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Facts: A passenger truck (bus) and a private automobile collided. Narciso Gutierrez, a passenger of the bus, seeks to recover damages in the amount of P10, 000, for physical injuries suffered as a result of an automobile accident Truck: driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. Private automobile: operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez The father was not in the car at the time of the accident, but the mother as well as other members of the family where accomodated therein. Issue: Who is liable for the injuries suffered by Narciso Gutierrez? Held: Manuel Gutiererez (father of the kid who drove the car), and Abelardo Velasco (driver of the bus), and Saturnino Cortez (owner of the bus) are JOINTLY and SEVERALLY liable. Ratio: Liability of father Article 1903 of the Civil Code: the father alone and not the minor or the mother, would be liable for the damages caused by the minor US jurisprudence shows that the head of a house, the owner of an automobile, who maintains it for the general use of his family is liable for its negligent operation by one of his children. The running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant. Liability of the truck owner and driver The liability of the truck owner and the driver is based from contract. Mary Beley

VAZQUEZ VS. BORJA Antonio Vasquez, petitioner, vs. Francisco de Borja, respondent Francisco de Borja, petitioner, vs. Antonio Vasquez, respondent Ponente: Ozaeta, J. Facts: The action was commenced by de Borja against Vasquez and Fernando Busuego to recover from them jointly and severally the total of PhP 4702.70 upon three alleged causes: First, Vasquez and defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay, which they will deliver. Vasquez and Busuego, after receiving 8,400 pesos from de Borja, only delivered 5,224 pesos worth of cavans of palay. They refused to deliver the remaining cavans amounting to 3,175.20 pesos. Second, de Borja suffered damages as a result of the refusal to deliver Third, on account of the agreement mentioned, de Borja delivered 4000 empty sacks but only 2,490 were returned to the plaintiff. 1,510 sacks were refused to deliver. There are also damages for the non-delivery of the empty sacks. Vasquez denies that he entered into the contract mentioned in his own and personal capacity. He said that the agreement for the purchase of the cavans of palay and the payment of the price of 8,400 were made by de Borja not with him but with Natividad- Vasquez Sabani Development Co. Inc. (NVSDCI), a corporation organized and existing under the laws of the Philippines. Vasquez was the acting manager when the transaction took place. On account of the filing of this action against him, he filed a counterclaim of 1,000 pesos for damages. Vasquez was ordered by the trial court to pay de Borja the sum of P3,175.20 plus P377.50. The said court absolved Busuego, the corporations treasurer, from paying the said sums. Said amount was reduced by the Court of Appeals. The case was then remanded to the court of origin for further proceedings upon Vasquezs motion for reconsideration. Vasquez filed a petition for certiorari for the review and reverse of the CA judgement. De Borja also filed a cross-petition for certiorari to maintain the original CA judgement. The trial court found Vasquez guilty of negligence in the performance of the contract and held him personally liable on that account. Likewise, CA ruled that he was not only negligent but should also responsible for paying the amount of the demand under Arts. 1102, 1103 and 1902 of the Civil Code. Issues: 1. Whether the plaintiff entered into the contract with the defendant Antonio Vasquez in his personal capacity or as manager of the Natividad-Vasquez Sabani Development Co., Inc. 2. Whether the trial court and/or the Court of Appeals erred in its rulings. 3. Whether Vasquez could claim damages against Borja. Held/ Ratio: 1. Vasquez entered the contract in his capacity as acting president and manager of NVSDCI. The action being on a contact, with the NCSDCM being the party liable on the contract, the complaint should have been dismissed. A corporation is an artificial being invested by law with its own personality, which is distinct and separate from its stockholders or the people who run its affairs. Even if the agents are the one acting for the corporation, it does not make the agent personally liable for entering a contract in behalf of the corporation. The corporations personality, a legal fiction, may only be disregarded if the agent used the corporation to hide an unlawful or fraudulent purpose. There is no legal basis upon which to hold Vasquez liable on the contract either principally or subsidiarily. There are no allegations that Vasquez personally benefited through the contract that he entered for the corporation. It was also not contended that he entered into the contract for the corporation in bad faith and with intent to defraud the plaintiff. 2. Both the trial court and CA erred in their ruling that Vasquez is guilty of negligence and must be personally liable. Since it was the corporations contract, the corporation is the one liable and not the agent even if the non-fulfilment of the contract is due to negligence or fault or any other cause. Vasquez could be principally liable under article 1902 of the Civil Code if independent of the contract, he caused damage to the plaintiff by his fault or negligence. The basis of such separate liability should be on culpa aquiliana and not based on the contract. But since there was no such cause of action in this complaint, the trial court has no jurisdiction over that issue. 3. No. As the acting president and manager of the corporation, he has a moral duty towards the part with whom he contracted in said capacaity to see to it that the corporation he represents fulfilled the contract by delivering the palay it had sold. Since he was not able to fulfill that moral duty, he has no legitimate cause for his claim of damages. Dissenting Opinion (Paras, J.): Vasquez should be made liable to de Borja. As acting president and manager of NCSDCM, Vasquez has full knowledge of the insolvent status of his company but still agreed to sell to de Borja 4000 cavans of palay. The failure and refusal to deliver the undelivered cavans resulted from his negligence.

DE GUIA VS. MANILA ELECTRIC RAILROAD & LIGHT COMPANY Manuel De Guia, plaintiff, v. Manila Electric Railroad & Light Company, defendant Ponente: Street, J. Summary: The plaintiff got injured after he boarded a car (which I think in this case refers to one of the old trains) which got derailed and hit a post. Because the motorman who was driving the car was held to be negligent, it was also held that the company was also liable for damages. The relationship between the parties was contractual in nature and thus the company was bound to deliver the plaintiff safely and securely with reference to the degree of care which, under the circumstances, is required by law and custom applicable to the case. Facts: De Guia boarded the car (of a train) and he remained at the back platform holding the right-hand door. The wheels of the rear car, after coming out of a switch, got derailed and it ran for a short distance until it struck a concrete post. The post was shattered and the De Guia was thrown against the door with some violence, receiving bruises and possibly certain internal injuries. The company of the car alleged that the derailment was due to the presence of a stone in the juncture of the switch which had accidentally been lodged there. Thus in this view, the derailment would have been due to casus fortuitous and not chargeable to the negligence of the motorman. Issue: WON the motorman and the company were liable for damages to the injured plaintiff Held: Yes. The motorman had been negligent and it results that the company is liable for damage resulting to the plaintiff as a consequence of that negligence. Richard Beltran Ratio: As regards the motormans negligence: The inference that there had been negligence in the operation of the car could be gleaned from the distance which the car was allowed to run with the front wheels of the rear truck derailed. An experienced and attentive motorman should have discovered that something was wrong and would have stopped before he had driven the car over the entire distance from the point the wheels left the track to the place where the post was struck. As regard the companys liability: Because the motorman was negligent, it also results that the company was liable for the damage to the plaintiff as a consequence of that negligence. The plaintiff had boarded the car as a passenger bound for Manila and the company undertook to convey him for hire. The contractual nature of the relation between the parties meant that the duty of the carrier was to convey and deliver the plaintiff safely and securely with reference to the degree of care which under the circumstances, was required by law and custom applicable to the case. Upon failure to comply with that obligation, the company incurred liability. The liability already incurred, the company could not avail itself of the defense that it had exercised due care in selecting and instructing the motorman because such defense could only be availed in the absence of a contractual relation, or in other words to quasi-delicts.



FACTS: ISSUE: HELD: Barias is liable for reckless negligence. Whether or not Barias showed carelessness or want of ordinary care so as to amount to reckless negligence Segundo Barias was a motorman for the Manila Electric Railroad and Light Company. On the morning of November 2, 1911, he was driving his car along Rizal Avenue and stopped it near the intersection to take on some passengers. When the car stopped, Barias looked backward to note whether all the passengers were aboard then started the car. It was at that moment that Fermina Jose, a 3-year old child ran in front of the car. As a result, she was knocked down and dragged some distance underneath the car and was left dead upon the track. Barias knew nothing of the incident until his return to the place, when he was informed of what happened.

RATIO: Evidence shows that the road on which the incident occurred was a public street in a densely populated section of the city and the hour was 6 in the morning or about the time when residents of such streets begin to move about. Under such conditions, a motorman of an electric street car was clearly charged with a high degree of diligence in the performance of his duties for he was bound to know and to recognize that any negligence on his part in observing the track over which he was running his car might result to fatal accidents. Barias, before setting his car again in motion, had the duty to satisfy himself that the track was clear, and for that purpose, he should have looked and see the track just in front of his car. This the defendant did not do, and the result of his negligence was the death of the child. Had the motorman seen the child, he could have avoided the accident; the accident was not therefore, unavoidable, and it appearing that the motorman, by the exercise of ordinary diligence, might have seen the child before he set the car in motion, his failure to satisfy himself that the track was clear before doing so was reckless negligence. Barias was negligent in that he failed to exercise the degree of diligence required of him he failed in taking precautions or advance measures as common prudence would suggest when he put his car in motion without looking at the road in front of his car.

Others: As to the contention that the accident would still have happened even if utmost care was exercised, (because of photographs showing that while the motorman was standing in his proper place on the front platform of his car, a child walking immediately in front of the car would not have come within the line of his vision) the court

said that by inclining the head and shoulders forward very slightly, the motorman could not fail to notice a child on the track immediately in front of his car. And according to the court, it is the manifest duty of a motorman, who is about to start his car in public thoroughfare in a thickly-settled district, to satisfy himself that the track is clear immediately in front of his car, and to incline his body slightly forward, if that be necessary, in order to bring the whole track within his line of vision. Negligence defined (pinili lang): The failure to observe, for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury (J. Cooley in his work in Torts) Reckless negligence consists of the failure to take such precautions or advance measure in the performance of an act as the most common prudence would suggest whereby injury is caused to persons or to property (U.S. v. Nava) Negligence is want of the care required by the circumstances. It is relative or comparative, not an absolute, term and its application depends upon the situation of the parties and the degree of care and vigilance which the circumstances reasonably require. Where the danger is great, a high degree of care is necessary, and the failure to observe it is a want of ordinary care under the circumstances (Ahern v. Oregon Telephone Co.)

SARMIENTO VS. SPOUSES CABRIDO Tomasa Sarmiento, petitioner, vs. Sps. Luis & Rose Sun-Cabrido and Maria Lourdes Sun, respondents Ponente: Corona, J. Legal Doctrine: Dismounting a diamond from its original setting is part of the verbal contract of service to reset the diamonds from a pair of earrings to two gold rings. Facts: Petitioner Sarmiento states that Dra. Lao requested her to have a pair of diamond earrings reset into two gold rings. Petitioner sent Payag with the pair of earrings to Dingdings jewelry shop, owned by the respondent spouses, which accepted the job for 400 pesos. Payag delivered to the jewelry shop one of the diamond earrings. Respondent Sun attempted to dismount the diamond from its setting. Unsuccessful, she asked their goldsmith Santos to do it. Santos removed the diamond by twisting the setting with pliers, breaking the gem in the process. Petitioner required respondents to replace the diamond with the same size and quality. When they refused, petitioner was forced to buy replacement for 30,000 pesos. Respondent Cabrido denied having entered into any transaction with Payag. It was possible that Payag availed of their services as she could not have known every customer who came to their shop. Respondent Sun admitted knowing Payag. Payag went inside the shop to see Santos and when Santos broke the gem, Payag demanded 15,000 from him. Santos had no money so she demanded from Sun. Santos recalled that Payag requested him to dismount a sapphire. The gem accidentally broke. Santos denied being an employee of Dingdings Jewelry. Petitioner filed a complaint for damages. Realizing the futility of their position, private respondents conceded, on appeal, the existence of an agreement with the petitioner. However, they denied assuming any obligation to dismount the diamonds from their original settings. Issue/Held: Is the dismounting of the diamond from its original setting part of the obligation assumed by the private respondents under the contract of service Welga Carrasco (resetting diamonds from a pair of earrings to two rings)? Yes. Ratio: Sun expressed no reservation when Payag asked her to dismount the diamonds. Sun should have instructed Payag to have the diamonds dismounted first if Sun actually intended to spare the jewelry shop of the task but she did not. Petitioner was charged 400 pesos for the job order which was accepted. A perfected contract to reset the diamonds arose between the petitioner, through Payag, and the jewelry shop, through Sun. Suns actions were revealing as regards the scope of obligation assumed by the jewelry shop. After the new settings were completed, she called the petitioner to bring the diamond earrings to be reset. After examining one of the earrings, she went on to dismount the diamond. Sun cannot now deny the shops obligation. Those who, in the performance of their obligations, are guilty of negligence are liable for damages. In the case at bar, Santos acted negligently in dismounting the diamond. The practice of the trade is to use a miniature wire saw in dismounting gems from their settings. Santos employed a pair of pliers. Marilou examined the diamond and found it in order. Its subsequent breakage could only have been caused by negligence. Private respondents seek to avoid liability by blaming Santos who claimed to be an independent worker. They also claim that Sun simply happened to drop by the shop. Facts show that Santos had been working for the shop as goldsmith for 6 months. Payag stated that she had transacted with Dingdings Jewelry Shop on at least 10 occassions, always with Sun. Respondents are obliged to pay actual damages in favor of petitioner amounting to 30,000 pesos, and moral damages because of the negligence of their employee, Santos.

CRISOSTOMO VS. CA Estela L. Crisostomo, petitioner, vs. The Court of Appeals and Caravan Travel and Tours International, Inc., respondents Ponente: Ynares-Santiago, J. Legal Doctrine: Since the contract is not a contract of carriage but an ordinary one for services, the standard of care required of the respondent company is that of a good father of a family under Art. 1173 of the Civil Code. Facts: Petitioner Estela L. Crisosotomo contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of Europe. Crisostomos niece, Meriam Menor, who is also the respondent companys ticketing manager went to Crisostomo on a Wednesday (June 12, 1991) to deliver the latters travel documents and plane tickets and informed her to go the airport on a Saturday, two hours before the flight. Crisostomo went to the airport on June 15, 1991 without checking her travel documents. She learned that the flight she was supposed to take had already departed, the schedule being June 14, 1991. Thus, Crisostomo complained to Menor. Crisostomo instead agreed to take another tour, the British Pageant. Crisostomo was asked to pay P 20, 881.00. Crisostomo gave P 7, 980 as partial payment and commenced the trip in July 1991. Upon her return, she demanded from the respondent the reimbursement of P 61, 421.70 representing the difference between the sum she paid for Jewels of Europe and the amount she owed respondent for the British Pageant tour. Respondent company refused to reimburse the said amount. TRIAL COURT: the respondent company was negligent in erroneously advising Crisostomo of her departure date through its employee Menor. However, Crisostomo also had contributory negligence because she should have verified the exact date and time of departure by looking at her ticket and not simply relying on Menors statement. Thus, 10% is deducted from the amount being claimed. The Court of Appeals likewise found both parties to be at fault but held that petitioner Crisostomo is more negligent than the respondent company because as a lawyer and as a well-travelled person, she should have known better than to simply rely on Menors statement. Thus, she is not entitled to any form of damages, she forfeits her right to the Jewels of Europe tour and must therefore pay respondent the balance of the price for the British Pageant tour. Petitioner now seeks to reverse CA decision on the ground that the respondent company did not observe the standard of care required of a common carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent than the respondent company since the latter is required by law to exercise extraordinary diligence in the fulfilment of its obligation. If ever she was negligent, it was merely contributory and not the proximate cause. Issues/Held: 1. Is Crisostomo correct in her assumption that the respondent company Caravan Travel and Tours International is a common carrier? NO 2. Did the respondent company Caravan Travel and T ours International, Inc. observe the standard of care in its service of arranging and facilitating petitioners booking, ticketing and accommodation? YES Ratio: A common carrier is defined under Art. 1732 of CC as persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public. The respondent company is not engaged in transporting passengers or goods. Its covenant with its customers is simply to make travel arrangements on their behalf. Since the contract is not a contract of carriage but an ordinary one for services, the standard of care required of the respondent company is that of a good father of a family under Art. 1173 of the CC, and not the utmost care and extraordinary diligence which is higher in degree than the ordinary diligence required of the passenger. The test to determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. In the case at bar, the evidence shows that the respondent company exercised due diligence in performing its obligations under the contract and followed procedure in rendering service. The plane ticket issued to the petitioner clearly reflected the departure date and time and the travel documents were delivered to the petitioner two days before the trip for her to prepare. Respondent also properly booked the petitioner for the tour, prepared all the necessary documents and arranged hotel accommodation. The respondent performed its prestation under the contract. After the delivery of the travel papers, it became incumbent upon Crisostomo to take ordinary care of her concerns including knowledge of details regarding the trip. Thus, respondent company performed its duty diligently and did not commit any contractual breach. There is no fixed standard of diligence applicable to each and every contractual obligation and each case must be determined upon its particular facts. The degree of diligence required depends on the

circumstances of the specific obligation and whether one has been negligent is a question of fact that is to be determined after taking into account the particulars of each case. Dispositive: CA decision is affirmed. Petitioner Crisostomo is ordered to pay the respondent the balance of the price of the British Pageant Package with interest.

CETUS DEVELOPMENT, INC. VS. COURT OF APPEALS Cetus Development, Inc., petitioner, v. Court of Appeals and Ederlina Navalta, respondents Ponente: Medialdea, J. Respondents Navalta et al were lessees of the premises originally owned bySusana Realty. They would pay on a month-to-month basis to a collector who would come every month to collect the rent. The premises were later sold to Cetus Development and the respondents continued paying their monthly rentals to a collector sent by the petitioner. For a period of three months (July, Aug, Sept), however, no collector came and thus the respondents could not pay. On October, the petitioner sent a letter to the respondents demanding that they vacate the premises and pay the back rentals for the 3 months. Respondents then paid the back rentals as well as subsequent monthly rentals which were all accepted by petitioner but without prejudice to the filing of an ejectment suit. Petitioner filed for respondents ejectment but respondents counter that their non-paymet was due to petitioners failure to send a collector. Issue: WON there is a cause for ejectment due to respondents supposed failure to pay during the 3 months. Held: There is no cause for ejectment because there is no failure to pay on the part of the respondents. CA is affirmed in denying ejectment suit. Ratio: In order to file an ejectment suit, there must be 1. A failure to pay or to comply with the conditions agreed upon and 2. Demand both to pay or comply and vacate. However, there is no failure to pay on the part of the respondents for the 3 months because, as a general rule, default in the fulfillment of an obligation exists only when the creditor demands payment at the time of maturity or at any time thereafter.1 (from Art 1169) The petitioner has failed to prove that their agreement with respondents falls under the exceptions where demand is required: a.) when law declares as such, b.) when it can be inferred from the essence of the contract, c.) when demand would be useless. Demand can also come in any form, provided it can be proved by the creditor. But the petitioner in this case has failed to prove that demand was made, more so since no collector was sent during the 3 months. It could not therefore be said that the respondents were in delay of payment rentals. Moreover, when petitioner actually made the demand (in the form of the letter), respondents lost no time in making payment, which the petitioner accepted. Therefore, petitioner can not ask for respondents ejectment because there is no right on his part to rescind the contract of lease. Mickey Chatto


AEROSPACE CHEMICAL Vs CA 108129 September 23, 1999

FACTS: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pickup the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases.

ISSUE: Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

RULING: Petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault."

On this score, we quote with approval the findings of the appellate court, thus: The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant.

SVHF VS. SANTOS Santos Ventura Hocorma Foundation, Inc., petitioner, vs. Ernesto V. Santos and Riverland, Inc., respondents Ponente: Quisumbing, J. Legal Doctrine: When the one fails to pay its due obligation after the demand was made, it incurred delay. Facts: SVHF and Ernesto Santos entered into a Compromise Agreement on Oct. 26, 1990: a. SVHF will pay P14.5M to Santos and the latter will drop the civil cases against the former and lift the various notices of lis pendens on the real properties of SVHF. P14.5M breakdown: 1. P1.5M immediately upon the execution of the agreement 2. P13.5M in one lump or installments (at the discretion of SVHF) not later than 2 years from the execution of the agreement. If SVHF does not pay the whole or has a balance, the payment shall be in the form of real properties mentioned. SVHF paid P1.5M, Santos dropped the civil cases. SVHF sold two properties previously subject of lis pendens but did not pay Santos despite the latters letter of demand. Sept. 30, 1991: Agreement was approved by the court. Oct. 28, 1992: Santos sent a letter again to SVHF but to no avail. Santos filed (RTC) a writ of execution of the agreement dated Sept. 30, 1991. Granted. March 19, 1993: The sheriff levied the properties Auctions were made on Nov. 22, 1994 (Mabalacat property sold for P12M) and Feb. 8, 1995 (Bacold City property sold). Riverland, Inc. was the highest bidder in both auctions. Santos and Riverland filed a Complaint for Declaratory Relief and Damages and prays to recover LEGAL INTEREST on the obligations, among others, since the P13M obligation became due on Oct. 26, 1992 but SVHF paid only the P12M++ on Nov. 22, 1994. Issue: WoN Santos and Riverland are entitled to legal interest. Held: They are entitled to legal interest. Ratio: Relevant Law: Art. 1169 of the NCC: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Art. 1170 of the NCC The compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. Delay was incurred when the petitioner failed to pay its due obligation after the demand was made. Delay as used in the case is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. Requisites: 1. That the obligation be demandable and already liquidated -The obligation was already due and demandable when Santos gave a letter to SVHF on October 28, 1992. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it. 2. That the debtor delays performance -SVHF was able to fully settle its outstanding balance only on February 8, 1995. 3. That the creditor requires the performance judicially or extra-judicially. -The demand letter sent to the petitioner on October 28, 1992, was in accordance with an extra-judicial demand contemplated by law. When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. Santos has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. In the absence of agreement (such as in this case), the legal rate of interest shall prevail. The legal interest for loan as forbearance of money is 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

VASQUEZ VS. AYALA CORPORATION Dr. Daniel Vazquez and Ma. Luiza M. Vazquez, petitioners, vs. Ayala Corporation, respondent Ponente: Tinga, J. Legal Doctrine: There is no delay or default when no demand is made or when the obligation is not demandable Facts: Vasquez spouses entered into MOA with Ayala because Ayala will buy from the Vasquez spouses (shares of stock in the Company, Conduit, which has a main asset of 49.9 hectares in Ayala Alabang, which was being developed by Conduit) MOA: Ayala develops entire property (called remaining area) except for retained area which was to be retained by Vasquez spouses; Ayala develops remaining area into first class subdivision within 3 years; Ayala agrees to give Vasquez spouses a first option to purchase four developed lots next to the retained area at prevailing market price; the representations and warranties of the Vasquez spouses are true at the time of the Closing; Company shall have no obligation to any party except billings payable to GP Construction & Devt Corp; the Company has no liabilities of any nature; Vasquez spouses do not know of any basis for assertion against Company as at closing or any liability of any nature; Company not engaged in any or a party in or threatened with any legal action before any court; no default or breach exists in the part of the company. After execution of MOA, Ayala received letter from Del Rosario (Lancer Builder Corp.) claiming that he was claiming the money as subcontractor of GP Construction. Lancer sued GP, Conduit, and Ayala Issues: 1. W/N Vasquez spouses breached their warranties under the MOA when they failed to disclose Lancer claim 2. W/N there was delay or default 3. Whether theres an option contract or right of first refusal Held: 1. Petitioners did not violate the foregoing warranties Jiselle Compuesto 2. There was no default or delay 3. There is a mere right of first refusal Ratio: 1. Exchanges of communication show that Vasquez spouses substantially apprised Ayala of Lancer claim and reminded Ayala of such. Petitioners gave this information to Ayala because latter intimated a desire to break contract of Conduit with GP. Ayalas letter shows that they had knowledge of Lancer claim before its acquisition of Conduit. Ayala came to know of such before Closing of MOA and MOA states phrases except as disclosed to Ayala on or before the Closing. Hence, petitioners warranty that Conduit is not engaged, a party to, or threatened with legal action is qualified by Ayalas actual knowledge of Lancer claim before the Closing. 2. The Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior to April 23, 1984 when the obligation was not yet demandable. The Supreme Court says: In order that there may be default the obligation must be demandable and liquidated, and the debtor delays in performance, and the creditor requires performance judicially or extrajudicially. Under Art. 1193 of Civil Code, obligations with a fixed day of fulfillment shall be demandable upon that day. But the MOA did not specify such day. Petitioners cant demand performance after 3 year period fixed by MOA since this is not the same period contemplated in the land development. The petitioners should have asked the court to fix a period in order for it to be demandable and so that their claim will not be considered premature. It is only a right of first refusal and not an option contract because the price is not specified. The phrase at prevailing market price connotes no definite period wherein Ayala is bound to reserve subject lots to exercise privilege to purchase.

FACTS: Francisco had obligations due on December 1928 To generate funds he sold lots 937 to 945 of Tala Estate to Abella On Oct. 31 Francisco and Abella signed the following document: o o Received payment of P500 from Julio Abella as payment on account for the said lots; due on or before Dec. 15, 1928, extendible 15 days thereafter Total debt was around P21,600

As of Nov. 1928 Abella had paid P915.34 Francisco executed a power of attorney in favor of Mabanta because he was in Cebu on December 27; Franciscos instructions to Mabanta were to inform Abella that the option would be considered cancelled if he failed to make full payment and to return to him what he has paid thus far; if Abella were to pay the full amount Mabanta was instructed to sign all the documents required by the Bureau of Lands for the transfer of ownership of the said lots Mabanta informed Abella of these instructions; Abella asked for an extension of the period of payment to which Mabanta agreed, giving him until Jan. 5 1929 Abella did not offer payment until Jan. 9; Mabanta refused to accept Abellas payment and returned to the latter by check the sum of P915.34 which he paid previously Abella brought an action to compel the execution of the sale in his favor, which was denied by the court; hence this appeal

ISSUE: WON time is an essential element of this contract for which the failure to pay on time justifies its rescission

HELD: Yes, time was an essential element in this contract Lower court held that since this contract was an option to sell, the period was an essential consideration; this courts opinion is divided as to whether this contract is an option or a sale, but it agrees that time is essential It should be noted that Francisco had obligations due on December 1928 for which he expected to use the payment on the said lots

VDA. DE VILLARUEL VS. MANILA MOTORS Claudina Vda. de Villaruel, et al., plaintiffs, vs. Manila Motor Co., Inc. and Arturo Colmenares, defendants Ponente: Reyes, J. B. L., J. Facts: Manila Motors and Villaruel entered into a contract whereby the former agreed to convey by lease to the latter some premises. The term of lease is 5 years. The premises were invaded by the Japanese and then the American occupied the same building. The occupants paid the same rate as the Manila Motors after which they have vacated the premises. Manila Motors renewed the contract for an additional 5 yrs. Villaruel, as per his lawyers advise, demanded for rental from Manila Motors for the period when the Japanese and the Americans occupied the premises. The premises were set on fire, the reason unknown. Issue: Whether or not Villaruel has power to demand rentals and recover the same due to default. Held: They cannot demand rentals Ratio: Art. 1554 of CC of Spain states the duties of a lessor. a. deliver to the lessee the subject matter b. make thereon, during the lease, all repairs necessary and maintain serviceable condition c. maintain lessee in peaceful enjoyment of lease. 1560, lessor shall not be liable for any act of mere disturbance of 3rd person but lessee would have direct action against trespassers. No lessee would agree to pay rent for premises he could not enjoy.

CENTRAL BANK VS. CA Facts: Apr 1965 Aug 1965 Jun 1968 Aug 1968 Island Savings Bank approved the loan of Sulpicio Tolentino for 80,000, with the latters 100-ha property as security. The amount plus interest was to be paid within 3 years. Only 17,000 of the entire amount was released, for which Tolentino signed a promissory note. The Bank was prohibited from engaging in new transactions It was prohibited from doing any further business due to its insolvency. The Bank filed for foreclosure of Tolentinos property due to his non- payment. CFI: dismissed petition for specific performance ordered Tolentino to pay for 17 debt, allowed foreclosure CA: affirmed dismissal, Bank cannot collect 17k debt nor foreclose the mortgage Issue/s: 1. What is the bank liable for? 2. What is Tolentino liable for? 3. Could the mortgage be foreclosed? Held/ Ratio: 1. The Bank is in default for its inability to fulfill its obligation under the loan agreement, for which specific performance or rescission with damages would be required. The initial prohibition against new transactions was not a bar to its release of the balance of the loan, however, as the Bank has also been prohibited against all transactions, only rescission is available. But since Sulpicio is Ponente: Makasiar, C.J. reciprocally in default for his non-payment of the partial loan released, for which he signed a promissory note and therefore created an obligation separate from the initial loan, the Bank is liable for nothing. 2. Tolentino is liable for the amount released to him, plus the interests corresponding to such debt. Had he not signed a promissory note for the 17,000 released, rescission plus damages could have been available to him, since his obligation to pay would not have begun since the Bank had not complied with its obligation to furnish the entire amount. 3. Yes, but not entirely. The property could only be held liable for the amount of debt incurred by Tolentino. The mortgage is only enforceable in proportion to the Banks compliance with its obligation. As the 17,000 debt corresponds to only 21.25% of the total loan, 21.25% of the 100- ha property could be foreclosed.

Chaves vs.Gonzales April 30, 1970 [GRN L-27454 April 30, 1970] ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO GONZALES, defendant-appellee. The appealed judgment, which is brief, is hereunder quoted in full: "In the early part of July, 1963, The defendant was not able to finish the job after some time . The defendant merely gave assurances, but failed to comply with the same. In October, 1963, the the plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined On October 29, 1963, the plaintiff sent a letter to the dependant formally demanding the (Exhibit D). The following day, the "On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of P89.85, including labor and materials (Exhibit C). "On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney's fees. "In his answer as well as in his testimony given before this court, the defendant made no denilas of the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the plaintiff. "The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of only P31.10. "WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs of suit. "SO ORDERED." The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor and material that went into the repair of the machine, as provided for in Article 1167 of the Civil Code, reading as follows: "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 be undone." (so sabi nung may ari nung typewriter dapat daw di lang yung binayad nya sa missing parts (P31.10), dapat daw yung buong cost nung labor + damages pa) On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for the sum of P31.10 because his contract with plaintiff-appellant did not contain a period, so that plaintiff appellant 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 could be held liable for breach of contract. (lah naman daw time period so lah pa breach) Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as found by the trial court, are now conclusive and non reviewable.1 (Summary ng facts from trial court: kasi daw direct action xa to the SC so what has been presented to the trial court would be used by the SC as basis) The appealed judgment states that the "plaintiff delevered to the defendant . . . a portable typewriter for routine cleaning and servicing"; that the "defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff"; that the "defendant merely gave assurances, but failed to comply with the same"; and that "after getting exasperated with the delay of the repair of the typewriter," the plaintiff went to the house of the defendant and asked for its return, which was done. 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, for 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 nonperformance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted nonperformance 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 that to delay (cf. Tiglao, et al. v. Manila Railroad Co., 98 Phil. 181). (So sabi ng courts there ws a perfected contract between the 2 parties and that there was a breach of contract by nonperformance, and it was unnecessary to fix the time) 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 teh repair of the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it. (so contravention of the tenor in the case, aside from non-performance, is the returning of the typewriter in shambles. Cost dapat na singilin sa tagagawa ng typewriter e ung cost ng labor since un ung pinapagawa sa kanya na di naman nya ginawa) In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code , for the cost of the missing parts, in the amount P31.10, for in his obligaiton to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it. (kelangan rin bayad yung P31.10 kasi he breached his contract by not

preserving the thing which is asked for him to perform on kumbaga he failed in preserving the thing which he is supposed to deliver) the plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine cleaning and servicing. despite repeated reminders made by the plaintiff defendant asked from the typewriter returned to him by the defendant and found out that the same was in shambles, with the interior cover and some parts and screws missing. return missing parts, the interior cover and the sum of P6.00 defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00. Appellant's claims for moral and temperate damages and attorney's fees were, however correctly rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 105). Claims for damages and attorney's fees must be pleaded, and the existence of, the actual basis thereof must be proved.2 (so ung ibang damages dapat alleged in the complaint to be recognized by the courts...) The appealed judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were made on damages and attorney's fees, there is no factual basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on questions of law. IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendants-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Ruiz Castro, Fernando, Teehankee and Villamor, JJ., concur. Barredo J., did not take part. Judgment modified. So ang ruling sa Chavez v. Gonzales, they granted the plea of the owner of the typewriter that the whole cost of repair (labor + spare parts) be paid by the typewriter mechanic who damaged the typewriter aside from not cleaning and fixing it, therefore the performance of the supposed function of the mechanic was performed on his costs)

TELEFAST COMMUNICATION VS. CASTRO ET AL. Telefast Communications/Philippine Wireless, Inc., petitioner, vs. Ignacio Castro, Sr., Sofia C. Crouch, Ignacio Castro Jr., Aurora Castro, Salvador Castro, Mario Castro, Conrado Castro, Esmeralda C. Floro, Agerico Castro, Rolando Castro, Virgilio Castro and Gloria Castro, and Honorable Intermediate Appellate Court, respondents Ponente: Padilla, J. Summary: Contravention of tenor of the agreement existed. Telefast is liable as they had no evidence of any efforts made to overcome technical and atmospheric factors beyond their control in order to send the telegram. Facts: Consolacion Bravo- Castro died. Sofia Crouch (daughter of Consolacion), telegrammed Ignacio, (Consoloacions husband) in the U.S. of the news via Telefast. Ignacio and all of Consolacions other children did not go to the funeral. Upon Sofias return in the US, she found out that the family never received the telegram. Ignatios family sues. CFI makes telefast liable. (See Chart Below) IAC affirms decision but has modification on liabilities (See Chart). Telefast appeals to SC that they should not be held liable for moral damages. Issue: Does lack of fraud, malice or recklessness exempt Telefast from moral damages? Ratio: No it does not. Civil Code 1170 states that those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor, thereof are liable for damages. There was a contract: Sofia pays fee and Telefast sends telegram. Sofia performed her obligation to pay, Telefast didnt. Telefast contravened the obligation. They must pay through money as A. 2217 states that Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendants wrongful act or omission. Jill Hernandez CFI Compensatory Damages Moral Damages Exemplary Damages Sofia: P31.92 and P16K Sofia: 20K Husband &other kids: 20K-10K Attorneys Fee: 5K 1K/ plaintiff IAC No more 16k All are 10K No more 1K/plaintiff SC Sofia: 16K 10K/ respondent Attorneys Fee: 5K 1K/ plaintiff Costs of suits

ARRIETA VS. NATIONAL RICE AND CORN CORP. Paz P. Arrieta and Vitaliado Arrieta, plaintiffs-appellees, vs. National Rice and Corn Corporation, defendantappellant, Manila Underwriters Insurance Co., Inc., defendant-appellee Ponente: Regala, J. Facts: On May 19, 1952 plaintiff-appellee Paz P. Atrieta won the public bidding called by the National Rice and Corn administration (NARIC) for the supply of P20,000 metric tons of Burmese Rice as her bid of $203 per metric ton was the lowest. The defendant corporation committed itself to pay for the imported rice by means of an irrevocable, confirmed and assignable letter of credit in US currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately. It was only on July 30, 1952, or a full month after from the execution of the contract, that the defendant NARIC took the first step to open a letter of credit by forwarding to the Philippine National Bank (PNB) its Application for Commercial Letter of Credit with a transmittal letter which read: In view of the fact that we do not have sufficient deposit with your institution with to cover the amount required to be deposited as a condition for the opening of letters of credit, we will appreciate it if this application could be considered a special case On the same day, Paz P. Arieta advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma, equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulation in Rangoon; this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952 PNB informed the appellant corporation of the extreme necessity for the immediate opening of the letter of credit for $3,614,000 in favor of Thiri Setkya has been approved with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment. PNB will hold NARICs application in abeyance pending compliance with the requirement However, NARIC was not in a financial position to meet the condition. NARIC bluntly confessed to the appellee this dilemma through a letter. The credit instrument applied for was opened only of September 8, 1952 in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000 (which is more than two months from the execution of the contract) As a result of the delay, the allocation of appellees supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 Kyats or approximately P200,000 was forfeited The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating the same became apparent, Paz offered to substitute Thailand rice instead to the defendant NARIC. This offer of substitution, however, was rejected by appellant in a resolution. On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of $286,000 US currency, representing unrealized profit. The demand having been rejected, she instituted this case now on appeal, alleging that NARICs failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1, 1952. Appellant corporation disclaims responsibility for the delay and insists that the fault lies with the appellee. NARIC contends that the disputed negotiable instrument was not promptly secured because the Paz failed to seasonable furnish data necessary and required for opening the same, namely: (1) the amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated NARIC also argues that the subsequent offer of appellant Paz to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver of whatever rights she might have derived from the alleged breach of contract. Appellant NARIC also filed a counter-claim asserting that it has suffered, likewise by way of unrealized profit, damages in the sum of $406,000 from the failure of the projected contract to materialize. Issues: 1. WON appellants failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1, 1952 2. WON the subsequent offer of appellant Paz to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver of whatever rights she might have derived from the alleged breach of contract 3. WON appellants counter-claim is valid Held: 1. YES 2. NO 2. NO Ratio:

1. It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened with the contemplated period. This failure, must, therefore, be the immediate cause of for the consequent damage which resulted. Appellants defense has no merit. First, the appellants defense reaches into an area of the proceedings which the court is not at liberty to encroach. Appellants defense refers to a question of fact, for the court is denied to disturb questions of fact, consonant to the time- honored tradition to hold that trial judges are better situated to make conclusions on questions of fact. Second, It is clear that what singularly delayed the opening of the stipulated letter of credit and which, in turn, caused the cancellation of the allocation in Burma, was the inability of appellant NARIC to meet the condition imposed by PNB for granting the same. NARICs defense does not hold for even if appellant Paz furnished the necessary data for opening the letter of credit, NARIC would still not be in the position to meet the condition of PNB. The liability of NARIC arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the prestation. Despite awareness that it was financially incompetent to open a letter of credit immediately, appellant agreed in its contract with Paz to pay immediately by means of an irrevocable, confirmed and assignable letter of credit Article 1170 of the Civil Code: Those who in the converted into the Philippine peso at the rat of performance of their obligations are guilty of exchange prevailing at the time of the obligation. fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable in damages. Under this provision, not only debtors are guilty of fraud, negligence or default in the performance of obligations are decreed liable; in general, every debtor who fails in the performance of his obligations I bound to indemnify for the losses and damages caused thereby. The phrase in any manner contravene the tenor of the obligation includes any illicit act which impairs the strict and fulfillment of the obligation, or every kind of defective performance. NARIC executed such a defective performance by agreeing to sign its contract with Paz despite its awareness that it was financially incompetent to open a letter of credit. The decision appealed from is affirmed, with the minor sole modification that the award should be 2. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable explanation (Ramirez v. CA). In the case at bar, no such intent has been established. 3. NARICs unrealized profit was realizable by it despite a number of expenses which the appellee, under contract, did not have to incur. Thus, banking and unloading charges were to be shouldered by NARIC. Such charges, if shouldered by NARIC, would still leave NARIC with profit over P400, 000.

ESCOLIN, J. ; APRIL 20, 1983

NATURE: Petition for review on certiorari to determine the sufficiency of the averments contained in the complaint for alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero of the CFI of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, which complaint was dismissed for failure to state a cause of action.

FACTS: Defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of massage from mobile taxicab to fixed base stations within the Naval Base Because of the experience of the plaintiff in connection with his various contracts with the U.S. Navy and his goodwill already established with the Naval personnel, Isidro Q. Aligada, acting as agent of the defendant approached the plaintiff and proposed to import from Japan thru the plaintiff or thru plaintiff's Japanese business associates, all taximeters and radio transceivers needed by the defendant Defendant and his agent were able to import from Japan with the assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, the plaintiff's assistance in this matter having been given to the defendant gratis et amore Isidro Q. Aligada, acting as agent of the defendant, made representations with the plaintiff that defendant desired to procure from Japan thru the plaintiff the needed radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, wherein the plaintiff quoted in his offer a total price of $77,620.59 FOB Yokohama, the goods or articles offered for sale by the plaintiff to the defendant to be delivered sixty to ninety days after receipt of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities Plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant the items as well as the terms and conditions of said offer, as shown by the signed conformity of the defendant which was duly delivered by the defendant's agent to the plaintiff, whereupon all that the plaintiff had to do was to await advice from the defendant as, to the radio frequency to be assigned by the proper authorities to the defendant In his letter dated October 6, 1972, the defendant advised his agent that the U.S. Navy provided him with the radio frequency of 34.2 MHZ [Megaherzt] and requested his said agent to proceed with his order placed with the plaintiff, which fact was duly communicated to the plaintiff By his letter dated October 7, 1972 addressed to the plaintiff by the defendant's agent, defendant's agent qualified defendant's instructions that plaintiff should proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit Plaintiff awaited the opening of such a letter of credit by the defendant Defendant and his agent have repeatedly assured plaintiff of the defendant's financial capabilities to pay for the goods and in fact he accomplished the necessary application for a letter of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods It came to the knowledge of the plaintiff that the defendant has been operating his taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs he impliedly laid the blame for the delay upon the plaintiff thus destroying the reputation of the plaintiff with the mid Naval Authorities with whom plaintiff transacts business

On March 27, 1973, plaintiff wrote a letter thru his counsel to ascertain from the defendant as to whether it is his intention to fulfill his pan of the agreement with the plaintiff or whether he desired to have the contract between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand

Petitioners Claims The defendant entered into a contract with the plaintiff without the least intention of faithfully complying with his obligations, but he did so only in order to obtain the concession from the U.S. Navy Exchange. of operating a fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the expense and prejudice of third parties such as the plaintiff. That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff, the plaintiff will suffer several damages

Respondents Arguments Respondent Guerrero filed a motion to dismiss complaint for lack of cause of action. He alleged that plaintiff was merely anticipating his loss or damage, which might result from the alleged failure of defendant to comply with the terms of the alleged contract. Plaintiff's right of recovery under his cause of action is premised not on any loss or damage actually suffered by him but on a non-existing loss or damage which he is expecting to incur in the near future. Plaintiff's right therefore under his cause of action is not yet fixed or vested. The respondent judge, over petitioner's opposition, issued a minute order dismissing the complaint

ISSUE: WON there is sufficient cause of action

HELD: YES. Ratio The essential elements of a cause of action are: [1] the existence of a legal right of the plaintiff; [2] a correlative duty of the defendant and [3] an act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief.

Article 1170 Of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud. negligence, or delay, and those who in any manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance.

The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [dao emergense] but also the profits which the latter failed to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the nonperformance of the obligation. The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith.

Reasoning The complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain, private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him, and that

consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present. Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law. The complaint sufficiently alleges bad faith on the part of the defendant.

Disposition The questioned order of dismissal was set aside and the case was ordered remanded to the court of origin for further proceedings. No costs.