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Phil. School of Business Administration v.

on 6:00 AM in Case Digests, Civil Law

G.R. No. 84698, Jan. 4, 1992

School's responsibility in loco parentis over its own students: the harm or
negligent act must be committed by its students against another student,
not by an outsider

General rule on the application of quasi-delict: no pre-existing contract

between the parties

Carlitos Bautista, a third-year commerce student of PSBA, was stabbed
to death while on the second-floor premises of the school. The
assailants were not members of the schools academic community but
were elements from outside the school. The parents of Carlitos filed
a civil action against the school authorities, alleging them
negligent, reckless and with failure to take security precautions,
means and methods before, during and after the attack on the victim.
The appellate court found in their favor, primarily anchoring its
decision on the law of quasi-delicts.
Hence, the petition.

Whether or not the appellate court was correct in deciding the

case based on Article 2180 (in loco parentis)

Whether or not the application of the law on quasi-delict is proper

when there is a pre-existing contract

The SC did not agree with the premises of the CAs ruling. Article
2180, in conjunction with Article 2176 of the Civil Code, establishes
the rule in in loco parentis. It had been stressed that the law
(Article 2180) plainly provides that the damage should have been
caused or inflicted by pupils or students of the educational
institution sought to be held liable for the acts of its pupils or
students while in its custody. However, this material situation does
not exist in the present case for, as earlier indicated, the
assailants of Carlitos were not students of PSBA, for whose acts the
school could have been made liable.


It does not necessarily follow. When an academic institution accepts
students for enrollment, there is established a contract between
them, resulting in bilateral obligations which both parties are bound
to comply with. Moreover, there is that built-in obligation to
provide students with an atmosphere that promotes or assists in
attaining its primary undertaking of imparting knowledge. The school
must ensure that adequate steps are taken to maintain peace and order
within the campus premises and to prevent the breakdown thereof.
Because the circumstances of the present case evince a contractual
relation between PSBA and Carlitos, the rules on quasi-delict do not
really govern. However, the mere fact that a person is bound to
another by contract does not relieve him from extra-contractual
liability to such person. When such a contractual relation exists the
obligor may break the contract under such conditions that the same
act which constitutes a breach of the contract would have constituted
the source of an extra-contractual obligation had no contract existed
between the parties. Art. 21 of the Civil Code comes to mind, so that
should the act which breaches a contract be done in bad faith and
violative of Art. 21, then there is a cause to view the act as
constituting a quasi-delict.
In the present case, there is no finding that the contract between
the school and Carlitos had been breached thru the formers
negligence in providing proper security measures.

Torts and Damages Civil Liability from Quasi Delicts vs Civil Liability from Crimes
At about 1:30am on May 3, 1936, Fontanillas taxi collided with a kalesa thereby
killing the 16 year old Faustino Garcia. Faustinos parents filed a criminal suit against
Fontanilla and reserved their right to file a separate civil suit. Fontanilla was
eventually convicted. After the criminal suit, Garcia filed a civil suit against Barredo
the owner of the taxi (employer of Fontanilla). The suit was based on Article 1903 of
the civil code (negligence of employers in the selection of their employees). Barredo
assailed the suit arguing that his liability is only subsidiary and that the separate civil
suit should have been filed against Fontanilla primarily and not him.
ISSUE: Whether or not Barredo is just subsidiarily liable.
HELD: No. He is primarily liable under Article 1903 which is a separate civil action
against negligent employers. Garcia is well within his rights in suing Barredo. He
reserved his right to file a separate civil action and this is more expeditious because
by the time of the SC judgment Fontanilla is already serving his sentence and has no
property. It was also proven that Barredo is negligent in hiring his employees because
it was shown that Fontanilla had had multiple traffic infractions already before he
hired him something he failed to overcome during hearing. Had Garcia not reserved
his right to file a separate civil action, Barredo would have only been subsidiarily
liable. Further, Barredo is not being sued for damages arising from a criminal act (his

drivers negligence) but rather for his own negligence in selecting his employee
(Article 1903).
At about half past one in the morning of May 3, 1936, on the road between Malabon and
Navotas, Province of Rizal, there was a head- on collision between a taxi of the Malate
Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapalis. The carretela
was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered
injuries from which he died two days later. A criminal action was filed against Fontanilla in
the Court of First Instance of Rizal.
1. CFI- Rizal Fontanilla was convicted and sentenced to an indeterminate sentence of one
year and one day to two years of prision correccional. The court in the criminal case granted
the petition that the right to bring a separate civil action be reserved.
2. CA: affirmed the sentence of the lower court in the criminal case.
Severino Garcia and Timotea Almario, parents of the deceased on March 7, 1939, brought
an action in the Court of First Instance of Manila against Fausto Barredo as the sole
proprietor of the Malate Taxicab and employer of Pedro Fontanilla.
1. CFI Manila: Fausto Barredo is liable in damages for the death of Faustino Garcia caused
by negligence of Pedro Fontanilla, a taxi driver employed by Barredo in the amount of
2. CA: reduced the damages to 1,000.
Whether the plaintiffs may bring this separate civil action against Fausto Barredo, thus
making him primarily and directly, responsible under article 1903 of the Civil Code as an
employer of Pedro thus making him primarily and directly, responsible under article 1903 of
the Civil Code as an employer of Pedro Fontanilla
The responsibility in question is imposed on the occasion of a crime or fault, but not
because of the same, but because of the cuasi- delito, that is to say, the imprudence or
negligence of the father, guardian, proprietor or manager of the establishment, of the
teacher, etc. Whenever anyone of the persons enumerated in the article referred to
(minors, incapacitated persons, employees, apprentices) causes any damage, the law
presumes that the father, guardian, teacher, etc. have committed an act of negligence in
not preventing or avoiding the damage. It is this fault that is condemned by the law.
One is not responsible for the acts of others, because one is liable only for his own faults,
this being the doctrine of article 1902; but, by exception, one is liable for the acts of those
persons with whom there is a bond or tie which gives rise to the responsibility.

Crimes under penal code

1. affect public interest
2. Penal Code punishes or corrects the criminal act
3. not as broad as quasi-delicts because crimes are punished only if there is a penal law
clearly covering them
4. proof beyond reasonable doubt is required

Culpa aquiliana / Cuasi-delito

1. Only of private concern

2. Civil Code, by means of indemnification, merely repairs the damage (includes both
reckless and simple negligence)
3. include all acts in which any kind of fault or negligence intervenes

when there is exercise of the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.

4. only preponderance of evidence is required

Note: not all violations of the penal law produce civil responsibility.
The action against the principal is accessory in the sense that it implies the existence of a
prejudicial act committed by the employee, but it is not subsidiary in the sense that it can
not be instituted till after the judgment against the author of the act or at least, that it is
subsidiary to the principal action; the action for responsibility (of the employer) is in itself a
principal action. (Laurent, Principles of French Civil Law) The basis of civil law liability is not
respondent superior but the relationship of pater familias. This theory bases the liability of the
master ultimately on his own negligence and not on that of his servant. A quasi-delict or
culpa extra-contractual is a separate and distinct legal institution, independent from the civil
responsibility arising from criminal liability, and that an employer is, under article 1903 of the
Civil Code, primarily and directly responsible for the negligent acts of his employee.
Thus, there were two liabilities of Barredo: first, the subsidiary one because of the civil
liability of the taxi driver arising from the latter's criminal negligence; and, second,
Barredo's primary liability as an employer under article 1903. The plaintiffs were free to
choose which course to take, and they preferred the second remedy. In so doing, they were
acting within their rights. It might be observed in passing, that the plaintiff choose the
more expeditious and effective method of relief, because Fontanilla was either in prison, or
had just been released, and besides, he was probably without property which might be
seized in enforcing any judgment against him for damages.
Section 1902 of that chapter reads: "A person who by an act or omission causes damage to
another when there is fault or negligence shall be obliged to repair the damage so done.
"SEC. 1903. The obligation imposed by the preceeding article is demandable, not only for
personal acts and omissions, but also for those of the persons for whom they should be
"The father, and on his death or incapacity, the mother, is liable for the damages caused
by the minors who live with them.
xxx xxx xxx "Owners or directors of an establishment or enterprise are equally liable for
the damages caused by their employees in the service of the branches in which the latter
may be employed or in the performance of their duties. xxx xxx xxx
"The liability referred to in this article shall cease when the persons mentioned therein
prove that they employed all the diligence of a good father of a family to avoid the
the same act of negligence being a proper subject-matter either of a criminal action with its
consequent civil liability arising from a crime or of an entirely separate and independent civil
action for fault or negligence under article 1902 of the Civil Code. Thus, in this jurisdiction, the
separate individually of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and
clearly recognized, even with regard to a negligent act for which the wrongdoer could have been
prosecuted and convicted in a criminal case and for which, after such a conviction, he could
have been sued for this civil liability arising from his crime.




On February 2, 1930, a passenger truck and an automobile of private ownership

collided while attempting to pass each other on a bridge. The truck was driven by the
chauffeur Abelardo Velasco, and was owned by saturnine Cortez. The automobile was
being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by
Bonifacios father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together with several other
members of the Gutierrez family were accommodated therein.

The collision between the bus and the automobile resulted in Narciso Gutierrez
suffering a fractured right leg which required medical attendance for a considerable
period of time.

ISSUE: Whether or not both the driver of the truck and automobile are liable for
damages and indemnification due to their negligence. What are the legal obligations
of the defendants?

HELD: Bonifacio Gutierrezs obligation arises from culpa aquiliana. On the other
hand, Saturnino Cortezs and his chauffeur Abelardo Velascos obligation rise from
culpa contractual.

The youth Bonifacio was na incompetent chauffeur, that he was driving at an

excessive rate of speed, and that, on approaching the bridge and the truck, he lost his
head and so contributed by his negligence to the accident. The guaranty given by the
father at the time the son was granted a license to operate motor vehicles made the
father responsible for the acts of his son. Based on these facts, pursuant to the
provisions of Art. 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.

The liability of Saturnino Cortez, the owner of the truck, and his chauffeur Abelardo
Velasco rests on a different basis, namely, that of contract.
JACINTO TANGUILIG doing business under the name and style J.M.T.
G.R.No. 125994 29June2001
Herce contracted Tanguilig to construct a windmill system for him,

for consideration of 60,000.00. Pursuant to the agreement Herce paid

the downpayment of 30,000.00 and installment of 15,000.00 leaving a
15,000.00 balance.
Herce refused to pay the balance because he had already paid this
amount to SPGMI which constructed a deep well to which the windmill
system was to be connected since the deepwell, and assuming that he
owed the 15,000.00 this should be offset by the defects in the
windmill system which caused the structure to collapse after strong
winds hit their place. According to Tanguilig, the 60,000.00
consideration is only for the construction of the windmill and the
construction of the deepwell was not part of it. The collapse of the
windmill cannot be attributed to him as well, since he delivered it
in good and working condition and Herce accepted it without protest.
Herce contested that the collapse is attributable to a typhoon, a
force majeure that relieved him of liability.
The RTC ruled in favor of Tanguilig, but this decision was overturned
by the Court of Appeals which ruled in favor of Herce
Can the collapse of the windmill be attributed to force majeure?
Thus, extinguishing the liability of Tanguilig?
- Yes, in order for a party to claim exemption from liability by
reason of fortuitous event under Art 1174 of the Civil Code the event
should be the sole and proximate cause of the loss or destruction of
the object of the contract.
- In Nakpil vs. Court of Appeals, the S.C. held that 4 requisites
must concur that there must be a (a) the cause of the breach of the
obligation must be independent of the will of debtor (b) the event
must be either unforeseeable or unavoidable; (c) the event be such to
render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation
in or aggravation of the injury to the creditor.
- Tanguilig merely stated that there was a strong wind, and a strong
wind in this case is not fortuitous, it was not unforeseeable nor
unavoidable, places with strong winds are the perfect locations to
put up a windmill, since it needs strong winds for it to work.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE
HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the
balance of P15,000.00 with interest at the legal rate from the date
of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with
the one-year guaranty" and to complete the same within three (3)
months from the finality of this decision.
Obligations and Contracts Terms:
Fortuitous Events- Refers to an occurrence or happening which could

not be foreseen, or even if foreseen, is inevitable. It is necessary

that the obligor is free from negligence. Fortuitous events may be
produced by two (2) general causes: (1) by Nature, such as but not
limited to, earthquakes, storms, floods, epidemics, fires, and (2) by
the act of man, such as but not limited to, armed invasion, attack by
bandits, governmental prohibitions, robbery, provided that they have
the force of an imposition which the contractor or supplier could not
have resisted.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.
FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811
July 31, 1953
Subject: BusOrg 1 (PAT)
Doctrine: Fraud
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with
defendant Halili stating among others that: 1) that they shall organize a partnership for
the bottling and distribution of Missionsoft drinks, plaintiff to act as industrial partner
or manager, and the defendant as a capitalist, furnishing the capital necessary
therefore; 2) that plaintiff was to secure the Mission Soft Drinks franchise for and in
behalf of the proposed partnership and 3) that the plaintiff was to receive 30 per cent
of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a milliondollars in
the bottling and distribution of the said beverages, and requested, in order that he may
close the deal with him, that the right to bottle and distribute be granted him for a
limited time under the condition that it will finally be transferred to the corporation.
Pursuant to this request, plaintiff was given a thirty days option on exclusive
bottling and distribution rights for the Philippines. The contract was finally signed by
plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that
the partnership papers be executed. Defendant Halili gave excuses and would not
execute said agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of
profits and 3)share thereof of 30 percent with 4) damages in the amount of P200,000.
The Defendant on the other hand claims that: 1) the defendants consent to the
agreement, was secured by the representation of plaintiff that he was the owner, or
was about to become owner of an exclusive bottling franchise, which representation
was false, and that plaintiff did not secure the franchise but was given to defendant
himself 2) that defendant did not fail to carry out his undertakings, but that it was
plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise
to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and
that the 2) execution of contract cannot be enforced upon parties. Lastly, the 3) fraud
wasnt proved

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle
Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the
1. Yes. Plaintiff did make false representations and this can be seen through his letters
to Mission Dry Corporation asking for the latter to grant him temporary franchise so
that he could settle the agreement with defendant. The trial court reasoned, and the
plaintiff on this appeal argues, that plaintiff only undertook in the agreement to
secure the Mission Dry franchise for and in behalf of the proposed partnership. The
existence of this provision in the final agreement does not militate against plaintiff
having represented that he had the exclusive franchise; it rather strengthens belief that
he did actually make the representation. The defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be reassigned
to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiffs participation in the net profits to one half of that agreed upon. He could not
have had such a feeling had not plaintiff actually made him believe that he(plaintiff)
was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds
of (civil) fraud, the causal fraud, which may be ground for the annulment of a
contract, and the incidental deceit, which only renders the party who employs it liable
for damages only. The Supreme Court has held that in order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft
prepared by defendants counsel was to the effect that plaintiff obligated himself to
secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that
led plaintiff to enter into the partnership agreement. On the other hand, this supposed
ownership of an exclusive franchise was actually the consideration or price plaintiff
gave in exchange for the share of 30 per cent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in the net
profits because he was transferring his exclusive franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void,
may the agreement be carried out or executed? The SC finds no merit in the claim of
plaintiff that the partnership was already a fait accompli from the time of the
operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be

carried out at a later date. , The defendant may not be compelled against his will to
carry out the agreement nor execute the partnership papers. The law recognizes the
individuals freedom or liberty to do an act he has promised to do, or not to do it, as
he pleases.
Dispostive Postion: With modification above indicated, the judgment appealed from
is hereby affirmed.

Geraldez vs. CA, [G.R. No. 108253. February 23, 1994]

Post under case digests, Civil Law at Saturday, March 03, 2012 Posted
by Schizophrenic Mind

Facts: An action for damages by reason of

contractual breach was filed by petitioner
Lydia L. Geraldez against private respondent
Kenstar Travel Corporation. Sometime in
October 1989, Petitioner came to know about
advertisements in newspapers of general
circulation regarding tours in Europe. She
then contacted private respondent by phone and
the latter sent its representative, who gave
her the brochure for the tour and later
discussed its highlights. The European tours
offered were classified into four, and
denominated as "VOLARE 3" covering a 22-day
tour of Europe for S2,990.00. She paid the
total equivalent amount of P190,000.00 charged
by private respondent for her and her sister,
Dolores. Petitioner claimed that, during the
tour, she was very uneasy and disappointed
when it turned out that, contrary to what was
stated in the brochure, there was no European
tour manager for their group of tourists, the
hotels in which she and the group stayed were
not first-class, the UGC Leather Factory which
was specifically added as a highlight of the
tour was not visited, and the Filipino lady

tour guide by private respondent was a first

timer, that is, she was performing her duties
and responsibilities as such for the first
Issue: Whether or not the respondent company
committed fraud in order for the petitioner to
enter into the contract.
Held: This fraud or dolo, which is present or
employed at the time of birth or perfection of
a contract, may either be dolo causante or
dolo incidente. The first, or causal fraud
referred to in Article 1338, are those
deceptions or misrepresentations of a serious
character employed by one party and without
which the other party would not have entered
into the contract. Dolo incidente, or
incidental fraud which is referred to in
Article 1344, are those, which are not serious
in character and without which the other party
would still have entered into the contract.
Dolo causante determines or is the essential
cause of the consent, while dolo incidente
refers only to some particular or accident of
the obligations. The effects of dolo causante
are the nullity of the contract and the
indemnification of damages, and dolo incidente
also obliges the person employing it to pay
In either case, whether private respondent has
committed dolo causante or dolo incidente by
making misrepresentations in its contracts
with petitioner and other members of the tour
group, which deceptions became patent in the
light of after-events when, contrary to its

representations, it employed an inexperienced

tour guide, housed the tourist group in
substandard hotels, and reneged on its promise
of a European tour manager and the visit to
the leather factory, it is indubitably liable
for damages to petitioner.
Boysaw vs. Interphil Promotions
Boxer (P) vs. Promoter (D)
GR L-22590


Summary: A boxer signed an agreement with a promotions agency to

arrange and promote a boxing match with Flash Elorde. The boxer
violated the terms of the contract, but in spite of these, the agency
proceeded except it negotiated for a new date for the match.
Eventually, the match as originally stated in the contract did not
materialize. Boxer and manager is now suing the promotion agency for
breach of contract.
Rule of Law: Where one party did not perform the undertaking which
he was bound by the terms of the agreement to perform, he is not
entitled to insist upon the performance of the contract by the other
party, or recover damages by reason of his own breach.
Facts: Solomon Boysaw (P), signed with Interphil Promotions, Inc.
(D), a contract to engage Gabriel "Flash" Elorde in a boxing contest
for the junior lightweight championship of the world. Thereafter,
Interphil (D) signed Gabriel "Flash" Elorde to a similar agreement
that is, to engage Boysaw in a title fight.
The managerial rights over Boysaw (P) was assigned and eventually
reassigned to Alfredo Yulo, Jr. (P) without the consent of Interphil
(D) in violation of their contract. When informed of the change,
Interphil (D) referred the matter to the Games and Amusement Board
culminating to a decision by the board to approve a new date for the
match. Yulo (P) protested against the new date even when another
proposed date was within the 30-day allowable postponements.
Boysaw (P) and Yulo (P) filed for breach of contract when the fight
contemplated in the original boxing contract did not materialize.
Issues: May the offending party in a reciprocal obligation compel
the other party for specific performance?
Ruling: No. Evidence established that the contract was violated by
Boysaw (P) when, without the approval or consent of Interphil (D), he
fought a boxing match in Las Vegas. Another violation was the
assignment and transfer of the managerial rights over Boysaw (P)
without the knowledge or consent of Interphil (D).

While the contract imposed no penalty for such violation, this does
not grant any of the parties the unbridled liberty to breach it with
impunity. Our law on contracts recognizes the principle that
actionable injury inheres in every contractual breach.
Those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in
any manner contravene the terms thereof, are liable for
Article 1170, Civil Code.
The power to rescind obligations is implied, in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
Article 1191, Civil Code.
The contract in question gave rise to reciprocal obligations.
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to
be performed simultaneously, so that the performance of
one is conditioned upon the simultaneous fulfillment of
the other.
Tolentino, Civil Code of the Philippines, Vol. IV,
p. 175.
The power to rescind is given to the injured party.
Where the plaintiff is the party who did not perform the
undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon
the performance of the contract by the defendant, or
recover damages by reason of his own breach.
Seva vs. Alfredo Berwin, 48 Phil. 581.
Under the law, when a contract is unlawfully novated by an applicable
and unilateral substitution of the obligor by another, the aggrieved
creditor is not bound to deal with the substitute. However, from the
evidence, it is clear that the Interphil (D), instead of availing
themselves of the options given to them by law of rescission or
refusal to recognize the substitute obligor, really wanted to
postpone the fight date owing to an injury that Elorde sustained in a
recent bout. That Interphil (D) had justification to renegotiate the
original contract, particularly the fight date is undeniable from the
facts. Under the circumstances, Interphil's (D) desire to postpone
the fight date could neither be unlawful nor unreasonable.
* Keywords: rescission, reciprocal obligation
35 SCRA 102

On November 2, 1960, UP and ALUMCO entered

into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from
the Land Grant for a period starting from the date of
agreement to December 31, 1965, extendible for a period of
5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an
unpaid account of P219,362.94. Despite repeated
demands, ALUMCO still failed to pay, so UP sent a notice
to rescind the logging agreement. On the other hand,
ALUMCO executed an instrument entitled
Acknowledgment of Debt and Proposed Manner of
Payments. It was approved by the president of UP, which
stipulated the following:
3. In the event that the payments called for are not
sufficient to liquidate the foregoing indebtedness,
the balance outstanding after the said payments
have been applied shall be paid by the debtor in
full no later than June 30, 1965.
5. In the event that the debtor fails to comply with
any of its promises, the Debtor agrees without
reservation that Creditor shall have the right to
consider the Logging Agreement rescinded,
without the necessity of any judicial suit
ALUMCO continued its logging operations, but
again incurred an unpaid account. On July 19,1965, UP
informed ALUMCO that it had, as of that date, considered
rescinded and of no further legal effect the logging
agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation.
ALUMCO filed a petition to enjoin UP from conducting the
bidding. The lower court ruled in favor of ALUMCO,
hence, this appeal.
Can petitioner UP treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect?
Yes. In the first place, UP and ALUMCO had
expressly stipulated that upon default by the debtor, UP
has the right and the power to consider the Logging
Agreement of December 2, 1960 as rescinded without the necessity of
any judicial suit. As to such special stipulation
and in connection with Article 1191 of the Civil Code, the
Supreme Court, stated in Froilan vs. Pan Oriental Shipping
There is nothing in the law that prohibits the
parties from entering into agreement that violation
of the terms of the contract would cause
cancellation thereof, even without court
intervention. In other words, it is not always

necessary for the injured party to resort to court

for rescission of the contract.
Vda. De Mistica vs. Naguiat
418 SCRA 73
Art. 1182. Potestative Condition


Potestative Condition under Art. 1182 in relation to Art. 1191

of Civil Code


Predecessor-in-interest of Petitioner and herein Defendants

entered into a contract to sell in which the latter prayed the
initial payment and undertake to pay the remaining by
installment within 10 years subject to 12% interest per annum

Petitioner filed a complaint for rescission alleging failure

and refusal of Defendants to pay the balance constitutes a
violation of the contract which entitles her to rescind the

Petitioner argues that period for performance of obligation

cannot be extended to 10 years because to do so would convert
the obligation to purely potestative


Under Art. 1191 of Civil Code, the right to rescind an

obligation is predicated on violation between parties
brought about by breach of faith by one of them.
Rescission, however, is allowed only when the breach is
substantial and fundamental to the fulfillment of the

In this case, no substantial breach in the Kasulatan, it was

stipulated that payment could be made even after 10 years from
execution of contract, provided they will pay the 12% interest

Civil Code prohibits purely potestative, suspensive,

conditional obligation that depend on the whims of the
debtor. Nowhere in the deed that payment of purchase price is
dependent whether respondents want to pay it or not, the fact
that they already made partial payment shows that parties
intended to be bound by the Kasulatan

4 Phil 560 Civil Law Torts and Damages Distinction of Liability of Employers
Under Article 2180 and Their Liability for Breach of Contract
In January 1932, Francisco De Borja entered into a contract of sale with the NVSD
(Natividad-Vasquez Sabani Development Co., Inc.). The subject of the sale was 4,000
cavans of rice valued at Php2.10 per cavan. On behalf of the company, the contract
was executed by Antonio Vasquez as the companys acting president. NVSD. only
delivered 2,488 cavans and failed and refused despite demand to deliver the rest hence
De Borja incurred damages (apparently, NVSD was insolvent). He then sue Vasquez
for payment of damages.
ISSUE: Whether or not Vasquez is liable for damages.
HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja
contracted with. It is well known that a corporation is an artificial being invested by
law with a personality of its own, separate and distinct from that of its stockholders
and from that of its officers who manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it necessarily has to act thru its agents,

does not make the latter personally liable on a contract duly entered into, or for an act
lawfully performed, by them for an in its behalf.
The fact that the corporation, acting thru Vazquez as its manager, was guilty of
negligence in the fulfillment of the contract did not make Vazquez principally or even
subsidiarily liable for such negligence. Since it was the corporations contract, its non
fulfillment, whether due to negligence or fault or to any other cause, made the
corporation and not its agent liable.
JUSTICE PARAS Dissenting :
Vasquez as president of NVSD is liable for damages. Vasquez, as acting president and
manager of NVSD, and with full knowledge of the then insolvent status of his
company, agreed to sell to De Borja 4,000 cavans of palay. Further, NVSD was soon
thereafter dissolved.
Plaintiff SSS approved the application of Defendant Moonwalk fora loan of
P30,000,000 for the purpose of developing andconstructing a housing project.
Out of P30,000,000 approved loan, the sum of P9,595,000 wasreleased to defendant
A third Amendment Deed of Mortgage was executed for thepayment of the amount of
Moonwalk made a total payment of P23,657,901.84 to SSS for theloan principal of
After settlement of the account, SSS issued to Moonwalk the
release of Mortgage for Moonwalks Mortgaged properties.
In letter to Moonwalk, SSS alleged that it committed an honestmistake in releasing

That Moonwalk has still 12% penalty for failure to pay on time theamortization which
is in the penal clause of the contract.
Moonwalks counsel told SSS that it had completely paid its
obligation to SSS and therefore there is no recovery of any penalty.
Is the penalty demandable even after the extinguishment of theprincipal obligation?
HELD:No. There has been a waiver of the penal clause as it was notdemanded before
the full obligation was fully paid andextinguished.
Default begins from the moment the creditor demands theperformance of the
obligation.In this case,
although there were late amortizations there wasno demand made by SSS for the
payment of the penalty
henceMoonwalk is not in delay in the payment of the penalty.No delay occurred and
there was no occasion when the penaltybecame demandable and enforceable.
Since there was no default in the performance of the mainobligation-payment of the
loan- SSS was never entitled torecover any penalty.
If the demand for the payment of the penalty was made prior tothe extinguishment of
the obligation which are: 1. e principalobligation 2. The interest of 12% on the
principal obligation 3.The penalty of 12% for late payment for after demand,
Moonwalkwould be in delay and therefore liable for the penalty.

Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos &

Riverland, Inc.
Chester Cabalza recommends his visitors to please read the original &
full text of the case cited. Xie xie!
Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos &
Riverland, Inc.
G.R. No. 1530004
November 5, 2004

Subject of the present petition for review on certiorari is the

Decision, dated January 30, 2002, as well as the April 12, 2002,
Resolution of the Court of Appeals, The appellate court reversed the
Decision, dated October 4, 1996, of the Regional Trial Court of
Makati City, and likewise denied petitioner's Motion for
On October 26, 1990, the parties executed a Compromise Agreement
which amicably ended all their pending litigations. The pertinent
portions of the Agreement, include the following: (1) Defendant
Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5
Million immediately upon the execution of this agreement and (b) The
balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of
not more than two years from the execution of this agreement; (2)
Immediately upon the execution of this agreement (and [the] receipt
of the P1.5 Million), plaintiff Santos shall cause the dismissal with
prejudice of Civil Cases; (3) Failure of compliance of any of the
foregoing terms and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically entitle the
aggrieved party to a writ of execution for the enforcement of this
In compliance with the Compromise Agreement, respondent Santos moved
for the dismissal of the aforesaid civil cases. He also caused the
lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
On October 28, 1992, respondent Santos sent another letter to
petitioner inquiring when it would pay the balance of P13 million.
There was no response from petitioner. Consequently, respondent
Santos applied with the Regional Trial Court of Makati City, for the
issuance of a writ of execution of its compromise judgment dated
September 30, 1991. The RTC granted the writ.
Petitioner, however, filed numerous motions to block the enforcement
of the said writ. The challenge of the execution of the aforesaid
compromise judgment even reached the Supreme Court. All these
efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in
Mabalacat, Pampanga were auctioned. In the said auction, Riverland,
Inc. was the highest bidder for P12 million and it was issued a
Certificate of Sale covering the real properties subject of the
auction sale. Subsequently, another auction sale was held on February
8, 1995, for the sale of real properties of petitioner in Bacolod
City. Again, Riverland, Inc. was the highest bidder. The Certificates
of Sale issued for both properties provided for the right of
redemption within one year from the date of registration of the said
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for
Declaratory Relief and Damages alleging that there was delay on the
part of petitioner in paying the balance of P13 million.

a)W/N the CA committed reversible error when it awarded legal
interest in favor of the respondents notwithstanding the fact that
neither in the compromise agreement nor in the compromise of judgment
by the judge provides for payment of interest to the respondent?
b)W/N the CA erred in awarding legal interest to the respondents
although the obligation of the petitioner to the respondent is to pay
a sum of money that had been converted into an obligation to pay in
c)W/N respondents are barred from demanding payment of interest by
reason of the waiver provision in the compromise agreement, which
became the law among the parties.
On October 4, 1996, the trial court rendered a Decision dismissing
the respondents' complaint and ordering them to pay attorney's fees
and exemplary damages to petitioner. Respondents then appealed to the
Court of Appeals.
The only issue to be resolved is whether the respondents are entitled
to legal interest.
The appellate court reversed the ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is
hereby REVERSED and judgment is hereby rendered ordering appellee
SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal
interest on the principal amount of P13 million at the rate of 12%
per annum from the date of demand on October 28, 1992 up to the date
of actual payment of the whole obligation; and (2) P20,000 as
attorney's fees and costs of suit. SO ORDERED.
Delay as used in this article is synonymous to default or mora which
means delay in the fulfillment of obligations. It is the nonfulfillment of the obligation with respect to time. In the case at
bar, the obligation was already due and demandable after the lapse of
the two-year period from the execution of the contract. The two-year
period ended on October 26, 1992. When the respondents gave a demand
letter on October 28, 1992, to the petitioner, the obligation was
already due and demandable. Furthermore, the obligation is liquidated
because the debtor knows precisely how much he is to pay and when he
is to pay it.
The petition lacks merit
In the case at bar, the Compromise Agreement was entered into by the
parties on October 26, 1990. It was judicially approved on September
30, 1991. Applying existing jurisprudence, the compromise agreement
as a consensual contract became binding between the parties upon its

execution and not upon its court approval. From the time a compromise
is validly entered into, it becomes the source of the rights and
obligations of the parties thereto. The purpose of the compromise is
precisely to replace and terminate controverted claims.
As to the remaining P13 million, the terms and conditions of the
compromise agreement are clear and unambiguous. It provides that the
balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of
not more than two (2) years from the execution of this agreement.
WHEREFORE, the petition is DENIED for lack of merit. The Decision
dated January 30, 2002 of the Court of Appeals and its April 12, 2002
Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against
petitioner. SO ORDERED