Tanguilig v CA
For if the real intent of
Facts:
Jacinto M. Tanguilig doing business under the
name and style J.M.T. Engineering and General
Merchandising proposed to respondent Vicente
Herce Jr. to construct a windmill system for him.
After some negotiations they agreed on the
construction of the windmill for a consideration
of P60,000.00 with a one-year guaranty from the
date of completion and acceptance by
respondent Herce Jr. of the project. Pursuant to
the agreement respondent paid petitioner a down
payment of P30,000.00 and an installment
payment of P15,000.00, leaving a balance of
P15,000.00.
Due to the refusal and failure of respondent to
pay the balance, petitioner filed a complaint to
collect the amount. In his Answer before the trial
court respondent denied the claim saying that he
had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill
system was to be connected. According to
respondent, since the deep well formed part of
the system the payment he tendered to SPGMI
should be credited to his account by petitioner.
Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by
the defects in the windmill system which caused
the structure to collapse after a strong wind hit
their place
Petitioner denied that the construction of a deep
well was included in the agreement to build the
windmill system, for the contract price of
P60,000.00 was solely for the windmill
assembly and its installation, exclusive of other
incidental materials needed for the project.
He also disowned any obligation to repair or
reconstruct the system and insisted that he
delivered it in good and working condition to
respondent who accepted the same without
protest. Besides, its collapse was attributable to a
typhoon, a force majeure, which relieved him of
any liability
Issue:
Whether the agreement to construct the windmill
system included the installation of a deep well
Whether petitioner is under obligation to
reconstruct the windmill after it collapsed
Ruling: The petition is denied.
We reverse the appellate court on the first issue
but sustain it on the second.
1. The preponderance of evidence supports the
finding of the trial court that the installation of a
deep well was not included in the proposals of
petitioner to construct a windmill system for
respondent. There were in fact two (2) proposals
Notably, nowhere in either proposal is the
installation of a deep well mentioned, even
remotely. Neither is there an itemization or
description of the materials to be used in
constructing the deep well. There is absolutely
no mention in the two (2) documents that a deep
well pump is a component of the proposed
windmill system. The contract prices fixed in
both proposals cover only the features
specifically described therein and no other.
While the words "deep well" and "deep well
pump " are mentioned in both, these do not
indicate that a deep well is part of the windmill
system.
As correctly pointed out by petitioner, the words
"deep well" preceded by the prepositions "for"
and "suitable for" were meant only to convey the
idea that the proposed windmill would be
appropriate for a deep well pump with a
diameter of 2 to 3 inches.
petitioner was to include a deep well in the
agreement to construct a windmill, he would
have used instead the conjunctions "and" or
"with." Since the terms of the instruments are
clear and leave no doubt as to their meaning they
should not be disturbed.
Respondent insists that petitioner verbally
agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He
contends that since petitioner did not have the
capacity to install the pump the latter agreed to
have a third party do the work the cost of which
was to be deducted from the contract price. To
prove his point, he presented Guillermo Pili of
SPGMI who declared that petitioner Tanguilig
approached him with a letter from respondent
Herce Jr. asking him to build a deep well pump
as "part of the price/contract which Engineer
(Herce) had with Mr. Tanguilig.
For if indeed the deep well were part of the
windmill project, the contract for its installation
would have been strictly a matter between
petitioner and Pili himself with the former
assuming the obligation to pay the price. That it
was respondent Herce Jr. himself who paid for
the deep well by handing over to Pili the amount
of P15,000.00 clearly indicates that the contract
for the deep well was not part of the windmill
project but a separate agreement between
respondent and Pili. Besides, if the price of
P60,000.00 included the deep well, the
obligation of respondent was to pay the entire
amount to petitioner without prejudice to any
action that Guillermo Pili or SPGMI may take, if
any, against the latter
2. This Court has consistently held that 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, four (4) requisites 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 unforeseeable 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.
Petitioner failed to show that the collapse of the
windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that
there was actually a typhoon on the day the
windmill collapsed. Petitioner merely stated that
there was a "strong wind." But a strong wind in
this case cannot be fortuitous unforeseeable
nor unavoidable. On the contrary, a strong wind
should be present in places where windmills are
constructed, otherwise the windmills will not
turn.
Finally, petitioner's argument that private
respondent was already in default in the payment
of his outstanding balance of P15,000.00 and
hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in
delay if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him. When the windmill failed
to function properly it became incumbent upon
petitioner to institute the proper repairs in
accordance with the guaranty stated in the
contract. Thus, respondent cannot be said to
have incurred in delay; instead, it is petitioner
who should bear the expenses for the
reconstruction of the windmill. Article 1167 of
the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the
same shall be executed at his cost
Chavez v Gonzales
Facts: On July 1963, Rosendo Chavez brought
his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and
servicing of the said typewriter but the latter was
not able to finish the job. During October 1963,
the plaintiff gave the amount of P6.00 to the
defendant which the latter asked from the
plaintiff for the purchase of spare parts, because
of the delay of the repair the plaintiff decided to
recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff
reached their home he opened it and examined
that some parts and screws was lost. That on
October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the
interior cover and the sum of P6.00 (Exhibit D).
The following day, the defendant returned to the
plaintiff some of the missing parts, the interior
cover and the P6.00. The plaintiff brought his
typewriter to Freixas Business Machines and the
repair cost the amount of P89.85. He
commenced this action on August 23, 1965 in
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. The defendant made
no denials of the facts narrated above, except the
claim of the plaintiff that the cost of the repair
made by Freixas Business Machines be fully
chargeable against him. According to him,
Fructuoso Gonzales, is that he is not liable at all,
not even for the sum of P31.10, because his
contract with plaintiffappellant did not contain a
period, so that plaintiff-appellant should have
first filed a petition for the court to fix the
period, under Article 1197 of the Civil Code,
within which the defendant appellee was to
comply with the contract before said defendant-
appellee could be held liable for breach of
contract
Issue: Whether or not the defendant is liable for
the total cost of the repair made by Freixas
Business Machines with the plaintiff typewriter?
Ruling: The petition granted
The inferences derivable from these findings of
fact are that the appellant and the appellee had a
perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant
was to finish it at some future time although
such time was not specified; and that such time
had passed without the work having been
accomplished, far the defendant returned the
typewriter cannibalized and unrepaired, which in
itself is a breach of his obligation, without
demanding that he should be given more time to
finish the job, or compensation for the work he
had already done. The time for compliance
having evidently expired, and there being a
breach of contract by non-performance, 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 in this
case. Defendant cannot invoke Article 1197 of
the Civil Code for he virtually admitted non-
performance by returning the typewriter that he
was obliged to repair in a non-working
condition, with essential parts missing. The
fixing of a period would thus be a mere
formality and would serve no purpose than to
delay (cf. Tiglao. et al. V. Manila Railroad Co.
98 Phil. 181).
It is clear that the defendant-appellee
contravened the tenor of his obligation because
he not only did not repair the typewriter but
returned it "in shambles", according to the
appealed decision. For such contravention, as
appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, 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, the defendant-appellee 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.
CIVIL LAW; CONTRACTS; BREACH OF
CONTRACT FOR NON-PERFORMANCE;
FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE,
ACADEMIC. Where the time for compliance
had expired and there was breach of contract by
non-performance, 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.
DEFENDANT CANNOT INVOKE ARTICLE
1197 OF THE CIVIL CODE OF THE
PHILIPPINES. 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.
DAMAGES RECOVERABLE; CASE AT
BAR. Where the defendant-appellee
contravened the tenor of his obligation because
he not only did not repair the typewriter but
returned it "in shambles,'' he is liable for 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, he is likewise liable under Art.
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.
CLAIMS FOR DAMAGES OR ATTORNEY'S
FEES NOT RECOVERABLE; NOT
ALLEGED OR PROVED IN INSTANT
CASE. Claims for damages and attorney's
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 attorney's fees, there is no factual
basis upon which to make an award therefor.
No, he is not liable for the total cost of the repair
made by Freixas Business Machines instead he
is only liable for the cost of the missing parts
and screws. The defendant contravened the tenor
of his obligation in repairing the typewriter of
the plaintiff that he fails to repair it and returned
it with the missing parts, he is liable under
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.
Khe Hong Cheng v CA
Facts:
Petitioner Khe Hong Cheng, alias Felix Khe, is
the owner of Butuan Shipping Lines. It appears
that on or about October 4, 1985, the Philippine
Agricultural Trading Corporation shipped on
board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng,
M/V PRINCE ERIC, however, sank somewhere
between Negros Island and Northeastern
Mindanao, resulting in the total loss of the
shipment. Because of the loss, the insurer,
American Home, paid the amount of
P354,000.00 (the value of the copra) to the
consignee.
Having been subrogated into the rights of the
consignee, American Home instituted Civil
Case No. 13357 in the Regional Trial Court
(RTC) of Makati, Branch 147 to recover the
money paid to the consignee, based on breach of
contract of carriage. While the case was still
pending, or on December 20, 1989, petitioner
Khe Hong Cheng executed deeds of donations of
parcels of land in favor of his children, herein
co-petitioners Sandra Joy and
Ray Steven.
The trial court rendered judgment against
petitioner Khe Hong Cheng in Civil Case No.
13357 on December 29, 1993, four years after
the donations were made and the TCTs were
registered in the donees' names
After the said decision became final and
executory, a writ of execution was forthwith,
issued on September 14, 1995. Said writ of
execution, however, was not served. An alias
writ of execution was, thereafter, applied for and
granted in October 1996. Despite earnest efforts,
the sheriff found no property under the name of
Butuan Shipping Lines and/or petitioner Khe
Hong Cheng to levy or garnish for the
satisfaction of the trial court's decision. When
the sheriff, accompanied by counsel of
respondent Philam, went to Butuan City on
January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe
Hong Cheng no longer had any property and that
he had conveyed the subject properties to his
children
On February 25, 1997, respondent Philam filed a
complaint with the Regional Trial Court of
Makati City, Branch 147, for the rescission of
the deeds of donation executed by petitioner Khe
Hong Cheng in favor of his children and for the
nullification of their titles
Petitioners subsequently filed their answer to the
complaint a quo. They moved for its dismissal
on the ground that the action had already
prescribed
Acting thereon, the trial court denied the motion
to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to
the trial court, the prescriptive period began to
run only from December 29, 1993, the date of
the decision of the trial court
On appeal by petitioners, the CA affirmed the
trial court's decision in favor of respondent
Philam. The CA declared that the action to
rescind the donations had not yet prescribed.
Citing Articles 1381 and 1383 of the Civil Code,
the CA basically ruled that the four year period
to institute the action for rescission began to run
only in January 1997, and not when the decision
in the civil case became final and executory on
December 29, 1993. The CA reckoned the
accrual of respondent Philam's cause of action
on January 1997, the time when it first learned
that the judgment award could not be satisfied
because the judgment creditor, petitioner Khe
Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not
yet exhausted all legal means for the satisfaction
of the decision in its favor, as prescribed under
Article 1383 of the Civil Code.
Issue: When did the four (4) year prescriptive
period as provided for in Article 1389 of the
Civil Code for respondent Philam to file its
action for rescission of the subject deeds of
donation commence to run?
Ruling: The petition is denied.
Article 1389 of the Civil Code simply provides
that, "The action to claim rescission must be
commenced within four years." Since this
provision of law is silent as to when the
prescriptive period would commence, the
general rule, i.e, from the moment the cause of
action accrues, therefore, applies.
Article 1150 of the Civil Code
The time for prescription for all kinds of
actions, when there is no special provision
which ordains otherwise, shall be counted from
the day they may be brought.
Indeed, this Court enunciated the principle that it
is the legal possibility of bringing the action
which determines the starting point for the
computation of the prescriptive period for the
action. Article 1383 of the Civil Code provides
as follows An action for rescission is
subsidiary; it cannot be instituted except when
the party suffering damage has no other legal
means to obtain reparation for the same.
It is thus apparent that an action to rescind or an
accion pauliana must be of last resort, availed of
only after all other legal remedies have been
exhausted and have been proven futile. For an
accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission, has a
credit prior to the alienation, although
demandable later;
2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a
third person;
3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission
of the conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the
property conveyed, if by onerous title, has been
an accomplice in the fraud
An accion pauliana accrues only when the
creditor discovers that he has no other legal
remedy for the satisfaction of his claim against
the debtor other than an accion pauliana. The
accion pauliana is an action of a last resort. For
as long as the creditor still has a remedy at law
for the enforcement of his claim against the
debtor, the creditor will not have any cause of
action against the creditor for rescission of the
contracts entered into by and between the debtor
and another person or persons.
An accion pauliana thus presupposes the
following:
1) A judgment;
2) The issuance by the trial court of a writ of
execution for the satisfaction of the judgment,
3) The failure of the sheriff to enforce and
satisfy the judgment of the court. It requires that
the creditor has exhausted the property of the
debtor.
The date of the decision of the trial court is
immaterial. What is important is that the credit
of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After
all, the decision of the trial court against the
debtor will retroact to the time when the debtor
became indebted to the creditor.
Petitioners, however, maintain that the cause of
action of respondent Philam against them for the
rescission of the deeds of donation accrued as
early as December 27, 1989, when petitioner
Khe Hong Cheng registered the subject
conveyances with the Register of Deeds.
Respondent Philam allegedly had constructive
knowledge of the execution of said deeds under
Section 52 of Presidential Decree No. 1529
Even if respondent Philam was aware, as of
December 27, 1989, that petitioner Khe Hong
Cheng had executed the deeds of donation in
favor of his children, the complaint against
Butuan Shipping Lines and/or petitioner Khe
Hong Cheng was still pending before the trial
court. Respondent Philam had no inkling, at the
time, that the trial court's judgment would be in
its favor and further, that such judgment would
not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during
the pendency of the case. Had respondent
Philam filed his complaint on December 27,
1989, such complaint would have been
dismissed for being premature. Not only were all
other legal remedies for the enforcement of
respondent Philam's claims not yet exhausted at
the time the deeds of donation were executed
and registered. Respondent Philam would also
not have been able to prove then that petitioner
Khe Hong Cheng had no more property other
than those covered by the subject deeds to
satisfy a favorable judgment by the trial court.
As mentioned earlier, respondent Philam only
learned about the unlawful conveyances made
by petitioner Khe Hong Cheng in January 1997
when its counsel accompanied the sheriff to
Butuan City to attach the properties of petitioner
Khe Hong Cheng. There they found that he no
longer had any properties in his name. It was
only then that respondent Philam's action for
rescission of the deeds of donation accrued
because then it could be said that respondent
Philam had exhausted all legal means to satisfy
the trial court's judgment in its favor. Since
respondent Philam filed its complaint for accion
pauliana against petitioners on February 25,
1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other
property to satisfy the judgment award against
him, its action for rescission of the subject deeds
clearly had not yet prescribed.
Siguan v Lim
Facts:
Respondent Rosa was charged by petitioner with
two counts of violation of Batas Pambansa Blg.
22 for issuing checks, in the total amount of
P541,668, dishonored by the bank for the reason
of "account closed." The conviction was
affirmed by the Court of Appeals and is now
pending review with this Court. Petitioner,
thereafter filed action pauliana against
respondent Rosa to rescind, the notarized deed
of donation over 4 parcels of land Rosa executed
in favor of her three children, the other
respondents. Petitioner claimed that there was
fraudulent transfer leaving no sufficient
properties to pay her obligations with her and
that the deed of donation was not antedated.
During the hearing of the case, petitioner
presented evidence on Rosa's civil liability to
one Victoria Suarez in the amount of P169,000.
For her defense, Rosa denied liability and the
alleged antedating of the deed. The trial court
rendered judgment in favor of petitioner, ordered
the rescission of the contract and declared the
titles in the name of Rosa's children null and
void. On appeal, the Court of Appeals reversed
the trial court and dismissed the action pauliana.
It ruled that the deed of donation was not
fraudulent transfer as respondent debtor Rosa
still owns 4 parcels of land sufficient to cover
her debts to petitioner, that the notarized deed of
donation, a public document in the absence of
convincing evidence that the notary and the
parties antedated the instrument, is evidence of
the fact that gave rise to its execution and of the
date thereof. Petitioner's motion for
reconsideration having been denied she resorted
to this recourse.
Issue: Whether the questioned Deed of
Donation was made in fraud of petitioner and,
therefore, rescissible
Ruling: The petition is denied.
The Supreme Court held that contracts
undertaken in fraud of creditors are rescissible
when the latter cannot in any other manner
collect the claims due them; that rescission is but
a subsidiary remedy which cannot be instituted
except when the party suffering damage has no
other legal means to obtain reparation for the
same. In the case at bar, respondent Rosa has 4
other real properties, hence, the presumption of
fraud will not come into play; and that a party
cannot invoke the credit of others to justify
rescission of the deed of donation
ACTIONS; ACCION PAULIANA;
REQUISITE FOR ACTION TO PROSPER.
The action to rescind contracts in fraud of
creditors is known as accion pauliana. For this
action to prosper, the following requisites must
be present: (1) the plaintiff asking for rescission
has a credit prior to the alienation, although
demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial
benefit to a third person; (3) the creditor has no
other legal remedy to satisfy his claim; (4) the
act being impugned is fraudulent; (5) the third
person who received the property conveyed, if it
is by onerous title, has been an accomplice in the
fraud.
CREDIT MUST EXIST PRIOR TO
FRAUDULENT ALIENATION. The general
rule is that rescission requires the existence of
creditors at the time of the alleged fraudulent
alienation, and this must be proved as one of the
bases of the judicial pronouncement setting
aside the contract. Without any prior existing
debt, there can neither be injury nor fraud. While
it is necessary that the credit of the plaintiff in
the accion pauliana must exist prior to the
fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment
be subsequent to the alienation, it is merely
declaratory, with retroactive effect to the date
when the credit was constituted.
ALLEGED ANTEDATING OF DOCUMENT
NOT PROVED BY LATE REGISTRATION
OF ACKNOWLEDGED DOCUMENT. In
the instant case, the alleged debt of LIM in favor
of petitioner was incurred in August 1990, while
the deed of donation was purportedly executed
on 10 August 1989. We are not convinced with
the allegation of the petitioner that the
questioned deed was antedated to make it appear
that it was made prior to petitioner's credit.
Notably, that deed is a public document, it
having been acknowledged before a notary
public. As such, it is evidence of the fact which
gave rise to its execution and of its date,
pursuant to Section 23, Rule 132 of the Rules
of Court. In the present case, the fact that the
questioned Deed was registered only on 2 July
1991 is not enough to overcome the presumption
as to the truthfulness of the statement of the date
in the questioned deed, which is 10 August
1989. Petitioner's claim against LIM was
constituted only in August 1990, or a year after
the questioned alienation. Thus, the first two
requisites for the rescission of contracts are
absent.
CREDITOR CANNOT IN ANY MANNER
COLLECT CLAIM. Even assuming
arguendo that petitioner became a creditor of
LIM prior to the celebration of the contract of
donation, still her action for rescission would not
fare well because the third requisite was not met.
Under Article 1381 of the Civil Code, contracts
entered into in fraud of creditors may be
rescinded only when the creditors cannot in any
manner collect the claims due them. Also,
Article 1383 of the same Code provides that the
action for rescission is but a subsidiary remedy
which cannot be instituted except when the party
suffering damage has no other legal means to
obtain reparation for the same. The term
"subsidiary remedy" has been defined as "the
exhaustion of all remedies by the prejudiced
creditor to collect claims due him before
rescission is resorted to." It is, therefore,
"essential that the party asking for rescission
prove that he has exhausted all other legal means
to obtain satisfaction of his claim. Petitioner
neither alleged nor proved that she did so. On
this score, her action for the rescission of the
questioned deed is not maintainable even if the
fraud charged actually did exist.
DEBTOR DID NOT RESERVE SUFFICIENT
PROPERTY TO PAY DEBT PRIORTO
DONATION. The fourth requisite for an
accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil
Code provides: "All contracts by virtue of
which the debtor alienates property by gratuitous
title are presumed to have been entered into in
fraud of creditors when the donor did not reserve
sufficient property to pay all debts contracted
before the donation." Likewise, Article 759 of
the same Code, second paragraph, states that
the donation is always presumed to be in fraud
of creditors when at the time thereof the donor
did not reserve sufficient property to pay his
debts prior to the donation. For this presumption
of fraud to apply, it must be established that the
donor did not leave adequate properties which
creditors might have recourse for the collection
of their credits existing before the execution of
the donation. As earlier discussed, petitioner's
alleged credit existed only a year after the deed
of donation was executed. She cannot, therefore,
be said to have been prejudiced or defrauded by
such alienation.
BADGES OF FRAUD. Nevertheless, a
creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387
of the Civil Code. Under the third paragraph
of Article 1387, the design to defraud may be
proved in any other manner recognized by the
law of evidence. Thus in the consideration of
whether certain transfers are fraudulent, the
Court has laid down specific rules by which the
character of the transaction may be determined.
The following have been denominated by the
Court as badges of fraud: (1) The fact that the
consideration of the conveyance is fictitious or is
inadequate; (2) A transfer made by a debtor after
suit has begun and while it is pending against
him; (3) A sale upon credit by an insolvent
debtor; (4) Evidence of large indebtedness or
complete insolvency; (5) The transfer of all or
nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed
financially; (6) The fact that the transfer is made
between father and son, when there are present
other of the above circumstances; and (7) The
failure of the vendee to take exclusive
possession of all the property. The above
enumeration, however, is not an exclusive list.
The circumstances evidencing fraud are as
varied as the men who perpetrate the fraud in
each case. This Court has therefore declined to
define it, reserving the liberty to deal with it
under whatever form it may present itself.
RESCISSION SHALL ONLY BE TO EXTENT
OF CREDITOR'S UNSATISFIED CREDIT.
It should be noted that the complainant in that
case, Victoria Suarez, albeit a creditor prior to
the questioned alienation, is not a party to this
accion pauliana. Article 1384 of the Civil Code
provides that rescission shall only be to the
extent necessary to cover the damages caused.
Under this Article, only the creditor who
brought the action for rescission can benefit
from the rescission; those who are strangers to
the action cannot benefit from its effects. And
the revocation is only to the extent of the
plaintiff creditors unsatisfied credit; as to the
excess, the alienation is maintained. Thus,
petitioner cannot invoke the credit of Suarez to
justify rescission of the subject deed of donation.
Juan Nakpil &Sons v CA
Facts:
Petitioners Juan F. Nakpil & Sons in L-47851
and United Construction Co., Inc. and Juan J.
Carlos in L-47863 seek the reversal of the
decision of the Court of Appeals, among other
things, for exoneration from liability while
petitioner Philippine Bar Association in L-47896
seeks the modification of aforesaid decision to
obtain an award of P1,830,000.00 for the loss of
the PBA building plus four (4) times such
amount as damages resulting in increased cost of
the building; P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed
in the Court of First Instance of Manila were
consolidated by this Court in the resolution of
May 10, 1978 requiring the respective
respondents to comment
The plaintiff, Philippine Bar Association, a
civic-non-profit association, incorporated under
the Corporation Law, decided to construct an
office building on its 840 square meters lot
located at the corner of Aduana and Arzobispo
Streets, Intramuros, Manila. 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 proposal was
approved by plaintiff's board of directors and
signed by its president Roman Ozaeta, a third-
party defendant in this case. 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. The front columns of the
building buckled, causing the building to tilt
forward dangerously. The tenants vacated the
building in view of its precarious condition. As a
temporary remedial measure, the building was
shored up by United Construction, Inc. at the
cost of P13,661.28.
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.
Thus, the issues of this case were divided into
technical issues and non-technical issues.
As aforestated the technical issues were referred
to the Commissioner (Mr. Andres O Hizon). The
non-technical issues were tried by the Court.
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.
All the parties registered their objections to
aforesaid findings which in turn were answered
by the Commissioner.
The trial court agreed with the findings of the
Commissioner except as to the holding that the
owner is charged with full time supervision of
the construction. The Court sees no legal or
contractual basis for such conclusion.
Thus, on September 21, 1971, the lower court
rendered the assailed decision which was
modified by the Intermediate Appellate Court on
November 28, 1977.
All the parties herein appealed from the decision
of the Intermediate Appellate Court.
Hence, these petitions.
On May 11, 1978, the United Architects of the
Philippines, the Association of Civil Engineers,
and the Philippine Institute of Architects filed
with the Court a motion to intervene as amicus
curiae. The motion having been granted, the
amicus curiae were granted
Issue: 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: The petition is denied.
CIVIL LAW; ACT OF GOD; DEFINED. 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.
GENERAL RULE; REQUISITES TO EXEMPT
OBLIGOR FROM LIABILITY. 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). To exempt the obligor from
liability under this Article, 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
unforeseeable 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). 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.
INSTANCES WHEN THE RULE DOES NOT
APPLY. 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. (1 Corpus Juris,
pp. 1174-1175) 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. It
has also 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)
QUASI-DELICTS; NEGLIGENCE
EQUIVALENT TO BAD FAITH; The
aforementioned 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."
Republic v Luzon Stevedoring
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 tugboats "Bangus" and
"Barbero," also belonging to the same
corporation, 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
Sued by the Republic of the Philippines for
actual and consequential damage caused by its
employees, amounting to P200,000 (Civil Case
No. 44562, CFI of Manila), defendant Luzon
Stevedoring Corporation disclaimed liability
therefor, 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 plaintiff 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 plaintiff the actual cost of the
repair of the Nagtahan bailey bridge which
amounted to P192,561.72, with legal interest
thereon from the date of the filing of the
complaint. Hence this petition.
However, it must be recalled that the established
rule in this jurisdiction is that when a party
appeals directly to the Supreme Court, and
submits his case there for decision, he is deemed
to have waived the right to dispute any finding
of fact made by the trial Court. The only
questions that may be raised are those of law
(Savellano vs. Diaz, L-17941, July 31,
1963; Aballe vs. Santiago, L- 16307, April 30,
1963, G.S.I.S. vs. Cloribel, L-22236, June 22,
1965)
Issue:
Whether or not the collision of appellant's barge
with the supports or piers of the Nagtahan bridge
was in law caused by fortuitous event or force
majeure, and
Whether or not it was error for the Court to have
permitted the plaintiff-appellee to introduce
additional evidence of damages after said party
had rested its case.
Ruling: The petition is denied.
As to the first question considering that the
Nagtahan bridge was an immovable and
stationary object and uncontrovertedly provided
with adequate openings for the passage of water
craft, including barges like of appellant's, it is
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 does 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 stresses 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 double-checked 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
destroy 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) 2 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 is therefore, not enough
that the event should not have been foreseen or
anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is 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.
Otherwise state, the appellant, Luzon
Stevedoring Corporation, knowing and
appreciating the perils posed by the swollen
stream and its swift current, voluntarily entered
into a situation involving obvious danger; it
therefore assumed the risk, and can not shed
responsibility merely because the precautions it
adopted turned out to be insufficient. Hence, the
lower Court committed no error in holding it
negligent in not suspending operations and in
holding it liable for the damages caused.
It avails the appellant naught to argue that the
dolphins, like the bridge, were improperly
located. Even if true, these circumstances would
merely emphasize the need of even higher
degree of care on appellant's part in the situation
involved in the present case. The appellant,
whose barges and tugs travel up and down the
river everyday, could not safely ignore the
danger posed by these allegedly improper
constructions that had been erected and, in place,
for years.
CASO FORTUITO, INVOCATION OF.
Where appellant adopted precautionary
measures by assigning two of its most powerful
tugboats to tow its barge down river and by
assigning its more competent and experienced
patrons to take care of the towlines, who were
instructed to take precautions; and where the
engines and equipment had been double-checked
and unspected so that it had done all it could do
to prevent an accident, said appellant cannot invoke caso
fortuito or force majeure, as the possibility of danger was
not only foreseeable, but actually foreseen. Otherwise
stated, appellant, knowing or appreciating the perils posed
by the swollen stream and its swift current, voluntarily
entered into a situation involving obvious danger; it
therefore assumed the risk, and cannot shed responsibility
merely because the precautions it adopted turned out to be
insufficient.
Dioquino v Laureano
Facts:
Attorney Pedro Dioquino, a practicing lawyer of Masbate,
is the owner of a car. On March 31, 1964, he went to the
office of the MVO, Masbate, to register the same. He met
the defendant Federico Laureano, a patrol officer of said
MVO office, who was waiting for a jeepney to take him to
the office of the Provincial Commander. PC, Masbate.
Attorney Dioquino requested the defendant Federico
Laureano to introduce him to one of the clerks in the MVO
Office, who could facilitate the registration of his ear and
the request was graciously attended to. Defendant Laureano
rode on the car of Atty. Dioquino on his way to the P.C.
Barracks at Masbate. While about to reach their destination,
the car driven by plaintiff's driver and with defendant
Federico Laureano as the sole passenger, was stoned by
some 'mischievous boys,' and its windshield was broken.
Defendant Federico Laureano chased the boys and he was
able to catch one of them The boy was taken to Atty.
Dioquino [and] admitted having thrown the stone that
broke the car's windshield. The plaintiff and the defendant
Federico Laureano with the boy returned to the P.C.
barracks and the father of the boy was called, but no
satisfactory arrangements [were] made about the damage to
the windshield
The defendant Federico Laureano refused to pay the
windshield himself and challenged that the case be brought
to court for judicial adjudication. There is no question that
the plaintiff tried to convince the defendant, Federico
Laureano just to pay the value of the windshield and he
even came to the extent of asking the wife to convince her
husband to settle the matter amicably but the defendant
Federico Laureano refused to make any settlement, clinging
[to] the belief that he could not be held liable because a
minor child threw a stone accidentally on the windshield
and therefore, the same was due to force majeure.
Plaintiff prevailed in the lower court, the judgment
however going only against the principal defendant, his
spouse and his father being absolved of any responsibility.
Nonetheless, all three of them appealed directly to us,
raising two questions of law, the first being the failure of
the lower court to dismiss such a suit as no liability could
have been incurred as a result of a fortuitous event and the
other being its failure to award damages against plaintiff
for the unwarranted inclusion of the wife and the father in
this litigation
Issue: Whether or not Laureano is liable for the damages?
Ruling: The petition is denied.
CIVIL LAW; OBLIGATIONS AND CONTRACTS;
FORTUITOUS EVENT; NO RESPONSIBILITY
THEREFOR. The express language of Article 1174 of
the present Civil Code which is a restatement of Article
1105 of the Old Civil Code, except for the addition of the
nature of an obligation requiring the assumption of risk
reads thus: "Except in cases expressly specified by law, or
when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could
not be foreseen, or which though foreseen were inevitable.
BASIS. Its basis, as Justice Moreland stressed, is the
Roman law principle major casus est, cui humana
infirmintas resistere non potest.
CONCERNING OBLIGATION ARISING FROM
CONTRACT. Authorities of repute are in agreement,
more specifically considering an obligation arising from
contract "that some extraordinary circumstance
independent of the will of the obligor, or of his employees,
is an essential element of a caso fortuito." If it could be
shown that such indeed was the case, liability is ruled out.
There is no requirement of "diligence beyond what human
care and foresight can provide."
INSTANT CASE. Where, as in the instant case, the car
borrowed by defendant from plaintiff and driven by the
latter's driver and with defendant as the sole passenger
while on the way to the P.C. Barracks at Masbate, was
stoned by some mischievous boys and its windshield was
broken, said defendant should not be liable for such
damages for what happened was clearly unforeseen. It was
fortuitous event resulting in a loss which must be borne by
the owner of the car. An element of reasonableness in the
law would be manifestly lacking if, on the circumstances as
thus disclosed, legal responsibility could be imputed to an
individual in the situation of defendant Laureano. Article
1174 of the Civil Code guards against the possibility of its
being visited with such reproach.
ARTICLE 1174 PRESENT CIVIL CODE CONSTRUED.
The very wording of Article 1174, Civil Code of the
Philippines dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a
fortuitous event where the party charged may be considered
as having assumed the risk incident in the nature of the
obligation to be performed.
EXPLAINED. 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 or anticipated, as is
commonly believed, but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same: "un
hecho no constituye caso fortuito por la sola circunstancia
de que su existencia haga mas dificilo mas onerosa la
accion diligente del presente ofensor." (Peirano Facio,
Responsibilidad Extra-contractual, p. 465; Mezand, Traite
dela Responsibilite Civile, Vol. 2, Sec. 1569)
ASSUMPTION OF RISK; CASE OF REPUBLIC vs.
LUZON STEVEDORING
CORP. DISTINGUISHED FROM INSTANT CASE. In
the case of Republic vs. Luzon
Stevedoring Corp., appellant took all the precautions
necessary for safety however, these very precautions
completely destroy the appellant's defense force majeure.
In that instant case then, the risk was quite evident and the
nature of the obligation such that a party could rightfully be
deemed as having assumed it. It is not so in the instant case.
It is anything but that. If the lower court, therefore, were
duly mindful of what this particular legal provision
contemplates, it could not have reached the conclusion that
defendant Federico Laureano could beheld liable. To
repeat, that was clear error on its part.
RIGHT TO DAMAGES FOR WRONG INCLUSION OF
PARTIES IN COMPLAINT;
NOT ALLOWED IN INSTANT CASE. As regards
appellant's position to have plaintiff pay damages for
having joined appellant's wife and father-in-law in the
complaint, We are not disposed to view the matter thus:
"Considering the equities of the situation, plaintiff having
suffered a pecuniary loss which, while resulting from a
fortuitous event, perhaps would not have occurred at all had
not defendant Federico Laureano borrowed his car, we feel
that he is not to be penalized further by his mistaken view
of the law including them in his complaint.
Austria v CA
Facts:
In a receipt dated 30 January 1961, Maria G. Abad
acknowledged having received from
Guillermo Austria one (1) pendant with diamonds valued at
P4,500.00, to be sold on commission basis or to be returned
on demand. On 1 February 1961, however while walking
home to her residence in Mandaluyong, Rizal, Abad was
said to have been accosted by two men, one of whom hit
her on the face, while the other snatched her purse
containing jewelry and cash, and ran away. Among the
pieces of jewelry allegedly taken by the robbers was the
consigned pendant. The incident became the subject of a
criminal case filed in the Court of First Instance of Rizal
against certain persons
After due hearing, the trial court rendered judgment for the
plaintiff, and ordered defendants spouses, jointly and
severally, to pay to the former the sum of P4,500.00, with
legal interest thereon, plus the amount of P450.00 as
reasonable attorneys' fees, and the costs. It was held that
defendants failed to prove the fact of robbery, or, if indeed
it was committed, that defendant Maria Abad was guilty of
negligence when she went home without any companion,
although it was already getting dark and she was carrying a
large amount of cash and valuables on the day in question,
and such negligence did not free her from liability for
damages for the loss of the jewelry
Not satisfied with his decision, the defendants went to the
Court of Appeals, and there secured a reversal of the
judgment. The appellate court, overruling the finding of the
trial court on the lack of credibility of the two defense
witnesses who testified on the occurrence of the robbery,
and holding that the facts of robbery and defendant Maria
Abad's possession of the pendant on that unfortunate day
have been duly established, declared respondents not
responsible for the loss of the jewelry on account of a
fortuitous event, and relieved them from liability for
damages to the owner. Plaintiff thereupon instituted the
present proceeding.
It is petitioner's theory that for robbery to fall under the
category of a fortuitous event and relieve the obligor from
is obligation under a contract, pursuant to Article 1174 of
the new Civil Code, there ought to be prior finding on the
guilt of the persons responsible there for.
Issue: Whether or not Abad is liable to Austria
Rulings: The petition is denied.
CIVIL LAW; OBLIGATIONS; REQUISITES OF
FORTUITOUS EVENT. It is recognized in this
jurisdiction that to constitute a caso fortuito that would
exempt a person from responsibility, it is necessary that (1)
the event must be independent of the human will (or rather,
of the debtor's or obligor's); (2) the occurrence must render
it impossible for the
debtor to fulfill the obligation in a normal manner; and that
(3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. A fortuitous
event, therefore, can be produced by nature, e.g.,
earthquakes, storms, floods, etc., or by the act of man, such
as war, attack by bandits, robbery, etc., provided that the
event has all the characteristics enumerated above.
FOR ROBBERY TO CONSTITUTE A FORTUITOUS
EVENT, IT IS NOT REQUIRED THAT THE ACCUSED
IN THE ROBBERY CASE BE FIRST CONVICTED;
REASON. The point at issue in this proceeding is how
the fact of robbery is to be established in order that a person
may avail of the exempting provision of Article 1174 of the
new Civil Code, which reads as follows: . . It may be noted
therefrom that the emphasis of the provision is on the
events, not on the agents or factors responsible for them. To
avail of the exemption granted in the law, it is not
necessary that the persons responsible for the occurrence
should be found or punished; it would only be sufficient to
establish that the unforeseeable event, the robbery in this
case, did take place without any concurrent fault on the
debtor's part, and this can be done by preponderant
evidence. To require in the present action for recovery the
prior conviction of the culprits in the criminal case, in order
to establish the robbery as a fact, would be to demand proof
beyond reasonable doubt to prove a fact in a civil case.
THE COMMISSION AGENT WHO TRAVELED
ALONE AT NIGHT 1961 IS
NOT NEGLIGENT AND NOT RESPONSIBLE FOR THE
LOSS DUE TO ROBBERY OF JEWELRY RECEIVED
ON CONSIGNMENT; IT IS OTHER WISE IN 1971;
CASE AT BAR. It is undeniable that in order to
completely exonerate the debtor for reason of a fortuitous
event, such debtor must, in addition to the casus itself, be
free of any concurrent or contributory fault or negligence.
This is apparent from Article 1170 of the Civil Code of the
Philippines, providing that: . . It is clear that under the
circumstances prevailing at present in the City of Manila
and its suburbs, with their high incidence of crimes against
persons and property, that renders travel after nightfall a
matter to be sedulously avoided without suitable precaution
and protection, the conduct of respondent Maria G. Abad,
in returning alone to her house in the evening, carrying
jewelry of considerable value, would be negligent per se,
and would not exempt her from responsibility in the case of
a robbery. We are not persuaded, however, that the same
rule should obtain ten years previously, in 1961, when the
robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the
present day.
Yobido v CA
Facts:
On April 26, 1988, spouses Tito and Leny Tumboy and
their minor children, Ardee and
Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido
bus bound for Davao City. Along
Picop road in Km. 17, Sta. Maria, Agusan del Sur, the left
front tire of the bus suddenly exploded. The bus fell into a
ravine around three (3) feet from the road and struck a tree
which resulted in the death of Tito Tumboy and physical
injuries to other passengers.
Thereafter, a complaint for breach of contract of carriage,
damages and attorney's fees was filed by Leny and her
children against Alberta Yobido, the owner of the bus, and
Cresencio Yobido, its driver in the Regional Trial Court of
Davao City. After trial, the lower court rendered a decision
dismissing the action for lack of merit. Respondents
appealed to the Court of Appeals. On August 23, 1993,
respondent court rendered a decision reversing that of the
lower court. In this instant petition, petitioners assert that
the tire blowout that caused the death of Tito Tumboy was
a caso fortuito and herein respondent court misapprehended
the facts of the case, therefore, its findings cannot be
considered final which shall bind the Court
Issue: Whether or not Yobido is liable for damages
Ruling: The petition is denied.
The Supreme Court ruled that there is no reason to overturn
the findings and conclusions of the Court of Appeals.
Petitioners' contention that they are exempted from liability
because the tire blowout was a fortuitous event that could
not have been foreseen, must fail. It is settled that an
accident caused either by defects in the automobile or
through the negligence of its driver is not a caso fortuito
that would exempt the carrier from liability for damages.
Accordingly, the challenged decision is affirmed subject to
modification that petitioners shall additionally pay herein,
respondents P20,000.00 as exemplary damages.
CIVIL LAW; OBLIGATIONS AND CONTRACTS;
FORTUITOUS EVENT;
CHARACTERISTICS THEREOF. A fortuitous event is
possessed of the following characteristics: (a) the cause of
the unforeseen and unexpected occurrence, or the failure of
the debtor to comply with his obligations must be
independent of human will; (b) it must be impossible to
foresee the event which constitutes the caso fortuito, or if it
can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d)
the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor. As
Article 1174 provides, no person shall be responsible for a
fortuitous event which could not be foreseen, or which,
though foreseen was inevitable. In other words, there must
be an entire exclusion of human agency from the cause of
injury or loss.
COMMON CARRIER; WHEN A PASSENGER IS
INJURED OR DIES WHILE
TRAVELLING, THE LAW PRESUMES THAT THE
COMMON CARRIER IS NEGLIGENT. When a
passenger boards a common carrier, he takes the risks
incidental to the mode of travel he has taken. After all, a
carrier is not an insurer of the safety of its passengers and is
not bound absolutely and at all events to carry them safely
and without injury. However, when a passenger is injured
or dies while travelling, the law presumes that the common
carrier is negligent. . . . Article 1755 provides that "(a)
common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due
regard for all the circumstances."
Accordingly, the culpa contractual, once a passenger dies
or is injured the carrier is presumed to have been at fault or
to have acted negligently. This disputable presumption may
only be overcome by evidence that the carrier had observed
extraordinary diligence as prescribed by Articles 1733,
1755 and 1756 of the Civil Code or that the death or injury
of the passenger was due to a fortuitous event.
Consequently, the court need not make an express finding
of fault or negligence on the part of the carrier to hold it
responsible for damages sought by the passenger.
AN ACCIDENT CAUSED EITHER BY DEFECTS IN
THE AUTOMOBILE OR
THROUGH THE NEGLIGENCE OF ITS DRIVER IS
NOT A CASO FORTUITO THAT WOULD EXEMPT
THE CARRIER FROM LIABILITY FOR DAMAGES.
The explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the
situation. The fact that the tire was new did not imply that it
was entirely free from manufacturing defects or that it was
properly mounted on the vehicle. Neither may the fact that
the tire bought and used in the vehicle is of a brand name
noted for quality, resulting in the conclusion that it could
not explode within five days' use. Be that as it may, it is
settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a
caso fortuito that would exempt the carrier from liability
for damages.
PROOF THAT THE TIRE WAS NEW AND OF GOOD
QUALITY IS NOT SUFFICIENT PROOF THAT
PETITIONER IS NOT NEGLIGENT. It was incumbent
upon the defense to establish that it took precautionary
measures considering partially dangerous condition of the
road. As stated above, proof that the tire was new and of
good quality is not sufficient proof that it was not
negligent. Petitioners should have shown that it undertook
extraordinary diligence in the care of its carrier such as
conducting daily routinary check-ups of the vehicle's parts.
As the late Justice J.B.L. Reyes said: "It may be
impracticable, as appellee argues, to require of carriers to
test the strength of each and every part of its vehicles
before each trip, but we are of the opinion that a due regard
for the carrier's obligations toward the traveling public
demands adequate periodical tests to determine the
condition and strength of those vehicle portions the failure
of which may endanger the safety of the passengers."
PRESENCE OF CONTRADICTORY FACTS MUST BE
RESOLVED IN FAVOR OF LIABILITY IN VIEW OF
THE PRESUMPTION OF NEGLIGENCE OF THE
CARRIER IN THE LAW; CASE AT BAR. It is
interesting to note that petitioners proved through the bus
conductor, Salce, that the bus was running at "60-50"
kilometers per hour only within the prescribed lawful speed
limit. However, they failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned
the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the
presumption of negligence of the carrier in the law.
DAMAGES; FOR THE DEATH OF A PASSENGER,
THE HEIRS ARE ENTITLED
TO P50,000.00. Having failed to discharge its duty to
overthrow the presumption of negligence with clear and
convincing evidence, petitioners are hereby held liable for
damages. Article 1764 in relation to Article 2206 of the
Civil Code prescribes the amount of at least three thousand
pesos as damages for the death of a passenger. Under
prevailing jurisprudence, the award of damages under
Article 2206 has been increased to fifty thousand pesos
(P50,000.00).
MORAL DAMAGES; RECOVERABLE WHEN THERE
IS A BREACH OF CONTRACT OF CARRIAGE
RESULTING IN THE DEATH OF A PASSENGER.
Moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.
However, the same damages may be recovered when
breach of contract of carriage results in the death of a
passenger, as in this case.
EXEMPLARY DAMAGES; RESPONDENTS ARE
ENTITLED TO P20,000.00 AS EXEMPLARY
DAMAGES BECAUSE PETITIONER IS DEEMED TO
HAVE ACTED RECKLESSLY. Exemplary damages,
awarded by way of example or correction for the public
good when moral damages are awarded, may likewise be
recovered in contractual obligations if the defendant acted
in wanton, fraudulent, reckless, oppressive, or malevolent
manner. Because petitioners failed to exercise the
extraordinary diligence required of a common carrier,
which resulted in the death of Tito Tumboy, it is deemed to
have acted recklessly. As such, private respondents shall be
entitled to exemplary damages in the amount of P20,000.00
Phil Free Press v CA
Facts: A domestic corporation engaged in the publication
of Philippine Free Press Magazine, one of the widely
circulated political magazines in the Philippines.
During the 1965 presidential elections, [petitioner]
supported the late President Diosdado Macapagal against
then Senate President Ferdinand Marcos. Upon the election
of the late President Ferdinand Marcos in 1965 and prior to
the imposition of Martial law on September 21, 1972,
[petitioner] printed numerous articles highly critical of the
Marcos administration, exposing the corruption and abuses
of the regime. The [petitioner] likewise ran a series of
articles exposing the plan of the Marcoses to impose a
dictatorship in the guise of Martial Law
In the evening of September 20, 1972, soldiers surrounded
the Free Press Building, forced out its employees at
gunpoint and padlocked the said establishment. The soldier
in charge of the military contingent then informed Teodoro
Locsin, Jr., the son of Teodoro Locsin, Sr., the President of
[petitioner], that Martial Law had been declared and that
they were instructed by the late President Marcos to take
over the building and to close the printing press.
Sometime during the middle of 1973, Locsin, Sr. was
contacted by Brig. Gen. Hans Menzi, the former aide-de-
camp of then President Marcos concerning the sale of the
(petitioner)
Locsin, Sr. refused but Menzi insisted that he had no choice
but to sell. Locsin, Sr. then made a counteroffer that he will
sell the land, the building and all the machineries and
equipment therein but he will be
allowed to keep the name of the [petitioner]. Menzi
promised to clear the matter with then President Marcos
(TSN, 27 May 1993, p. 72). Menzi thereafter contacted
Locsin, Sr. and informed him that President Marcos was
amenable to his counteroffer and is offering the purchase
price of Five Million Seven Hundred Fifty Thousand
(P5,750,000.00) Pesos for the land, the building, the
machineries, the office furnishing and the fixtures of the
[petitioner] on a "take-it-or-leave-it" basis
On August 22, 1973, Menzi tendered to Locsin, Sr. a check
for One Million (P1,000,000.00) Pesos downpayment for
the sale, . . . Locsin, Sr. accepted the check, subject to the
condition that he will refund the same in case the sale will
not push through
On August 23, 1973, the Board of Directors of [petitioner]
held a meeting and reluctantly passed a resolution
authorizing Locsin, Sr. to sell the assets of the [petitioner]
to Menzi minus the name "Philippine Free Press
On October 23, 1973, the parties [petitioner, as vendor and
private respondent, represented by B/Gen. Menzi, as
vendee] met . . . and executed two (2) notarized Deeds of
Sale covering the land, building and the machineries of the
[petitioner]. Menzi paid the balance of the purchase price in
the amount of . . . (P4,750,000.00) Pesos
Locsin, Sr. thereafter used the proceeds of the sale to pay
the separation pay of [petitioner's] employees, buy out the
shares of the minority stockholders as well as to settle all
its obligations.
On February 26, 1987, [petitioner] filed a complaint for
Annulment of Sale against [respondent] Liwayway and the
PCGG before the Regional Trial Court of Makati, Branch
146 on the grounds of vitiated consent and gross
inadequacy of purchase price. On motion of defendant
PCGG, the complaint against it was dismissed on October
22, 1987.
In a decision dated October 31, 1995, the trial court
dismissed petitioner's complaint and granted private
respondent's counterclaim
That was also affirmed by the Court of Appeals
Petitioner contends, that the 4-year prescriptive period
could not have commenced to run on October 23, 1973,
martial law being then in full swing. Plodding on, petitioner
avers that the continuing threats on the life of Mr.
Teodoro Locsin, Sr. and his family and other menacing
effects of martial law which should be considered as
force majeure ceased only after the February 25, 1986
People Power uprising.
Issue: Did the 4-year prescriptive period start to run in late
October 1973, as postulated in the decision subject of
review, or on February 25, 1986, as petitioner argues, on
the theory that martial law has the effects of a force
majeure which, in turn, works to suspend the running of the
prescriptive period for the main case
filed with the trial court.
Ruling: The petition is denied.
*It strains credulity to believe that petitioner found it
impossible to commence and succeed in an annulment suit
during the entire stretch of the dictatorial regime. The Court
can grant that Mr. Locsin, Sr. and petitioner were, in the
context of DBP and Tan, "true oppositionists" during the
period of material law. Petitioner, however, has failed to
convincingly prove that Mr. Locsin, Sr., as its then
President, and/or its governing board, were so
circumstanced that it was well-nigh impossible for
him/them to successfully institute an action during the
martial law years. Petitioner cannot plausibly feign
ignorance of the fact that shortly after his arrest in the
evening of September 20, 1972, Mr. Locsin, Sr., together
with several other journalists, dared to file suits against
powerful figures of the dictatorial regime and veritably
challenged the legality of the declaration of martial law.
Docketed in this Court as GR No. L-35538, the case, after
its consolidation with eight (8) other petitions against the
martial law regime, is now memorialized in books of
jurisprudence and cited in legal publications and case
studies as Aquino vs. Enrile
Incidentally, Mr. Locsin Sr., as gathered from the ponencia
of then Chief Justice Querube Makalintal in Aquino, was
released from detention notwithstanding his refusal to
withdraw from his petition in said case. Judging from the
actuations of Mr. Locsin, Sr. during the onset of martial
law regime and immediately thereafter, any suggestion that
intimidation or duress forcibly stayed his hands during the
dark days of martial law to seek judicial assistance must be
rejected
Corollary to the presented issue of prescription of action for
annulment of contract voidable on account of defect of
consent 14 is the question of whether or not duress,
intimidation or undue influence vitiated the petitioner's
consent to the subject contracts of sale. Petitioner delves at
length on the vitiation issue and, relative thereto, ascribes
the following errors to the appellate court:first, in
considering as hearsay the testimonial evidence that may
prove the element of "threat" against petitioner or Mr.
Locsin, Sr., and the dictatorial regime's use of private
respondent as a corporate vehicle for forcibly acquiring
petitioner's properties; second, in concluding that the acts
of then President Marcos during the martial law years did
not have a consent-vitiating effect on petitioner; and third,
in resolving the case on the basis of mere surmises and
speculations.
The evidence referred to as hearsay pertains mainly to the
testimonies of Messrs. Locsin, Sr. and Teodoro Locsin, Jr.
(the Locsins, collectively), which, in gist, established the
following facts: 1) the widely circulated Free Press
magazine, which, prior to the declaration of Martial Law,
took the strongest critical stand against the Marcos
administration, was closed down on the eve of such
declaration, which closure eventually drove petitioner to
financial ruin; 2) upon Marcos' orders, Mr. Locsin, Sr. was
arrested and detained for over 2 months without charges
and, together with his family, was threatened with
execution; 3) Mr. Locsin, Sr. was provisionally released on
the condition that he refrains from reopening Free Press
and writing anything critical of the Marcos administration;
and 4) Mr. Locsin, Sr. and his family remained fearful of
reprisals from Marcos until the 1986 EDSA Revolution.
Per the Locsins, it was amidst the foregoing circumstances
that petitioner's property in question was sold to private
respondent, represented by Gen. Menzi, who, before the
sale, allegedly applied the squeeze on Mr. Locsin, Sr. thru
the medium of the "Marcos cannot be denied" and "[you]
have no choice but to sell" line
*Jurisprudence instructs that evidence of statement made or
a testimony is hearsay if offered against a party who has no
opportunity to cross-examine the witness. Hearsay
evidence is excluded precisely because the party against
whom it is presented is deprived of or is bereft of
opportunity to cross-examine the persons to whom the
statements or writings are attributed. And there can be no
quibbling that because death has supervened, the late Gen
Menzi, like the other purported Marcos subalterns, Messrs.
Baizas and De Vega, cannot cross-examine the Locsins for
the threatening statements allegedly made by them for the
late President.
The testimonies of Teodoro Locsin, Sr. and Teodoro
Locsin, Jr. that the late Atty. Baizas, Gen. Menzi and
Secretary de Vega stated that they were representing
Marcos, that "Marcos cannot be denied", and the fact that
Gen. Menzi stated that private respondent Liwayway was
to be the corporate vehicle for the then
President Marcos' take-over of petitioner Free Press are not
hearsay. Teodoro Locsin, Sr. and Teodoro Locsin, Jr. were
in fact testifying to matters of their own personal
knowledge because they were either parties to the said
conversation or were present at the time the said statements
were made.
Again, we disagree. Even if petitioner succeeds in halving
its testimonial evidence, one-half purporting to quote the
words of a live witness and the other half purporting to
quote what the live witness heard from one already dead,
the other pertaining to the dead shall nevertheless remain
hearsay in character.
The all too familiar rule is that "a witness can testify only
to those facts which he knows of his own knowledge". 20
There can be no quibbling that petitioner's witnesses cannot
testify respecting what President Marcos said to Gen.
Menzi about the acquisition of petitioner's newspaper, if
any there be, precisely because none of said witnesses ever
had an opportunity to hear what the two talked about.
Neither may petitioner circumvent the hearsay rule by
invoking the exception under the declaration-against-
interest rule. In context, the only declaration supposedly
made by Gen. Menzi which can conceivably be labeled as
adverse to his interest could be that he was acting in behalf
of Marcos in offering to acquire the physical assets of
petitioner. Far from making a statement contrary to his own
interest, a declaration conveying the notion that the
declarant possessed the authority to speak and to act for the
President of the Republic can hardly be considered as a
declaration against interest.
Noteworthy is the fact that although the threat of arrest
hung over his head like the Sword of Damocles, Locsin Sr.
was still able to reject the offers of Atty. Baizas and
Secretary De Vega, both of whom were supposedly acting
on behalf of the late President Marcos, without being
subjected to reprisals. In fact, the Locsins testified that the
initial offer of Menzi was rejected even though it was
supposedly accompanied by the threat that "Marcos cannot
be denied". Locsin, Sr. was, moreover, even able to secure
a compromise that only the assets of the Free Press will be
sold. It is, therefore, quite possible that plaintiff-appellant's
financial condition, albeit caused by the declaration of
Martial Law, was a major factor in influencing Locsin, Sr.
to accept Menzi's offer. It is not farfetched to consider that
Locsin, Sr. would have eventually proceeded with the sale
even in the absence of the alleged intimidation and undue
influence because of the absence of other buyers.
*Petitioner's third assigned error centers on the gross
inadequacy of the purchase price, referring to the amount of
P5,775,000.00 private respondent paid for the property in
question. To petitioner, the amount thus paid does not even
approximate the actual market value of the assets and
properties, 27 and is very much less than the P18 Million
offered by Eugenio Lopez.
Lest it be overlooked, gross inadequacy of the purchase
price does not, as a matter of civil law, per se affect a
contract of sale. Article 1470 of the Civil Code says so. It
reads: Article 1470. Gross inadequacy of price does not
affect a contract of sale, except as it may indicate a defect
in the consent, or that the parties really intended a donation
or some other act or contract
*Following the aforequoted codal provision, it behooves
petitioner to first prove "a defect in the consent", failing
which its case for annulment contract of sale on ground
gross inadequacy of price must fall. The categorical
conclusion of the Court of Appeals, confirmatory of that of
the trial court, is that the price paid for the Free Press'
office building, and other physical assets is not
unreasonable to justify the nullification of the sale. This
factual determination, predicated as it were on offered
evidence, notably petitioner's Balance Sheet as of
November 30, 1972 (Exh. 13), must be accorded great
weight if not finality. 32
In the light of the foregoing disquisition, the question of
whether or not petitioner's undisputed utilization of the
proceeds of the sale constitutes, within the purview of
Article 1393 of the Civil Code, 33 implied ratification of
the contracts of sale need not detain us long. Suffice it to
state in this regard that the ruling of the Court of Appeals
on the matter is well-taken. Wrote the appellate court:
*In the case at bench, Free Press's own witnesses admitted
that the proceeds of the 1973 sale were used to settle the
claims of its employees, redeem the shares of its
stockholders and finance the company's entry into money-
market shareholdings and fishpond business activities
(TSN, 2 May 1988, pp. 16, 42-45). It need not be
overemphasized that by using the proceeds in this manner,
Free Press only too clearly confirmed the voluntaries of its
consent and ratified the sale. Needless to state, such
ratification cleanses the assailed contract from any alleged
defects from the moment it was constituted (Art. 1396,
Civil Code).
Petitioner's posture that its use of the proceeds of the sale
does not translate to tacit ratification of what it viewed as
voidable contracts of sale, such use being a "matter of [its
financial] survival", 35 is untenable. As couched, Article
1393 of the Civil Code is concerned only with the act
which passes for ratification of contract, not the reason
which actuated the ratifying person to act the way he did.
"Ubi lex non distinguit nec nos distinguere debemus. When
the law does not distinguish, neither should we.
PhilComSat Corp. v Globe Telecom
Facts:
For several years prior to 1991, Globe Mckay Cable and
Radio Corporation, now Globe Telecom, Inc. (Globe), had
been engaged in the coordination of the provision of
various communication facilities for the military bases of
the United States of America (US) in Clark Air Base,
Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed
and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security
reasons, were operated only by its personnel or those of
American companies contracted by it to operate said
facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for
the use of the communication facilities. Globe, on the other
hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to
establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the exclusive
use of the USDCA. 2 The term of the contract was for 60
months, or five (5) years. 3 In turn, Globe promised to pay
Philcomsat monthly rentals for each leased circuit involved
At the time of the execution of the Agreement, both parties
knew that the Military Bases Agreement between the
Republic of the Philippines and the US (RP-US Military
Bases Agreement), which was the basis for the occupancy
of the Clark Air Base and Subic Naval Base in Cubi Point,
was to expire in 1991.
On 31 December 1991, the Philippine Government sent a
Note Verbale to the US Government through the US
Embassy, notifying it of the Philippines' termination of the
RPUS Military Bases Agreement. The Note Verbale stated
that since the RP-US Military Bases Agreement, as
amended, shall terminate on 31 December 1992, the
withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat
of its intention to discontinue the use of the earth station
effective 08 November 1992 in view of the withdrawal of
US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe
invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default
for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from
force majeure or fortuitous event. Either party is thus
precluded from performing its obligation until such force
majeure or fortuitous event shall terminate. For the purpose
of this paragraph, force majeure shall mean circumstances
beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request
of the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to
Globe, stating that "we expect [Globe] to know its
commitment to pay the stipulated rentals for the remaining
terms of the Agreement even after [Globe] shall have
discontinue[d] the use of the earth station after November
08, 1992." 7 Philcomsat referred to Section 7 of the
Agreement
After the US military forces left Subic Naval Base,
Philcomsat sent Globe a letter dated 24 November 1993
demanding payment of its outstanding obligations under
the Agreement amounting to US$4,910,136.00 plus interest
and attorney's fees. However, Globe refused to heed
Philcomsat's demand.
On 27 January 1995, Philcomsat filed with the Regional
Trial Court of Makati a Complaint against Globe, praying
that the latter be ordered to pay liquidated damages under
the Agreement, with legal interest, exemplary damages,
attorney's fees and costs of suit. The case was raffled to
Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it
was constrained to end theAgreement due to the
termination of the RP-US Military Bases Agreement and
the nonratification by the Senate of the Treaty of
Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the
occurrence of said events exempted it from paying rentals
for the remaining period of the Agreement.
Both parties appealed the trial court's Decision to the Court
of Appeals.
Philcomsat claimed that the trial court erred in ruling that:
(1) the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes
force majeure which exempts Globe from complying with
its obligations under the Agreement;
(2) Globe is not liable to pay the rentals for the remainder
of the term of the Agreement;
(3) Globe is not liable to Philcomsat for exemplary
damages.
Globe, on the other hand, contended that the RTC erred in
holding it liable for payment of rent of the earth station for
December 1992 and of attorney's fees. It explained that it
terminated Philcomsat's services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its
Decision dismissing Philcomsat's appeal for lack of merit
and affirming the trial court's finding that certain events
constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals
for the remainder of the term of the Agreement.
However, the Court of Appeals ruled that although Globe
sought to terminate Philcomsat's services by 08 November
1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that
the US military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992.
Issue:
(1) Whether the termination of the RPUS
Military Bases Agreement, the non-ratification of the
Treaty of Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and personnel
from Cubi Point constitute force majeure which would
exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat;
(2) Whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and
(3) Whether Philcomsat is entitled to attorney's fees and
exemplary damages
Ruling: The petition is denied.
There is no merit is Philcomsat's argument that Section 8 of
the Agreement cannot be given effect because the
enumeration of events constituting force majeure therein
unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be
unforeseen in order to exempt a party to a contract from
complying with its obligations therein. It insists that since
the expiration of the RP-US Military Bases Agreement, the
non-ratification of the Treaty of Friendship, Cooperation
and Security and the withdrawal of US military forces and
personnel from Cubi Point were not unforeseeable, but
were possibilities known to it and Globe at the time they
entered into the Agreement, such events cannot exempt
Globe from performing its obligation of paying rentals for
the entire five-year term thereof.
However, Article 1174, which exempts an obligor from
liability on account of fortuitous events or force majeure,
refers not only to events that are unforeseeable, but also to
those which are foreseeable, but inevitable
A fortuitous event under Article 1174 may either be an "act
of God," or natural occurrences such as floods or typhoons,
24 or an "act of man," such as riots, strikes or wars.
Philcomsat and Globe agreed in Section 8 of the
Agreement that the following events shall be deemed
events constituting force majeure
Furthermore, under Article 1306 26 of the Civil Code,
parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem fit, as long
as the same do not run counter to the law, morals, good
customs, public order or public policy.
Article 1159 of the Civil Code also provides that
"[o]bligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith."Courts cannot stipulate for the parties
nor amend their agreement where the same does not
contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the function of the
courts to give force and effect thereto.
Not being contrary to law, morals, good customs, public
order, or public policy, Section 8 of the Agreement which
Philcomsat and Globe freely agreed upon has the force of
law between them.
In order that Globe may be exempt from non-compliance
with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established:
(1) the event must be independent of the human will; (2)
the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the
obligor must be free of participation in, or aggravation of,
the injury to the creditor.
The Court agrees with the Court of Appeals and the trial
court that the abovementioned requisites are present in the
instant case. Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control
over the subsequent withdrawal of the US military forces
and personnel from Cubi Point in December 1992
The aforementioned events made impossible the
continuation of the Agreement until the end of its five-year
term without fault on the part of either party. The Court of
Appeals was thus correct in ruling that the happening of
such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the
Agreement. Moreover, it would be unjust to require Globe
to continue paying rentals even though Philcomsat cannot
be compelled to perform its corresponding obligation under
the Agreement.
With respect to the issue of whether Globe is liable for
payment of rentals for the month of December 1992, the
Court likewise affirms the appellate court's ruling that
Globe should pay the same
Although Globe alleged that it terminated the Agreement
with Philcomsat effective 08 November 1992 pursuant to
the formal order issued by Cdr. Corliss of the US Navy, the
date when they actually ceased using the earth station
subject of the Agreement was not established during the
trial. 34 However, the trial court found that the US military
forces and personnel completely withdrew from Cubi Point
only on 31 December 1992. 35 Thus, until that date, the
USDCA had control over the earth station and had the
option of using the same. Furthermore, Philcomsat could
not have removed or rendered ineffective said
communication facility until after 31 December 1992
because Cubi Point was accessible only to US naval
personnel up to that time. Hence, the Court of Appeals did
not err when it affirmed the trial court's ruling that Globe is
liable for payment of rentals until December 1992. Neither
did the appellate court commit any error in holding that
Philcomsat is not entitled to attorney's fees and exemplary
damages.
The award of attorney's fees is the exception rather than the
rule, and must be supported by factual, legal and equitable
justifications. In previously decided cases, the Court
awarded attorney's fees where a party acted in gross and
evident bad faith in refusing to satisfy the other party's
claims and compelled the former to litigate to protect his
rights; when the action filed is clearly unfounded, or where
moral or exemplary damages are awarded. However, in
cases where both parties have legitimate claims against
each other and no party actually prevailed, such as in the
present case where the claims of both parties were
sustained in part, an award of attorney's fees would not be
warranted.
Exemplary damages may be awarded in cases involving
contracts or quasi-contracts, if the erring party acted in a
wanton, fraudulent, reckless, oppressive or malevolent
manner. In the present case, it was not shown that Globe
acted wantonly or oppressively in not heeding Philcomsat's
demands for payment of rentals. It was established during
the trial of the case before the trial court that Globe had
valid grounds for refusing to comply with its contractual
obligations after 1992.
Gaisano Cagayan v Insurance Co. of North American
Article 1504,Article 1263, Article 2207 of the Civil
Code, Section 13 of Insurance Code
Facts:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co
IMC and LSPI separately obtained from Insurance
Company of North America fire insurance policies for their
book debt endorsements related to their ready-made
clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in
the Philippines which are unpaid 45 days after the time of
the loss
February 25, 1991: Gaisano Superstore Complex in
Cagayan de Oro City, owned by Gaisano Cagayan, Inc.,
containing the ready-made clothing materials sold and
delivered by IMC and LSPI was consumed by fire.
February 4, 1992: Insurance Company of North America
filed a complaint for damages against Gaisano Cagayan,
Inc. alleges that IMC and LSPI filed their claims under
their respective fire insurance policies which it paid thus it
was subrogated to their rights
Gaisano Cagayan, Inc: not be held liable because it was
destroyed due to fortuities event or force majeure
RTC: IMC and LSPI retained ownership of the delivered
goods until fully paid, it must bear the loss (res perit
domino)
CA: Reversed - sales invoices is an exception under Article
1504 (1) of the Civil Code to res perit domino
Issue: W/N Insurance Company of North America can
claim against Gaisano Cagayan for the debt that was
isnured
Held: YES. petition is partly GRANTED. order to pay
P535,613 is DELETED
Insurance policy is clear that the subject of the insurance is
the book debts and NOT goods sold and delivered to the
customers and dealers of the insured
ART. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained
by the seller merely to secure performance by the buyer of
his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery;
IMC and LSPI did not lose complete interest over the
goods. They have an insurable interest until full payment of
the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest
in the property
Section 13 of our Insurance Code defines insurable interest
as "every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a)
an existing interest; (b) an inchoate interest founded on
existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its
destruction.
It is sufficient that the insured is so situated with reference
to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured
An insurable interest in property does not necessarily imply
a property interest in, or a lien upon, or possession of, the
subject
Matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an
interest
Insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire - obligation is pecuniary in
nature
Obligor should be held exempt from liability when the loss
occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing
and there is no stipulation holding him liable even in case
of fortuitous event
Article 1263 of the Civil Code in an obligation to deliver a
generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation (Genus
nunquan perit)
The subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and IMC
as the insured, but also the amount paid to settle the
insurance claim
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
As to LSPI, no subrogation receipt was offered in evidence.
Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613
Eastern Shipping Lines v CA
Facts: "On December 4, 1981, two fiber drums of
riboflavin were shipped from Yokohama, Japan for
delivery vessel `SS EASTERN COMET' owned by
defendant Eastern Shipping Lines under Bill of Lading No.
YMA-8 (Exh. B). The shipment was insured under
plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
"Upon arrival of the shipment in Manila on December 12,
1981, it was discharged unto the custody of defendant
Metro Port Services, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to
plaintiff.
"On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without seal
"On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the
consignees' warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents
was adulterated/fake (per 'Bad Order Waybill' No. 10649,
Exh. E).
"Plaintiff contended that due to the losses/damage sustained
by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants.
Claims were presented against defendants who failed and
refused to pay the same
"As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants
"Defendants filed their respective answers, traversing the
material allegations of the compliant contending that: As
for defendant Eastern Shipping it alleged that the shipment
was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment
was turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment
was discharged unto its custody, portion of the same was
already in bad order (p. 11, Record); Allied Brokerage
alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in
damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and
diligence in he handling/delivery of the cargo to consignee
in the same condition shipment was received by it.
The appellate court rendered judgement in favor of the
respondent
Issue:
a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several,
liability of the common carrier, the arrastre operator and the
customs broker;
(b) whether the payment of legal interest on an award of
loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed
from is rendered; and
(c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
Ruling: The petition is granted
The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation
until delivered to, or until the lapse of a reasonable time for
their acceptance, by the person entitled to receive them
(Arts. 1736-1738, Civil Code)
When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier
of its failure to observe that diligence, and there need not be
an express finding of negligence to hold it liable (Art.
1735, Civil Code)
There are, of course, exceptional cases when such
presumption of fault is not observed but these cases,
enumerated in Article 1734 1 of the Civil Code, are
exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre
operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by the
Court. In Fireman's Fund Insurance vs. Metro Port Services
(182 SCRA 455), we have explained in holding the carrier
and the arrastre operator liable in solidum.
The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19
SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods
in goods condition to the consignee."
We do not, of course, imply by the above pronouncement
that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the
carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been
brought solely by Eastern Shipping Lines which, being the
carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular
case. A factual finding of both the court a quo and the
appellate court, we take note, is that "there is sufficient
evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner
among them). Accordingly, the liability imposed on
Eastern Shipping Lines, Inc., the sole petitioner in this case,
is inevitable regardless of whether there are others
solidarily liable with it.
"Interest upon an obligation which calls for the payment of
money, absent a stipulation, is the legal rate. Such interest
normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as
the starting point.
"But then upon the provisions of Article 2213 of the Civil
Code, interest 'cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty.' And as was held by
this Court in Rivera vs. Perez 4 , L-6998, February 29,
1956, if the suit were for damages, 'unliquidated and not
known until definitely ascertained, assessed and determined
by the courts after proof (Montilla c. Corporacion de P. P.
Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil.
302),' then, interest 'should be from the date of the
decision.'" (Emphasis supplied)
Concededly, there have been seeming variances in the
above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues
involved and the corresponding rulings rendered by the
court.
In the " first group ," the basic issue focus on the
application of either the 6% (under the Civil Code) or 12%
(under the Central Bank Circular) interest per annum. It is
easily discernible in these cases that there has been a
consistent holding that the Central Bank Circular imposing
the 12% interest per annum applies only to loans or
forbearance 16 of money, goods or credits, as well as to
judgments involving such loan or forbearance of money,
goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the
breach of a delay in the performance of obligations in
general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has
been applied, i.e., from the time the complaint is filed until
the adjudged amount is fully paid.
The "second group ," did not alter the pronounced rule on
the application of the 6% or 12% interest per annum, 17
depending on whether or not the amount involved is a loan
or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the
running of the legal interest should be from the time of the
filing of the complaint until fully paid, the "second group"
varied on the commencement of the running of the legal
interest.
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts 18 is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. 21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. 22 In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 23 of the Civil
Code.
2. When a obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the
court 24 at the rate of 6% per annum. 25 No interest,
however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be
established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run
only from the date of the judgment of the court is made (at
which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on
the amount of finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
WHEREFORE, the petition is partly GRANTED. The
appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX
PERCENT(6%) on the amount due computed from the
decision, dated 03 February 1988, of the court a quo. A
TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon
finality of this decision until the payment thereof
Crismina Garments v Court of Appeals
Facts:
Petitioner Crismina Garments, Inc. contracted the services
of respondent Norma Siapno, the sole proprietress of D'
Wilmar Garments for sewing assorted pieces of assorted
girl's denims supplied by petitioner under several purchase
orders. Petitioner was obliged to pay the respondent for her
services, in the total amount of P76,410.00. However,
petitioner failed to pay said amount. Respondent filed a
complaint with the trial court for the collection of the
principal amount of P76,410.00 and after due proceedings,
the trial court rendered judgment in favor of respondent
ordering petitioner to pay respondent the amount of
P76,410.00 with interest thereon at 12% per annum. On
appeal to the Court of Appeals, the appellate court affirmed
the trial court's ruling. Petitioner's motion for
reconsideration was subsequently denied by the Court of
Appeals. Hence, the present petition. Petitioner contended
that the interest rate should be six percent (6%) per annum,
pursuant to Article 2209 of the Civil Code. On the other
hand, private respondent maintained that the interest rate
should be twelve percent (12%) per annum, in accordance
with Central Bank Circular No. 416.
Issue: Whether or not it is proper to impose interest at the
rate of twelve percent (12%) per annum for an obligation
that does not involve a loan or forbearance of money in the
absence of stipulation of the parties.
Ruling:
The Supreme Court found petitioner's contention tenable.
The Court had previously ruled that the interest rate under
CB Circular No. 416 applies to (1) loans; (2) forbearance of
money, goods or credits; or (3) a judgment involving a loan
or forbearance of money, goods or credits. Cases beyond
the scope of said circular are governed by Article 2209 of
the Civil Code, which considers interest a form of
indemnity for the delay in the performance of an obligation.
Applying the said doctrine in the case at bar, the Court
ruled that since the amount due in the present case arose
from a contract for a piece of work, not from a loan or
forbearance of money, the legal rate of six percent (6%)
interest per annum should be applied. Private respondent's
contention that the twelve percent (12%) interest per annum
should be imposed because the obligation arose from a
forbearance of money was found by the Court erroneous
because a "forbearance" in the context of the Usury Law is
"a contractual obligation of lender or creditor to refrain,
during a given period of time from requiring the borrower
or debtor to repay a loan or debt then due and payable."
Using the said standard in case at bar, the Court concluded
that the obligation was obviously not a forbearance of
money, goods or credits.
CIVIL LAW; DAMAGES; ACTUAL OR
COMPENSATORY; RATE OF INTEREST OF THE
AMOUNT DUE IN A CASE ARISING FROM A
CONTRACT FOR A PIECE OF WORK, NOT FROM
A LOAN OR FORBEARANCE OF MONEY SHOULD
BE THE LEGAL INTEREST OF SIX PERCENT (6%)
PER ANNUM PURSUANT TO ARTICLE 2209 OF THE
CIVIL CODE. Because the amount due in this case
arose from a contract for a piece of work, not from a loan
or forbearance of money, the legal interest of six percent
(6%) per annum should be applied. Furthermore, since the
amount of the demand could be established with certainty
when the Complaint was filed, the six percent (6%) interest
should be computed from the filing of the said Complaint.
But after the judgment becomes final and executory until
the obligation is satisfied, the interest should be reckoned at
twelve percent (12%) per year. Private respondent
maintains that the twelve percent (12%) interest should be
imposed, because the obligation arose from a forbearance
of money. This is erroneous. In Eastern Shipping , the
Court observed that a "forbearance" in the context of the
usury law is a "contractual obligation of lender or creditor
to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and
payable." Using this standard, the obligation in this case
was obviously not a forbearance of money, goods or credit.
Security Bank v RTC Makati
Facts: On April 27, 1983, private respondent Magtanggol
Eusebio executed Promissory Note No. TL/74/178/83 in
favor of petitioner Security Bank and Trust Co. (SBTC) in
the total amount of One Hundred Thousand Pesos
(P100,000.00) payable in six monthly installments with a
stipulated interest of 23% per annum up to the fifth
installment.
On July 28, 1983, respondent Eusebio again executed
Promissory Note No. TL/74/1296/83 in favor of petitioner
SBTC. Respondent bound himself to pay the sum of One
Hundred Thousand Pesos (P100,000.00) in six (6) monthly
installments plus 23%
interest per annum. 2
Finally, another Promissory Note No. TL/74/1491/83 was
executed on August 31, 1983 in the amount of Sixty Five
Thousand Pesos (P65,000.00). Respondent agreed to pay
this note in six (6) monthly installments plus interest at the
rate of 23% per annum.
On all the abovementioned promissory notes, private
respondent Leila Ventura had signed as co-maker.
Upon maturity which fell on the different dates below, the
principal balance remaining on the notes stood
Upon the failure and refusal of respondent Eusebio to pay
the aforestated balance payable, a collection case was filed
in court by petitioner SBTC. 5 On March 30, 1993, the
court a quo rendered a judgment in favor of petitioner
SBTC,
On August 6, 1993, a motion for partial reconsideration
was filed by petitioner SBTC contending that:
(1) the interest rate agreed upon by the parties during the
signing of the promissory notes was 23% per annum;
(2) the interests awarded should be compounded quarterly
from due date as provided in the three (3) promissory notes;
(3) defendant Leila Ventura should likewise be held liable
to pay the balance on the promissory notes since she has
signed as co-maker and as such, liable jointly and severally
with defendant Eusebio without a need for demand upon
her
Consequently, an Order was issued by the court a quo
denying the motion to grant the rates of interest beyond
12% per annum; and holding defendant Leila Ventura
jointly and severally liable with co-defendant Eusebio.
Issue: Whether or not the 23% rate of interest per annum
agreed upon by petitioner bank and respondents is
allowable and not against the Usury Law.
Ruling: The petition is granted
CIVIL LAW; LOANS; INTEREST; USURIOUS, NOT A
CASE OF; APPLICABILITY OF CENTRAL BANK
CIRCULAR 905 IN CASE AT BENCH. From the
examination of the records, it appears that indeed the
agreed rate of interest as stipulated on the three (3)
promissory notes is 23% per annum. The applicable
provision of law is Central Bank Circular No. 905 which
took effect on December 22, 1982, particularly Sections 1
and 2. . . . CB Circular 905 was issued by the Central
Bank's Monetary Board pursuant to P.D. 1684 empowering
them to prescribe the maximum rates of interest for loans
and certain forbearances. . . . All the promissory notes were
signed in 1983 and, therefore, were already covered by CB
Circular No. 905. Contrary to the claim of respondent
court, this circular did not repeal nor in anyway amend the
Usury Law but simply suspended the latter's effectivity
CIVIL LAW; LOANS; INTEREST RATE WHEN
VALIDLY STIPULATED MAY NOT BE
CHANGED; CASE AT BENCH. The rate of interest
was agreed upon by the parties freely. Significantly,
respondent did not question that rate. It is not for
respondent court a quo to change the stipulations in the
contract where it is not illegal. Furthermore, Article 1306
of the New Civil Code provides that contracting parties
may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or
public policy. We find no valid reason for the respondent
court a quo to impose a 12% rate of interest on the principal
balance owing to petitioner by respondent in the presence
of a valid stipulation
ID.; ID.; ID.; 12% INTEREST RATE IS IMPOSED
WHEN THERE IS NO STIPULATED INTEREST DUE.
In a loan or forbearance of money, the interest due
should be that stipulated in writing, and in the absence
thereof, the rate shall be 12% per annum. Hence, only in
the absence of a stipulation can the court impose the 12%
rate of interest.
Almeda v CA
Facts: On various dates in 1981, the Philippine National
Bank granted to herein petitioners, the spouses Ponciano L.
Almeda and Eufemia P. Almeda several loan/credit
accommodations totaling P18.0 Million pesos payable in a
period of six years at an interest rate of 21% per annum. To
secure the loan, the spouses Almeda executed a Real Estate
Mortgage Contract covering a 3,500 square meter parcel of
land, together with the building erected thereon (the Marvin
Plaza) located at Pasong Tamo, Makati, Metro Manila. A
credit agreement embodying the terms and conditions of
the loan was executed between the parties.
The loan shall be subject to interest at the rate of twenty
one per cent (21%) per annum, payable semi-annually in
arrears, the first interest payment to become due and
payable six (6) months from date of initial release of the
loan. The loan shall likewise be subject to the appropriate
service charge and a penalty charge of three per cent (3%)
per annum to be imposed on any amount remaining unpaid
or
(c) Interest and Charges
(1) The Bank reserves the right to increase the interest rate
within the limits allowed by law at any time depending on
whatever policy it may adopt in the future; provided, that
the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest
rate.
Between 1981 and 1984, petitioners made several partial
payments on the loan totaling P7,735,004.66, 2 a
substantial portion of which was applied to accrued
interest. 3 On March 31, 1984, respondent bank, over
petitioners' protestations, raised the interest rate to 28%,
allegedly pursuant to Section III-c (1) of its credit
agreement. Said interest rate thereupon increased from an
initial 21% to a high of 68% between March of 1984 to
September, 1986. Petitioners protested the increase in
interest rates, to no avail. Before the loan was to mature in
March, 1988, the spouses filed on February 6, 1988 a
petition for declaratory relief with prayer for a writ of
preliminary injunction and temporary restraining order with
the Regional Trial Court of Makati, docketed as Civil Case
No. 18872. In said petition, which was raffled to Branch
134 presided by Judge Ignacio Capulong, the spouses
sought clarification as to whether or not the PNB could
unilaterally raise interest rates on the loan, pursuant to the
credit agreement's escalation clause, and in relation to
Central Bank Circular No. 905. As a preliminary measure,
the lower court, on March 3, 1988, issued a writ of
preliminary injunction enjoining the Philippine National
Bank from enforcing an interest rate above the 21%
stipulated in the credit agreement. By this time the spouses
were already in default of their loan obligations.
Invoking the Law on Mandatory Foreclosure (Act 3135, as
amended and P.D. 385), the PNB countered by ordering the
extrajudicial foreclosure of petitioners' mortgaged
properties and scheduled an auction sale for March 14,
1989. Upon motion by petitioners, however, the lower
court, on April 5, 1989, granted a supplemental writ of
preliminary injunction, staying the public auction of the
mortgaged property
On January 15, 1990, upon the posting of a counterbond by
the PNB, the trial court dissolved the supplemental writ of
preliminary injunction. Petitioners filed a motion for
reconsideration. In the interim, respondent bank once more
set a new date for the foreclosure sale of Marvin Plaza
which was March 12, 1990. Prior to the scheduled date,
however, petitioners tendered to respondent bank the
amount of P40,142,518.00, consisting of the principal
(P18,000,000.00) and accrued interest calculated at the
originally stipulated rate of 21%. The PNB refused to
accept the payment
As a result of PNB's refusal of the tender of payment,
petitioners, on March 8, 1990, formally consigned the
amount of P40,142,518.00 with the Regional Trial Court in
Civil Case No. 90-663. They prayed therein for a writ of
preliminary injunction with a temporary restraining order.
The case was raffled to Branch 147, presided by Judge
Teofilo Guadiz. On March 15, 1990, respondent bank
sought the dismissal of the case.
On August 27, 1993, respondent court rendered its decision
setting aside the assailed orders and upholding respondent
bank's right to foreclose the mortgaged property pursuant to
Act 3135, as amended and P.D. 385. Petitioners' Motion for
Reconsideration and Supplemental Motion for
Reconsideration, dated September 15, 1993 and October
28, 1993, respectively, were denied by respondent court in
its resolution dated January 10, 1994.
In its comment dated April 19, 1994, respondent bank
vigorously denied that the increases in the interest rates
were illegal, unilateral, excessive and arbitrary, it argues
that the escalated rates of interest it imposed was based on
the agreement of the parties. Respondent bank further
contends that it had a right to foreclose the mortgaged
property pursuant to P.D. 385, after petitioners were unable
to pay their loan obligations to the bank based on the
increased rates upon maturity in 1984.
Issue: 1) Whether or not respondent bank was authorized to
raise its interest rates from 21% to as high as 68% under the
credit agreement;
2)Whether or not respondent bank is granted the authority
to foreclose the Marvin Plaza under the mandatory
foreclosure provisions of P.D. 385
Ruling: The petition is denied.
CIVIL LAW; CONTRACTS; BINDING EFFECT OF
AGREEMENT BETWEEN PARTIES;PREMISED ON
THE PRINCIPLE OF MUTUALITY AND
OBLIGATORY. The binding effect of any agreement
between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has
the force of law between the parties; and (2) that there must
be mutuality between the parties based on their essential
equality. Any contract which appears to be heavily weighed
in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to
the will of one of the parties, is likewise, invalid.
SPECIAL CONTRACTS; LOAN; INTEREST IS
REQUIRED TO BE EXPRESSLY STIPULATED IN
WRITING. The manner of agreement is itself explicitly
stipulated by the Civil Code when it provides, in Article
1956 that "No interest shall be due unless it has been
expressly stipulated in writing." What has been "stipulated
in writing" from a perusal of interest rate provision of the
credit agreement signed between the parties is that
petitioners were bound merely to pay 21% interest, subject
to a possible escalation or deescalation, when 1) the
circumstances warrant such escalation or de-escalation; 2)
within the limits allowed by law; and (3) upon agreement.
LIFTING OF USURY CEILING; DOES NOT GRANT
BANKS CARTE BLANCHE AUTHORITY TO RAISE
INTEREST; RULE UNDER CB CIRCULAR 905.
While the Usury Law ceiling on interest rates was lifted by
C.B. Circular 905, nothing in the said circular could
possibly be read as granting respondent bank carte blanche
authority to raise interest rates to levels which would either
enslave its borrowers or lead to a hemorrhaging of their
assets. Borrowing represents a transfusion of capital from
lending institutions to industries and businesses in order to
stimulate growth. This would not, obviously, be the effect
of PNB's unilateral and lopsided policy regarding the
interest rates of petitioners' borrowings in the instant case.
CANNOT BE INVOKED TO JUSTIFY ESCALATION
CLAUSES, NOT BEING A GRANT OF SPECIFIC
AUTHORITY. Apart from violating the principle of
mutuality of contracts, there is authority for disallowing the
interest rates imposed by respondent bank, for the credit
agreement specifically requires that the increase be "within
the limits allowed by law." In the case of PNB vs. Court of
Appeals, cited above, this Court clearly emphasized that
C.B. Circular No. 905 could not be properly invoked to
justify the escalation clauses of such contracts, not being a
grant of specific authority.
ESCALATION CLAUSES; VALID AS LONG AS NOT
SOLELY POTESTATIVE BUT BASED ON
REASONABLE AND VALID GROUNDS. Escalation
clauses are not basically wrong or legally objectionable so
long as they are not solely potestative but based on
reasonable and valid grounds. Here, as clearly
demonstrated above, not only the increases of the interest
rates on the basis of the escalation clause patently
unreasonable and unconscionable, but also there are no
valid and reasonable standards upon which the increases
are anchored.
MORTGAGE; AUTOMATIC FORECLOSURE
PROVISIONS OF PD 385; CAN BE INVOKED AFTER
SETTLEMENT OF QUESTION INVOLVING
INTEREST AND ONLY AFTER DEBTORS REFUSED
TO MEET OBLIGATION FOLLOWING SUCH
DETERMINATION. In the first place, because of the
dispute regarding the interest rate increases, an issue which
was never settled on merit in the courts below, the exact
amount of petitioner's obligations could not be determined.
Thus, the foreclosure provisions of P.D. 385 could be
validly invoked by respondent only after settlement of the
question involving the interest rate on the loan, and only
after the spouses refused to meet their obligations following
such determination.
DKC Holdings Corp. v CA
Facts: On March 16, 1988, petitioner entered into a
Contract of Lease with Option to Buy with Encarnacion
Bartolome, which option must be exercised within a period
of two years from the signing thereof. Petitioner undertook
to pay P3,000.00 a month as consideration for the
reservation of its option. The contract also provided that in
case petitioner chose to lease the property, it may take
actual possession of the premises. In such an event, the
lease shall be for a period of six years, renewable for
another six years. Petitioner regularly paid the reservation
fee to Encarnacion until her death in January 1990.
Thereafter, petitioner paid the reservation fees to private
respondent, being the sole heir of Encarnacion. Private
respondent, however, refused to accept these payments. On
March 14, 1990, petitioner served upon private respondent
a notice that it was exercising its option to lease the
property, and tendered the rental fee for the month of
March. Again, Victor refused to accept the tendered rental
fee and to surrender possession of the property to
petitioner. Petitioner thus opened a savings account with
the China Banking Corporation in the name of private
respondent and deposited therein the rental and reservation
fees. When petitioner tried to register and annotate the
contract on the title of the subject property, the respondent
Register of Deeds refused to register or annotate the same.
Hence, petitioner filed a complaint for specific performance
and damages against private respondent and the Register of
Deeds, before the Regional Trial Court of Valenzuela.
After trial on the merits, the trial court dismissed the
complaint. On appeal, the Court of Appeals affirmed in toto
the decision of the trial court. Hence, this petition.
Issue: Whether or not the Contract of Lease with Option to
Buy entered into by the late Encarnacion Bartolome with
petitioner was terminated upon her death or whether it
binds her sole heir, Victor, even after her demise.
Both the lower court and the Court of Appeals held that the
said contract was terminated upon the death of Encarnacion
Bartolome and did not bind Victor because he was not a
party thereto
Ruling: The petition is granted.
Where the service or act is of such a character that it may
as well be performed by another, or where the contract by
its terms, shows that the performance by others was
contemplated, death does not terminate the contract or
excuse non-performance. In the case at bar, there was no
personal act required from the late Encarnacion Bartolome.
Rather, the obligation of Encarnacion in the contract to
deliver possession of the subject property to petitioner upon
the exercise by the latter of its option to lease the same may
very well be performed by her heir Victor. It is futile for
private respondent to insist that he is not a party to the
contract because of the clear provision of Article 1311 of
the Civil Code. Being an heir of Encarnacion, there is
privity of interest between him and his deceased mother.
He only succeeds to what rights his mother had and what
are valid and binding against her is also valid and binding
as against him. Moreover, the subject matter of the contract
is a lease, which is a property right.
CIVIL LAW; CONTRACTS; HEIRS ARE BOUND BY
CONTRACTS ENTERED INTO BY THEIR
PREDECESSOR-IN-INTEREST; EXCEPTIONS. The
general rule is that heirs are bound by contracts entered into
by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1)
their nature, (2) stipulation or (3) provision of law. In the
case at bar, there is neither contractual stipulation nor legal
provision making the rights and obligations under the
contract intransmissible. More importantly, the nature of
the rights and obligations therein are, by their nature,
transmissible.
INTRANSMISSIBLE RIGHTS; EXPLAINED. The
nature of intransmissible rights as explained by Arturo
Tolentino, an eminent civilist, is as follows: "Among
contracts which are intransmissible are those which are
purely personal, either by provision of law, such as in cases
of partnerships and agency, or by the very nature of the
obligations arising therefrom, such as those requiring
special personal qualifications of the obligor. It may also be
stated that contracts for the payment of money debts are not
transmitted to the heirs of a party, but constitute a charge
against his estate. Thus, where the client in a contract for
professional services of a lawyer died, leaving minor heirs,
and the lawyer, instead of presenting his claim for
professional services under the contract to the probate
court, substituted the minors as parties for his client, it was
held that the contact could not be enforced against the
minors; the lawyer was limited to a recovery on the basis of
quantum meruit." In American jurisprudence, "(W)here
acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience,
judgment, discretion, integrity, or other personal
qualification of one or both parties, the agreement is of a
personal nature, and terminates on the death of the party
who is required to render such service."
DEATH DOES NOT TERMINATE A CONTRACT OR
EXCUSE NONPERFORMANCE THEREOF WHERE
THE CONTRACT, BY ITS TERMS, SHOWS THAT
PERFORMANCE BY OTHERS WAS
CONTEMPLATED. It has been held that a good
measure for determining whether a contract terminates
upon the death of one of the parties is whether it is of such
a character that it may be performed by the promissor's
personal representative. Contracts to perform personal acts
which cannot be as well performed by others are
discharged by the death of the promissor. Conversely,
where the service or act is of such a character that it may as
well be performed by another, or where the contract, by its
terms, shows that performance by others was contemplated,
death does not terminate the contract or excuse
nonperformance. In the case at bar, there is no personal act
required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver
possession of the subject property to petitioner upon the
exercise by the latter of its option to lease the same may
very well be performed by her heir Victor.
HEIR SUCCEEDS TO WHAT RIGHTS HIS
PREDECESSOR-IN-INTEREST HAD AND WHAT IS
VALID AND BINDING AGAINST THE LATTER IS
ALSO VALID AND BINDING AGAINST HIM. As
early as 1903, it was held that "(H)e who contracts does so
for himself and his heirs." In 1952, it was ruled that if the
predecessor was duty-bound to reconvey land to another,
and at his death the reconveyance had not been made, the
heirs can be compelled to execute the proper deed for
reconveyance. This was grounded upon the principle that
heirs cannot escape the legal consequence of a transaction
entered into by their predecessor-in-interest because they
have inherited the property subject to the liability affecting
their common ancestor. It is futile for Victor to insist that
he is not a party to the contract because of the clear
provision of Article 1311 of the Civil Code. Indeed, being
an heir of Encarnacion, there is privity of interest between
him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against
her is also valid and binding as against him. This is clear
from Paraaque Kings Enterprises vs. Court of Appeals,
where the Court rejected a similar defense . . . .
NON-PERFORMANCE OF A CONTRACT IS NOT
EXCUSED BY DEATH OF PARTY WHEN OTHER
PARTY HAS PROPERTY INTEREST IN SUBJECT
MATTER THEREOF In the case at bar, the subject
matter of the contract is a lease, which is a property right.
The death of a party does not excuse nonperformance of a
contract which involves a property right, and the rights and
obligations thereunder pass to the personal representatives
of the deceased. Similarly, nonperformance is not excused
by the death of the party when the other party has a
property interest in the subject matter of the contract.
Under both Article 1311 of the Civil Code and
jurisprudence, therefore, Victor is bound by the subject
Contract of Lease with Option to Buy.
CONTRACT OF LEASE WITH OPTION TO BUY;
PRIVATE RESPONDENT HAS OBLIGATION TO
SURRENDER POSSESSION OF LAND AND LEASE
THE PREMISES TO PETITIONER. The payment by
petitioner of the reservation fees during the two-year period
within which it had the option to lease or purchase the
property is not disputed. In fact, the payment of such
reservation fees, except those for February and March,
1990 were admitted by Victor. Petitioner also paid the
P15,000.00 monthly rental fee on the subject property by
depositing the same in China Bank Savings Account No. 1-
04-02558-I-, in the name of Victor as the sole heir of
Encarnacion Bartolome, for the months of March to July
30, 1990, or a total of five (5) months, despite the refusal of
Victor to turn over the subject property. Likewise,
petitioner complied with its duty to inform the other party
of its intention to exercise its option to lease through its
letter dated March 12, 1990, well within the two-year
period for it to exercise its option. Considering that at the
time Encarnacion Bartolome had already passed away, it
was legitimate for petitioner to have addressed its letter to
her heir. It appears, therefore, that the exercise by petitioner
of its option to lease the subject property was made in
accordance with the contractual provisions. Concomitantly,
private respondent Victor Bartolome has the obligation to
surrender possession of and lease the premises to petitioner
for a period of six (6) years, pursuant to the Contract of
Lease with Option to Buy.