond delivered
by the latter. However, it never made any effort to relay those terms and
conditions of its contract with Fumitechniks upon the commencement of its
transactions with said client, which obligations are covered by the surety bond
issued by petitioner. Contrary to respondents assertion, there is no indication in
the records that petitioner had actual knowledge of its alleged business practice of
not having written contracts with distributors; and even assuming petitioner was
aware of such practice, the bond issued to Fumitechniks and accepted by
respondent specifically referred to a written agreement.

QUASI-DELICT; VICARIOUS LIABILITY

ORIX METRO LEASING AND FINANCE CORPORATION (Formerly

CONSOLIDATED ORIX LEASING AND FINANCE CORPORATION) vs. MINORS:
DENNIS, MYLENE, MELANIE and MARIKRIS, all surnamed MANGALINAO y
DIZON, MANUEL M. ONG, LORETO LUCILO, SONNY LI, AND ANTONIO DE
LOS SANTOS

G.R. No. 174089

x------------------------x

SONNY LI and ANTONIO DE LOS SANTOS vs. MINORS: DENNIS, MYLENE,

MELANIE and MARIKRIS, all surnamed MANGALINAO y DIZON, LORETO
LUCILO, CONSOLIDATED ORIX LEASING AND FINANCE CORPORATION and
MANUEL M. ONG

G.R. No. 174266; January 25, 2012

DEL CASTILLO, J.:

FACTS:

A multiple-vehicle collision in NLEX resulting in the death of all the

passengers in one vehicle, including the parents and a sibling of the surviving
orphaned minor heirs, compelled the latter to file an action for damages against
the registered owners and drivers of the two 10-wheeler trucks that collided with
their parents Nissan Pathfinder.

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 At about 11:15 p.m., three vehicles were traversing the two-lane northbound
NLEX in the vicinity of Barangay Tibag, Pulilan, Bulacan. It was raining that night.
Anacleto Edurese, Jr. was driving a Pathfinder. His Isabela-bound passengers were
the owners of said vehicle, spouses Mangalinao, their daughter Marriane,
housemaid Rufina and helper Jebueza. Before them on the outer lane was a
Pampanga-bound Fuso 10-wheeler truck driven by Loreto Lucilo, who was with
truck helper Charlie Palomar. The Fuso was then already moving in an erratic and
swerving motion. Following behind the Pathfinder was another 10-wheeler truck, an
Isuzu Cargo driven by Antonio, who was then with helper Rodolfo.

When the Pathfinder was already cruising along the NLEXs fast lane and
about to overtake the Fuso, the latter suddenly swerved to the left and cut into the
Pathfinders lane thereby blocking its way. As a result, the Pathfinder hit the Fusos
left door and left body. The impact caused both vehicles to stop in the middle of
the expressway. Instantly, the inevitable pileup happened. Although Antonio
stepped on the brakes, the Isuzus front crashed into the rear of the Pathfinder
leaving it a total wreck.

The Mangalinao spouses, the driver Edurese, and the helper Jebueza were
declared dead on the spot while 6-month old Marriane and the housemaid were
declared dead on arrival at a nearby hospital. The occupants of the trucks escaped
serious injuries and death.

As their letters to the registered owners of the trucks demanding

compensation were ignored, the minor children of the Mangalinao spouses, Dennis,
Mylene, Melanie and Marikris, through their legal guardian, consequently filed on a
Complaint for damages based on quasi-delict, before the RTC of Makati. They
impleaded the drivers Loreto and Antonio, as well as the registered owners of the
Fuso and the Isuzu trucks, namely Orix and Sonny. The children imputed
recklessness, negligence, and imprudence on the truck drivers for the deaths of
their sister and parents; while they hold Sonny and Orix equally liable for failing to
exercise the diligence of a good father of a family in the selection and supervision
of their respective drivers.

Orix in its Motion to Dismiss interposed that it is not the actual owner of the
Fuso truck. As the trial court denied the motion. Orix reiterated that the children
had no cause of action against it because on September 9, 1983, it already sold
the Fuso truck to MMO Trucking owned by Manuel Ong. The latter being the alleged
owner at the time of the collision, Orix filed a Third Party Complaint against Manuel
Tan.

Sonny and Antonio attributed fault for the accident solely on Loretos
reckless driving of his truck which suddenly stopped and slid across the highway.
They claimed that Sonny had exercised the expected diligence required of an
employer; that Antonio had been all along driving with care; and, that with the
abrupt and unexpected collision of the vehicles before him and their precarious

16
proximity, he had no way of preventing his truck from hitting the Pathfinder. The
RTC ruled Sonny, Antonio, Loreto and Orix liable for damages. On appeal, the Court
of Appeals affirmed the factual findings of the trial court of reckless driving.

ISSUE:

Whether or not Orix, as the registered owner of the Fuso, is considered in the
eyes of the law and of third persons responsible for the deaths of the passengers
of the Pathfinder, regardless of the lack of an employer-employee relationship
between it and the driver Loreto as the CA found the latter (driver) guilty of
negligence, hence solidarily liable to the victims of the mishap

HELD:

Orix as the operator on record of the Fuso truck is liable to the heirs of the
victims of the mishap.

Orix cannot point fingers at the alleged real owner to exculpate itself from
vicarious liability under Article 2180 of the Civil Code. Regardless of whoever Orix
claims to be the actual owner of the Fuso by reason of a contract of sale, it is
nevertheless primarily liable for the damages or injury the truck registered under it
have caused. It has already been explained: Were a registered owner allowed to
evade responsibility by proving who the supposed transferee or owner is, it would
be easy for him, by collusion with others or otherwise, to escape said responsibility
and transfer the same to an indefinite person, or to one who possesses no property
with which to respond financially for the damage or injury done. A victim of
recklessness on the public highways is usually without means to discover or
identify the person actually causing the injury or damage. He has no means other
than by a recourse to the registration in the Motor Vehicles Office to determine
who is the owner. The protection that the law aims to extend to him would become
illusory were the registered owner given the opportunity to escape liability by
disproving his ownership. x x x

Besides, the registered owners have a right to be indemnified by the real or

actual owner of the amount that they may be required to pay as damage for the
injury caused to the plaintiff, which Orix rightfully acknowledged by filing a third-
party complaint against the owner of the Fuso, Manuel.

CONTRACTS; NOVATION

CRESENCIO C. MILLA vs. PEOPLE

G.R. No. 188726; January 25, 2012

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 SERENO, J.:

FACTS:

Respondent Lopez was the Financial Officer of private respondent, Market

Pursuits, Inc. (MPI). Milla represented himself as a real estate developer from Ines
Anderson Development Corporation, which was engaged in selling business
properties in Makati, and offered to sell MPI a property therein located. For this
purpose, heshowed Lopez a photocopy of TCT registered in the name of Sps.
Handog as well as a Special Power of Attorney purportedly executed by the
spouses in favor of Milla. Lopez verified with the Registry of Deeds of Makati and
confirmed under the names of Sps. Handog. Since Lopez was convinced by Millas
authority, MPI purchased the property for P2 million, issuing Security Bank and
Trust Co. (SBTC) Check in the amount of P1.6 million. After receiving the check,
Milla gave Lopez a notarized Deed of Absolute Sale dated 25 March 2003 executed
by Sps. Handog in favor of MPI and an original Owners Duplicate Copy of TCT.

Milla then gave Regino Acosta, Lopezs partner, a copy of the new Certificate
of Title to the property, registered in the name of MPI. Thereafter, it tendered in
favor of Milla SBTC Check in the amount of P400,000 as payment for the balance.

Milla turned over TCT No. 218777 to Acosta, but did not furnish the latter
with the receipts for the transfer taxes. This failure to turn over the receipts
prompted Lopez to check with the Register of Deeds, where he discovered that (1)
the Certificate of Title given to them by Milla could not be found therein; (2) there
was no transfer of the property from Sps. Handog to MPI; and (3) TCT No. 218777
was registered in the name of a certain Matilde M. Tolentino.

Lopez demanded the return of the amount of P2 million from Milla, who then
issued 2 Equitable PCI Check Nos. 188954 and 188955 in the amount of P1 million
each. However, these checks were dishonored. When Milla ignored the demand
letter sent by Lopez, the latter, by virtue of the authority vested in him by the MPI
Board of Directors, filed a Complaint against the former; two Informations for
Estafa Thru Falsification of Public Documents were filed against Milla before the
RTC Makati. Milla was accused of having committed estafa through the falsification
of the notarized Deed of Absolute Sale and TCT No. 218777 purportedly issued by
the Register of Deeds of Makati.

The RTC, Makati found Milla guilty beyond reasonable doubt of two counts of
estafa through falsification of public documents. On appeal, the Court of Appeals,
in the assailed Decision dated 22 April 2009, affirmed the findings of the trial court.

ISSUE:

Whether or not petitioner Millas issuance of Equitable PCI Check Nos.

18
188954 and 188955 before the institution of the criminal complaint against him
novated his obligation to MPI, thereby enabling him to avoid any incipient criminal
liability and converting his obligation into a purely civil one (simple loan)

HELD:

The principle of novation cannot be applied to the case at bar.

Milla contends that his issuance of Equitable PCI Check Nos. 188954 and
188955 before the institution of the criminal complaint against him novated his
obligation to MPI, thereby enabling him to avoid any incipient criminal liability and
converting his obligation into a purely civil one. This argument does not persuade.

The principles of novation cannot apply to the present case as to extinguish

his criminal liability. Milla cites People v. Nery to support his contention that his
issuance of the Equitable PCI checks prior to the filing of the criminal complaint
averted his incipient criminal liability. However, it must be clarified that mere
payment of an obligation before the institution of a criminal complaint does not, on
its own, constitute novation that may prevent criminal liability.

Further, in Quinto v. People, this Court exhaustively explained the concept of

novation in relation to incipient criminal liability, viz: Novation is never
presumed, and the animus novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken.

The extinguishment of the old obligation by the new one is a

necessary element of novation which may be effected either
expressly or impliedly. The term expressly means that the
contracting parties incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. Upon the
other hand, no specific form is required for an implied novation, and
all that is prescribed by law would be an incompatibility between the
two contracts. While there is really no hard and fast rule to
determine what might constitute to be a sufficient change
that can bring about novation, the touchstone for
contrariety, however, would be an irreconcilable
incompatibility between the old and the new obligations.

There are two ways which could indicate, in fine, the presence of
novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is when
novation has been explicitly stated and declared in unequivocal
terms. The second is when the old and the new obligations are
incompatible on every point. The test of incompatibility is

19
 whether or not the two obligations can stand together, each
one having its independent existence. If they cannot, they
are incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The
incompatibility must take place in any of the essential
elements of the obligation, such as its object, cause or
principal conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to extinguish
the original obligation.

In the case at bar, the acceptance by MPI of the Equitable PCI checks
tendered by Milla could not have novated the original transaction, as the checks
were only intended to secure the return of the P2 million the former had already
given him. Even then, these checks bounced and were thus unable to satisfy his
liability. Moreover, the estafa involved here was not for simple misappropriation or
conversion, but was committed through Millas falsification of public documents,
the liability for which cannot be extinguished by mere novation.

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