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VS MIGUEL The petition filled by the respondent, Miguel

CAMPOS Campos should be dismissed for failure to state a cause
G.R. NO. 138814, APRIL 26, 2009 of action.

A cause of action is the act or omission by which

FACTS: a party violates a right of another. A complaint states a
SEC Case No. 02-94-4678 was instituted on 10 cause of action where it contains three essential
February 1994 by respondent Miguel V. Campos with the elements of a cause of action, namely: (1) the legal right
Securities, Investigation and Clearing Department of the plaintiff, (2) the correlative obligation of the
(SICD) of the Securities and Exchange Commission defendant, and (3) the act or omission of the defendant
(SEC), a Petition against herein petitioners Makati Stock in violation of said legal right. If these elements are
Exchange, Inc. (MKSE). absent, the complaint becomes vulnerable to dismissal
on the ground of failure to state a cause of action.
The Petition, sought: (1) the nullification of the
Resolution dated 3 June 1993 of the MKSE Board of However, the terms right and obligation are not
Directors, which allegedly deprived him of his right to magic words that would automatically lead to the
participate equally in the allocation of Initial Public conclusion that such Petition sufficiently states a cause
Offerings (IPO) of corporations registered with MKSE; of action. Right and obligation are legal terms with
(2) the delivery of the IPO shares he was allegedly specific legal meaning. A right is a claim or title to an
deprived of, for which he would pay IPO prices; and (3) interest in anything whatsoever that is enforceable by
the payment of P2 million as moral damages, P1 million law while an obligation is defined in the Civil Code as a
as exemplary damages, and P500,000.00 as attorneys juridical necessity to give, to do or not to do. Justice
fees and litigation expenses. J.B.L. Reyes offers the definition given by Arias Ramos
as a more complete definition:
The SICD issued an Order granting An obligation is a juridical
respondents prayer for the issuance of a Temporary relation whereby a person (called the
Restraining Order to enjoin petitioners from creditor) may demand from another
implementing or enforcing the Resolution of the MKSE (called the debtor) the observance of a
Board of Directors. Subsequently issued another Order determinative conduct (the giving,
on 10 March 1994 granting respondents application for doing or not doing), and in case of
a Writ of Preliminary Injunction, to continuously enjoin, breach, may demand satisfaction from
during the pendency of SEC Case No. 02-94-4678, the the assets of the latter.
implementation or enforcement of the MKSE Board
Resolution in question. Art. 1157 of the Civil Code provides that
Obligations arise from (1) Law; (2) Contracts; (3) Quasi-
On 11 March 1994, petitioners filed a Motion to contracts; (4) Acts or omissions punished by law; and (5)
Dismiss respondents Petition based on the following Quasi-delicts.
grounds: (1) the Petition became moot due to the
cancellation of the license of MKSE; (2) the SICD had no The mere assertion of a right and claim of an
jurisdiction over the Petition; and (3) the Petition failed to obligation in an initiatory pleading, whether a Complaint
state a cause of action. The SICD denied petitioners or Petition, without identifying the basis or source
Motion to Dismiss. Petitioners again challenged Order of thereof, is merely a conclusion of fact and law. (In the
SICD before the SEC en banc through another Petition case at bar, although the Petition in SEC Case No. 02-
for Certiorari. 94-4678 does allege respondents right to subscribe to
the IPOs of corporations listed in the stock market at
The SEC en banc nullified the Order of SICD their offering prices, and petitioners obligation to
granting a Writ of Preliminary Injunction in favour of continue respecting and observing such right, the
respondent. SEC en banc annulled the Order of SICD in Petition utterly failed to lay down the source or basis of
SEC Case No. 02-94-4678 denying petitioners Motion to respondents right and/or petitioners obligation.)
Dismiss, and accordingly ordered the dismissal of
respondents Petition before the SICD. Respondent merely quoted in his Petition the
MKSE Board Resolution, passed sometime in 1989,
Respondent filed a Petition for Certiorari with the granting him the position of Chairman Emeritus of MKSE
Court of Appeals. Petitioners filed a Motion for for life. However, there is nothing in the said Petition
Reconsideration but was denied by the Court of Appeals. from which the Court can deduce that respondent, by
virtue of his position as Chairman Emeritus of MKSE,
ISSUE: WHETHER OR NOT THE PETITION was granted by law, contract, or any other legal source,
FAILED TO STATE A CAUSE OF ACTION. the right to subscribe to the IPOs of corporations listed in
the stock market at their offering prices. (allocation of
RULING: IPO shares was merely alleged to have been done in
accord with a practice normally observed by the
members of the stock exchange) A practice or custom is,
as a general rule, not a source of a legally demandable "2. Upon the completion of the schematic design
or enforceable right. services, but not more than 15 days after the submission
of the schematic design to the Authority, a sum
FLAVIO K. MACASAET & ASSOCIATES, INC., equivalent to 15% of the professional fee as stated in
petitioner, vs. COMMISSION ON AUDIT and Art. IV computed upon the reasonable estimated
PHILIPPINE TOURISM AUTHORITY, construction cost of the project.

1. CIVIL LAW; CONTRACTS; INTERPRETATION "3. Upon completion of the design development
OF CONTRACTS; LITERAL MEANING OF services, but not more than 15 days after submission of
TERMINOLOGIES OF CONTRACT CONTROL WHEN the design development to the authority, a sum
THEY ARE CLEAR. The terminologies in the contract equivalent to 20% of the professional fee as stated in
being clear, leaving no doubt as to the intention of the Art. IV, computed upon the reasonable estimated
contracting parties, their literal meaning control (Article construction cost.
1370, Civil Code).
2. ID.; OBLIGATIONS; HAVE FORCE OF LAW "4. Upon completion of the contract document
BETWEEN CONTRACTING PARTIES AND SHOULD services but not more than 15 days after submission of
BE COMPLIED WITH IN GOOD FAITH WHEN ARISING the contract document to the Authority, a sum equivalent
FROM CONTRACT. The price escalation cost must to 25% of the professional fee as stated in Art. IV, shall
be deemed included in the final actual project cost and be paid computed on the same basis as above.
petitioner held entitled to the payment of its additional
professional fees. Obligations arising from contract "5. Upon completion of the work and acceptance
have the force of law between the contracting thereof by the Authority, the balance of the professional
parties and should be complied with in good faith fee, computed on the final actual project cost shall be
paid." (Emphasis supplied)
(Article 1159, Civil Code).
MELENCIO-HERRERA, J p: Pursuant to the foregoing Schedule, the PTA made
In this Petition for Certiorari, pursuant to Section 7, periodic payments of the stipulated professional fees to
Article IX of the 1987 Constitution, 1 petitioner, Flavio K. petitioner. And, upon completion of the project, PTA paid
Macasaet & Associates, Inc., prays that the ruling of petitioners what it perceived to be the balance of the
public respondent Commission on Audit (COA) denying latter's professional fees.
its claim for completion of payment of professional fees
be overturned. It turned out, however, that after the project was
completed, PTA paid Supra Construction Company, the
The facts follow: main contractor, the additional sum of P3,148,198.26
On 15 September 1977 respondent Philippine Tourism representing the escalation cost of the contract price
Authority (PTA) entered into a Contract for "Project due to the increase in the price of construction
Design and Management Services for the materials.
development of the proposed Zamboanga Golf and
Country Club, Calarian, Zamboanga City" with Upon learning of the price escalation, petitioner
petitioner company, but originally with Flavio K. requested payment of P219,302.47 additional
Macasaet alone (hereinafter referred to simply as the professional fee representing seven (7%) percent of
"Contract"). P3,148,198.26.

Under the Contract, PTA obligated itself to pay On 3 July 1985 PTA denied payment on the ground that
petitioner a professional fee of seven (7%) of the "the subject price escalation referred to increased cost of
actual construction cost, as follows: construction materials and did not entail additional work
on the part of petitioner as to entitle it to additional
"ARTICLE IV PROFESSIONAL FEE compensation under Article VI of the contract" 2
"In consideration for the professional services to be
performed by Designer under Article I of this Agreement, Reconsiderations sought by the petitioner, up to
the Authority shall pay seven percent (7%) of the actual respondent COA, were to no avail. The latter expressed
construction cost." the opinion that "to allow subject claim in the absence
In addition, a Schedule of Payments was provided for of a showing that extra or additional services had
while the construction was in progress and up to its final been rendered by claimant would certainly result in
completion, thus: overpayment to him to the prejudice of the
Government" (1st Endorsement, July 10, 1987, p. 3,
"1. Upon the execution of the Agreement but not
more than fifteen (15) days, a minimum payment Hence this Petition, to which we gave due course.
equivalent to 10 percent of the professional fee as The basic issue for resolution is petitioner's
provided in Art. IV computed upon a reasonable entitlement to additional professional fees, which, in
estimated construction cost of the project.
turn, hinges on whether or not the price escalation The terminologies in the contract being clear, leaving no
should be included in the "final actual project cost." doubt as to the intention of the contracting parties, their
Public respondents, through the Solicitor General, literal meaning control (Article 1370, Civil Code). The
maintain that petitioner had been paid its professional price escalation cost must be deemed included in the
fee upon completion of the project and that its claim for final actual project cost and petitioner held entitled to the
additional payment is without any legal and factual basis payment of its additional professional fees. Obligations
for, after all, no additional architectural services were arising from contract have the force of law between the
rendered other than the ones under the terms of the contracting parties and should be complied with in good
Contract. LLphil faith (Article 1159, Civil Code). LLphil

On the other hand, petitioner anchors its claim to WHEREFORE, the ruling of respondent Commission on
additional professional fees, not on any change in Audit is hereby SET ASIDE and respondent Philippine
services rendered, but on Article IV, and paragraph 5 of Tourism Authority is hereby ordered to pay
Article V, of the Contract, supra. petitioner the additional amount of P219,302.47 to
The very terminologies used in the Contract call for complete the payment of its professional fee under
affirmative relief in petitioner's favor. their Contract for Project Design and Management
Under Article IV of said Contract, petitioner was to be
entitled to seven (7%) of the "actual construction cost." SO ORDERED.
Under paragraphs 1, 2, 3, and 4, Article V, periodic
payments were to be based on a "reasonable estimated Fernan (C.J.), Narvasa, Gutierrez, Jr., Cruz, Paras,
construction cost." Ultimately, under paragraph 5, Article Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes,
V, the balance of the professional fee was to be Grio-Aquino, Medialdea and Regalado, JJ., concur.
computed on the basis of "the final actual project cost." Footnotes
The use of the terms "actual construction cost", 1. Section 7. . . . Unless otherwise provided
gradating into "final actual project cost" is not without by this Constitution or by law, any decision, order, or
significance. The real intendment of the parties, as ruling of each Commission may be brought to the
shown by paragraph 5, Article V, of their Contract was to Supreme Court on certiorari by the aggrieved party
base the ultimate balance of petitioner's within thirty days from receipt of a copy thereof.
professional fees not on "actual construction cost" 2. Article VI CHANGE OF ORDERS.
alone but on the final actual project cost; not on Should the Authority order any major change on
"construction cost" alone but on " project cost." By the planning and engineering aspects after definite
so providing, the Contract allowed for flexibility based on designs have been previously agreed upon and
actuality and as a matter of equity for the contracting computation, designing, and drafting works completed
parties. For evidently, the final actual project cost would resulting in additional work, additional compensation
not necessarily tally with the actual construction cost shall be equitably paid for such additional work as
initially computed. The final actual project cost" covers mutually agreed upon by both parties.
the totality of all costs as actually and finally determined,
and logically includes the escalation cost of the contract Philippine Export and Foreign Loan Guarantee
price. Corporation v V.P. Eusebio Construction Inc.

It matters not that the price escalation awarded to the Facts:

construction company did not entail additional work for 1. The State Organization of Buildings (SOB), Ministry of
petitioner. As a matter of fact, neither did it for the main Housing and Construction, Baghdad, Iraq awarded the
contractor. The increased cost of materials was not the construction of the Institute of Physical Therapy-Medical
doing of either contracting party. Rehabilitation Center in Iraq to Ayjal Trading and
That an escalation clause was not specifically provided Contracting Company for a total contract price of about
for in the Contract is of no moment either for it may be $18M.
considered as already "built-in" and understood from the
very terms "actual construction cost," and eventually 2. Spouses Santos, in behalf of 3-Plex International, Inc.,
"final actual project cost." a local contractor engaged in construction business,
Article VI of the Contract, supra, has no bearing on the entered into a joint venture agreement with Ayjal wherein
present controversy either. It speaks of any major the former undertook the execution of the entire a
change in the planning and engineering aspects project, while the latter would be entitled to a
necessitating the award and payment of additional commission of 4%.
compensation. Admittedly, there was no additional work
by petitioner, which required additional compensation. 3. 3-Plex not accredited by the Philippine Overseas
Rather, petitioner's claim is for payment of the balance of Construction Board (POCB) assigned and transferred all
its professional fees based on the "final actual project its rights and interests to VPECI.
cost" and not for additional compensation based on
Article VI. 4. The SOB required the contractors to submit a
performance bond representing 5% of the total contract
price, an advance payment bond representing 10% of The question of whether there is a breach of the
the advance payment to be released upon signing of the agreement which includes default pertains to the
contract. To comply with these requirements 3-Plex and INTRINSIC validity of the contract.
VPECI applied for a guarantee with Philguarantee, a
government financial institution empowered to issue No conflicts rule on essential validity of contracts is
guarantees for qualified Filipino contractors. expressly provided for in our laws. The rule followed by
most legal systems is that the intrinsic validity of a
5. But what SOB required was a guarantee from the contract must be governed by lex contractus (proper law
Rafidain Bank of Baghdad so Rafidain Bank issued a of the contract). This may be the law voluntarily agreed
performance bond in favor of SOB on the condition that upon by the parties (lex loci voluntatis) or the law
another foreign bank (not Phil Guarantee) would issue intended by them either expressly or implicitly (lex loci
the counter-guarantee. Hence, Al Ahli Bank of Kuwait intentionis). The law selected may be implied from
was chosen to provide the counter guarantee. factors such as substantial connection with the
transaction, or the nationality or domicile of the parties.
6.Afterwards, SOB and the joint venture of VPECI and Philippine courts adopt this: to allow the parties to select
Ayjal executed the service contract. Under the contract, the law applicable to their contract, SUBJECT to the
the joint venture would supply manpower and materials, limitation that it is not against the law, morals, public
SOB would refund 25% of the project cost in Iraqi Dinar policy of the forum and that the chosen law must bear a
and 75% in US dollars at an exchange rate of 1 Dinar to substantive relationship to the transaction.
In the case, the service contract between SOB and
7.The project was not completed. Upon seeing the VPECI contains no express choice of law. The laws of
impossibility of meeting the deadline, the joint venture Iraq bear substantial connection to the transaction and
worked for the renewal or extension (12x) of the one of the parties is the Iraqi government. The place of
performance bond up to December 1986. performance is also in Iraq. Hence, the issue of whether
VPECI defaulted may be determined by the laws of Iraq.
8. In October 1986, Al Ahli Bank sent a telex call
demanding full payment of its performance bond BUT! Since foreign law was not properly pleaded or
counter-guarantee. Upon receipt, VPECI requested Iraq proved, processual presumption will apply.
Trade and Economic Development Minister Fadhi
Hussein to recall the telex for being in contravention of According to Art 1169 of the Civil Code: In reciprocal
its mutual agreement that the penalty will be held in obligations, neither party incurs in delay if the other party
abeyance until completion of the project. It also wrote does not comply or is not ready to comply in a proper
SOB protesting the telex since the Iraqi government manner what is incumbent upon him.
lacks foreign exchange to pay VPECI and the non-
compliance with the 75% billings in US dollars. As found by the lower courts: the delay or non-
completion of the project was caused by factors not
9. Philguarantee received another telex from Al Ahli imputable to the Joint Venture, it was rather due to the
stating that it already paid to Rafidain Bank. The Central persistent violations of SOB, particularly it's failure to pay
Bank authorized the remittance to Al Ahli Bank 75% of the accomplished work in US dollars. Hence, the
representing the full payment of the performance joint venture does not incur in delay if the other
counter-guarantee for VPECI's project in Iraq. party(SOB) fails to perform the obligation incumbent
upon him.
10. Philguarantee sent letters to respondents demanding
the full payment of the surety bond. Respondents failed TANGUILING VS CA
to pay so petitioner filed a civil case for collection of sum FACTS OF THE CASE:
of money.
Herce contracted Tanguilig to construct a windmill
11. Trial Court ruling: Dismissed. Philguarantee had no system for him, for consideration of 60,000.00. Pursuant
valid cause of action against the respondents. The joint to the agreement Herce paid the downpayment of
venture incurred no delay in the execution of the project 30,000.00 and installment of 15,000.00 leaving a
considering that SOB's violations of the contract 15,000.00 balance.
rendered impossible the performance of its undertaking.
Herce refused to pay the balance because he had
12. CA: Affirmed. already paid this amount to SPGMI which constructed a
deep well to which the windmill system was to be
Issue: connected since the deepwell, and assuming that he
What law should be applied in determining whether or owed the 15,000.00 this should be offset by the defects
not contractor (joint venture) has defaulted? in the windmill system which caused the structure to
collapse after strong winds hit their place. According to
Held: 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 Barzaga v CA Digest
cannot be attributed to him as well, since he delivered it
in good and working condition and Herce accepted it G.R. No. 115129 February 12, 1997
without protest. Herce contested that the collapse is Facts:
attributable to a typhoon, a force majeure that relieved The petitioners wife was suffering from a debilitating
him of liability. ailment and with forewarning of her impending death,
she expressed her wish to be laid to rest before
The RTC ruled in favor of Tanguilig, but this decision was Christmas day to spare her family of the long vigils as it
overturned by the Court of Appeals which ruled in favor was almost Christmas. After his wife passed away,
of Herce petitioner bought materials from herein private
respondents for the construction of her niche. Private
respondents however failed to deliver on agreed time
ISSUES OF THE CASE: and date despite repeated follow-ups. The niche was
completed in the afternoon of the 27th of December, and
Can the collapse of the windmill be attributed to force Barzaga's wife was finally laid to rest. However, it was
majeure? Thus, extinguishing the liability of Tanguilig? two-and-a-half (2-1/2) days behind schedule.
Issue: Was there delay in the performance of the private
- Yes, in order for a party to claim exemption from liability respondent's obligation?
by reason of fortuitous event under Art 1174 of the Civil
Code the event should be the sole and proximate cause Ruling: Yes. Since the respondent was negligent and
of the loss or destruction of the object of the contract. incurred delay in the performance of his contractual
- In Nakpil vs. Court of Appeals, the S.C. held that 4 obligations, the petitioner is entitled to be indemnified for
requisites must concur that there must be a (a) the the damage he suffered as a consequence of the delay
cause of the breach of the obligation must be or contractual breach. There was a specific time agreed
independent of the will of debtor (b) the event must be upon for the delivery of the materials to the cemetery.
either unforeseeable or unavoidable; (c) the event be
such to render it impossible for the debtor to fulfill his This is clearly a case of non-performance of a reciprocal
obligation in a normal manner; and (d) the debtor must obligation, as in the contract of purchase and sale, the
be free from any participation in or aggravation of the petitioner had already done his part, which is the
injury to the creditor. payment of the price. It was incumbent upon respondent
- Tanguilig merely stated that there was a strong wind, to immediately fulfill his obligation to deliver the goods
and a strong wind in this case is not fortuitous, it was not otherwise delay would attach. An award of moral
unforeseeable nor unavoidable, places with strong winds damages is incumbent in this case as the petitioner has
are the perfect locations to put up a windmill, since it suffered so much.
needs strong winds for it to work.
HELD: Facts:

WHEREFORE, the appealed decision is MODIFIED. At the height of the typhoon Kading, a flash flood
Respondent VICENTE HERCE JR. is directed to pay covered the towns near the Angat Dam, causing deaths
petitioner JACINTO M. TANGUILIG the balance of and destructions to residents and their properties.
P15,000.00 with interest at the legal rate from the date of Respondents blamed the tragedy to the reckless and
the filing of the complaint. In return, petitioner is ordered imprudent opening of the 3 floodgates by petitioner,
to "reconstruct subject defective windmill system, in without prior warning to the residents within the vicinity
accordance with the one-year guaranty" and to complete of the dam. Petitioners denied the allegations and
the same within three (3) months from the finality of this contended that they have kept the water at a safe level,
decision. that the opening of floodgates was done gradually, that it
exercises diligence in the selection of its employees, and
Obligations and Contracts Terms: that written warnings were sent to the residents. It further
contended that there was no direct causal relationship
Fortuitous Events- Refers to an occurrence or happening between the damage and the alleged negligence on their
which could not be foreseen, or even if foreseen, is part, that the residents assumed the risk by living near
inevitable. It is necessary that the obligor is free from the dam, and that what happened was a fortuitous event
negligence. Fortuitous events may be produced by two and are of the nature of damnum absque injuria.
(2) general causes: (1) by Nature, such as but not limited
to, earthquakes, storms, floods, epidemics, fires, and (2) Issues:
by the act of man, such as but not limited to, armed
invasion, attack by bandits, governmental prohibitions, (1) Whether the petitioner can be held liable even though
robbery, provided that they have the force of an the coming of the typhoon is a fortuitous event
imposition which the contractor or supplier could not
have resisted. (2) Whether a notice was sent to the residents
(3) Whether the damage suffered by respondents is one maintain and preserve the facilities of Angat Dam, but
of damnum absque injuria their negligence cannot be countenanced, however
noble their intention may be. The end does not justify the
Held: means, particularly because they could have done
otherwise than simultaneously opening the spillways to
(1) The obligor cannot escape liability, if upon the such extent. Needless to say, petitioners are not entitled
happening of a fortuitous event or an act of God, a to counterclaim.
corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the PICART vs. SMITH, JR.
obligation as provided in Article 1170 of the Civil Code
which results in loss or damage. Even if there was no FACTS: On the Carlatan Bridge in La Union. Picart was
contractual relation between themselves and private riding on his pony over said bridge. Before he had gotten
respondents, they are still liable under the law on quasi- half way across, Smith approached from the opposite
delict. Article 2176 of the Civil Code explicitly provides direction in an automobile. As the defendant neared the
"whoever by act or omission causes damage to another bridge he saw a horseman on it and blew his horn to
there being fault or negligence is obliged to pay for the give warning of his approach. He continued his course
damage done." Act of God or force majeure, by and after he had taken the bridge he gave two more
definition, are extraordinary events not foreseeable or successive blasts, as it appeared to him that the man on
avoidable, events that could not be foreseen, or which, horseback before him was not observing the rule of the
though foreseen, are inevitable. It is therefore not road.
enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one Picart saw the automobile coming and heard the warning
impossible to foresee or to avoid. The principle signals. However, being perturbed by the novelty of the
embodied in the act of God doctrine strictly requires that apparition or the rapidity of the approach, he pulled the
the act must be occasioned solely by the violence of pony closely up against the railing on the right side of the
nature. Human intervention is to be excluded from bridge instead of going to the left. He says that the
creating or entering into the cause of the mischief. When reason he did this was that he thought he did not have
the effect is found to be in part the result of the sufficient time to get over to the other side. As the
participation of man, whether due to his active automobile approached, Smith guided it toward his left,
intervention or neglect or failure to act, the whole that being the proper side of the road for the machine. In
occurrence is then humanized and removed from the so doing the defendant assumed that the horseman
rules applicable to the acts of God. In the case at bar, would move to the other side. Seeing that the pony was
although the typhoon "Kading" was an act of God, apparently quiet, the defendant, instead of veering to the
petitioners can not escape liability because their right while yet some distance away or slowing down,
negligence was the proximate cause of the loss and continued to approach directly toward the horse without
damage. diminution of speed. When he had gotten quite near,
there being then no possibility of the horse getting
(2) The letter itself, addressed merely "TO ALL across to the other side, the defendant quickly turned his
CONCERNED", would not strike one to be of serious car sufficiently to the right to escape hitting the horse;
importance, sufficient enough to set alarm and cause but in so doing the automobile passed in such close
people to take precautions for their safety's sake. The proximity to the animal that it became frightened and
notices were not delivered, or even addressed to turned its body across the bridge, got hit by the car and
responsible officials of the municipalities concerned who the limb was broken. The horse fell and its rider was
could have disseminated the warning properly. They thrown off with some violenceAs a result of its injuries
were delivered to ordinary employees and policemen. As the horse died. The plaintiff received contusions which
it happened, the said notices do not appear to have caused temporary unconsciousness and required
reached the people concerned, which are the residents medical attention for several days.
beside the Angat River. The plaintiffs in this case
definitely did not receive any such warning. Indeed, the From a judgment of the CFI of La Union absolving Smith
methods by which the defendants allegedly sent the from liability Picart has appealed.
notice or warning was so ineffectual that they cannot
claim, as they do in their second assignment of error, ISSUE: WON Smith was guilty of negligence such as
that the sending of said notice has absolved them from gives rise to a civil obligation to repair the damage done
HELD: the judgment of the lower court must be
(3) We cannot give credence to petitioners' third reversed, and judgment is here rendered that the Picart
assignment of error that the damage caused by the recover of Smith damages
opening of the dam was in the nature of damnum
absque injuria, which presupposes that although there YES
was physical damage, there was no legal injury in view
of the fortuitous events. There is no question that The test by which to determine the existence of
petitioners have the right, duty and obligation to operate, negligence in a particular case may be stated as follows:
Did the defendant in doing the alleged negligent act use where he explained that the shooting was accidental. He
that person would have used in the same situation? If was eventually released considering that no formal
not, then he is guilty of negligence. The existence of complaint was filed against him.
negligence in a given case is not determined by
reference to the personal judgment of the actor in the Saludaga thereafter filed with RTC Manila a complaint
situation before him. The law considers what would be for damages against respondents on the ground that
reckless, blameworthy, or negligent in the man of they breached their obligation to provide students with a
ordinary intelligence and prudence and determines safe and secure environment and an atmosphere
liability by that. The question as to what would constitute conducive to learning.
the conduct of a prudent man in a given situation must of
course be always determined in the light of human Respondents, in turn, filed a Third-Party Complaint
experience and in view of the facts involved in the against Galaxy Dvpt and Mgt Corp. (Galaxy), the agency
particular case. contracted by FEU to provide security services within its
premises and Mariano D. Imperial (Imperial), Galaxy's
Could a prudent man, in the case under consideration, President, to indemnify them for whatever would be
foresee harm as a result of the course actually pursued? adjudged in favor of petitioner, if any; and to pay
If so, it was the duty of the actor to take precautions to attorney's fees and cost of the suit. On the other hand,
guard against that harm. Reasonable foresight of harm, Galaxy and Imperial filed a Fourth-Party Complaint
followed by ignoring of the suggestion born of this against AFP General Insurance.
prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion On Nov.10, 2004, the trial court ruled in favor of
for determining the existence of negligence in a given Saludaga, the dispositive portion of which reads:
case is this: Conduct is said to be negligent when a WHEREFORE, from the foregoing, judgment is hereby
prudent man in the position of the tortfeasor would have rendered ordering:
foreseen that an effect harmful to another was
sufficiently probable to warrant his foregoing conduct or 1. FEU and Edilberto de Jesus, in his capacity as
guarding against its consequences. president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages
Applying this test to the conduct of the defendant in the with 12% interest per annum from the filing of the
present case we think that negligence is clearly complaint until fully paid; moral damages xxx, exemplary
established. A prudent man, placed in the position of the damages xx, attorney's fees xx and cost of the suit;
defendant, would in our opinion, have recognized that 2. Galaxy Corp. and its president, Col. Mariano Imperial
the course which he was pursuing was fraught with risk, to indemnify jointly and severally 3rd party plaintiffs (FEU
and would therefore have foreseen harm to the horse and Edilberto de Jesus in his capacity as President of
and the rider as reasonable consequence of that course. FEU) for the above-mentioned amounts;
Under these circumstances the law imposed on the
Smith the duty to guard against the threatened harm. 3. And the 4th party complaint is dismissed for lack of
cause of action. No pronouncement as to costs.
It goes without saying that the plaintiff himself was not Respondents appealed to the CA which ruled in its favor,
free from fault, for he was guilty of antecedent reversing the RTC decision, dismissing the complaint,
negligence in planting himself on the wrong side of the and also denying Saludagas subsequent MR. Hence,
road. But as we have already stated, Smith was also the instant petition based on the following grounds:
negligent; and in such case the problem always is to
discover which agent is immediately and directly THE CA SERIOUSLY ERRED....IN RULING THAT:
responsible. It will be noted that the negligent acts of the 5.1. THE SHOOTING INCIDENT IS A FORTUITOUS
two parties were not contemporaneous, since the EVENT;
negligence of the defendant succeeded the negligence 5.2. RESPONDENTS ARE NOT LIABLE FOR
of the plaintiff by an appreciable interval. Under these DAMAGES FOR THE INJURY RESULTING FROM A
circumstances the law is that the person who has the GUNSHOT WOUND SUFFERED BY THE
last fair chance to avoid the impending harm and fails to PETITIONER.....IN VIOLATION OF
do so is chargeable with the consequences, without THEIR....CONTRACTUAL OBLIGATION TO
reference to the prior negligence of the other party. PETITIONER.......TO PROVIDE HIM WITH A SAFE AND
EMPLOYEE.....; and
Petitioner Joseph Saludaga was a sophomore law SELECTING GALAXY AS THE AGENCY WHICH
student of (FEU) when he was shot by Alejandro Rosete, WOULD PROVIDE SECURITY SERVICES WITHIN
one of the security guards on duty at the school THE PREMISES OF RESPONDENT FEU.
premises on August 18, 1996. Petitioner was rushed to
FEU Hospital due to the wound he sustained. ISSUES:
Meanwhile, Rosete was brought to the police station
WON Saludaga may claim damages from FEU for qualifications required in the Security Service
breach of student-school contract for a safe learning Agreement.
Whether FEUs liability is based on quasi-delict or on Consequently, FEU's defense of force majeure must fail.
contract In order for force majeure to be considered, FEU must
From what source of obligation did the other claims show that no negligence or misconduct was committed
arose? that may have occasioned the loss. An act of God
cannot be invoked to protect a person who has failed to
HELD: take steps to forestall the possible adverse
1) Yes. consequences of such a loss. When the effect is found
2) FEUs liability is based on contract, not quasi-delict. to be partly the result of a person's participation -
3) Quasi-delict vicarious liability between Galaxy whether by active intervention, neglect or failure to act -
Agency and security guard Rosete the whole occurrence is humanized and removed from
Quasi-delict but SC held that there is no vicarious the rules applicable to acts of God.
liability between FEU and Rosete
Quasi-delict damage to FEU due to the negligence of Article 1170 of the Civil Code provides that those who
Galaxy Agency in supplying FEU with an unqualified are negligent in the performance of their obligations are
guard (Imperial, the president of Galaxy is solidarily liable for damages. Accordingly, for breach of contract
liable with the agency) due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for
It is undisputed that Saludaga was enrolled as a damages.
sophomore law student in FEU. As such, there was
created a contractual obligation between the two parties. We note that the trial court held respondent De Jesus
On Saludaga's part, he was obliged to comply with the solidarily liable with respondent FEU. In Powton
rules and regulations of the school. On the other hand, Conglomerate, Inc. v. Agcolicol, we held that:
FEU, as a learning institution is mandated to impart ... Personal liability of a corporate director, trustee or
knowledge and equip its students with the necessary officer along (although not necessarily) with the
skills to pursue higher education or a profession. At the corporation may so validly attach, as a rule, only when -
same time, it is obliged to ensure and take adequate (1) he assents to a patently unlawful act of the
steps to maintain peace and order within the campus. corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a
It is settled that in culpa contractual, the mere proof of conflict of interest resulting in damages to the
the existence of the contract and the failure of its corporation, its stockholders or other persons; (2) he
compliance justify, prima facie, a corresponding right of consents to the issuance of watered down stocks or
relief. In the instant case when Saludaga was shot inside who, having knowledge thereof, does not forthwith file
the campus by no less the security guard who was hired with the corporate secretary his written objection thereto;
to maintain peace and secure the premises, there is a (3) he agrees to hold himself personally and solidarily
prima facie showing that FEU failed to comply with its liable with the corporation; or (4) he is made by a
obligation to provide a safe and secure environment to specific provision of law personally answerable for his
its students. corporate action.
None of the foregoing exceptions was established in the
In order to avoid liability, however, FEU alleged that the instant case; hence, respondent De Jesus should not be
shooting incident was a fortuitous event because they held solidarily liable with respondent FEU.
could not have reasonably foreseen nor avoided the
accident caused by Rosete as he was not their Incidentally, although the main cause of action in the
employee; and that they complied with their obligation to instant case is the breach of the school-student contract,
ensure a safe learning environment for their students by petitioner, in the alternative, also holds respondents
having exercised due diligence in selecting the security vicariously liable under Article 2180 of the Civil Code.
services of Galaxy. However, respondents cannot be held liable for
damages under Art. 2180 of the Civil Code because
After a thorough review of the records, the SC found that respondents are not the employers of Rosete. The latter
FEU failed to discharge the burden of proving that they was employed by Galaxy. The instructions issued by
exercised due diligence in providing a safe learning respondents' Security Consultant to Galaxy and its
environment for their students. They failed to prove that security guards are ordinarily no more than requests
they ensured that the guards assigned in the campus commonly envisaged in the contract for services entered
met the requirements stipulated in the Security Service into by a principal and a security agency.
Agreement. Certain documents about Galaxy were
presented during trial; however, no evidence as to the As to the Third Party Claim against Galaxy, evidence
qualifications of Rosete as a security guard for the duly supports that Galaxy is negligent not only in the
university was offered. FEU also failed to show that they selection of its employees but also in their supervision.
undertook steps to ascertain and confirm that the Indeed, no administrative sanction was imposed against
security guards assigned to them actually possess the Rosete despite the shooting incident; moreover, he was
even allowed to go on leave of absence which led Complaint for Recovery of a Sum of Money against
eventually to his disappearance. Galaxy also failed to Solidbank with the Regional Trial Court. After trial, the
monitor petitioner's condition or extend the necessary trial court rendered a decision absolving Solidbank and
assistance. For these acts of negligence and for having dismissing the complaint. Court of Appeals reversed the
supplied respondent FEU with an unqualified security decision of the trial court.
guard, which resulted to the latter's breach of obligation
to petitioner, it is proper to hold Galaxy liable to Issue: Whether or not Solidbank must be held liable for
respondent FEU for such damages equivalent to the the fraudulent withdrawal on private respondents
above-mentioned amounts awarded to petitioner. account.

Held: Solidbanks tellers must exercise a high degree

Unlike respondent De Jesus, we deem Imperial to be of diligence in insuring that they return the passbook
solidarily liable with Galaxy for being grossly negligent in only to the depositor or his authorized representative.
directing the affairs of the security agency. It was The tellers know, or should know, that the rules on
Imperial who assured petitioner that his medical savings account provide that any person in possession
expenses will be shouldered by Galaxy but said of the passbook is presumptively its owner. If the tellers
representations were not fulfilled. give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the
Consolidated Bank and Trust Corporation vs. Court passbook, facilitating unauthorized withdrawals by that
of Appeals G.R. No. 138569, person. For failing to return the passbook to Calapre,
the authorized representative of L.C. Diaz, Solidbank
Solidbanks tellers must exercise a high degree of and Teller No. 6 presumptively failed to observe such
diligence in insuring that they return the passbook only high degree of diligence in safeguarding the passbook,
to the depositor or his authorized representative. The and in insuring its return to the party authorized to
tellers know, or should know, that the rules on savings receive the same. However, L.C. Diaz was guilty of
account provide that any person in possession of the contributory negligence in allowing a withdrawal slip
passbook is presumptively its owner. signed by its authorized signatories to fall into the hands
of an impostor. Thus, the liability of Solidbank should be
Facts: Solidbank is a domestic banking corporation reduced. Hence, the liability of Solidbank for actual
while private respondent L.C. Diaz and Company, CPAs damages was reduced to only 60%, the remaining 40%
(L.C. Diaz), is a professional partnership engaged in was borne by private respondent.
the practice of accounting and which opened a savings
account with Solidbank. Diaz through its cashier, The contract between the bank and its depositor is
Mercedes Macaraya , filled up a savings cash deposit governed by the provisions of the Civil Code on simple
slip and a savings checks deposit slip. Macaraya loan. There is a debtor-creditor relationship between the
instructed the messenger of L.C. Diaz, Ismael Calapre, bank and its depositor. The bank is the debtor and the
to deposit the money with Solidbank and give him the depositor is the creditor. The law imposes on banks high
Solidbank passbook. Calapre went to Solidbank and standards in view of the fiduciary nature of banking. RA
presented to Teller No. 6 the two deposit slips and the 8791 declares that the State recognizes the fiduciary
passbook. The teller acknowledged receipt of the nature of banking that requires high standards of
deposit by returning to Calapre the duplicate copies of integrity and performance. This new provision in the
the two deposit slips. Since the transaction took time general banking law, introduced in 2000, is a statutory
and Calapre had to make another deposit for L.C. Diaz affirmation of Supreme Court decisions holding that the
with Allied Bank, he left the passbook with Solidbank. bank is under obligation to treat the accounts of its
When Calapre returned to Solidbank to retrieve the depositors with meticulous care, always having in mind
passbook, Teller No. 6 informed him that somebody got the fiduciary nature of their relationship.
the passbook. Calapre went back to L.C. Diaz and
reported the incident to Macaraya. The following day,, Schmitz Transport & Brokerage Corporation vs.
L.C. Diaz through its Chief Executive Officer, Luis C. Transport Venture, Inc. (458 SCRA 557)
Diaz, called up Solidbank to stop any transaction using
the same passbook until L.C. Diaz could open a new Petitioner, who was in charge of securing requisite
account followed by a formal written request later that clearances, receive the cargoes from the shipside and
day. It was also on the same day that L.C. Diaz learned deliver it to the consignee Little Giant Steel Pipe
of the unauthorized withdrawal the day before of Corporation warehouse at Cainta, Rizal, hired the
P300,000 from its savings account. The withdrawal slip services of respondent Transport Venture Incorporation
bore the signatures of the authorized signatories of L.C. (TVI)s tugboat for the hot rolled steel sheets in coil.
Diaz, namely Diaz and Rustico L. Murillo. The Coils were unloaded to the barge but there was no
signatories, however, denied signing the withdrawal slip. tugboat to pull the barge to the pier. Due to strong waves
A certain Noel Tamayo received the P300,000. caused by approaching storm, the barge was
abandoned. Later, the barge capsized washing 37 coils
L.C. Diaz demanded from Solidbank the return of its into the sea. Consignee was executed a subrogation
money but to no avail. Hence, L.C. Diaz filed a receipt by Industrial Insurance after the formers filing of
formal claim. Industrial Insurance filed a complaint
against both petitioner and respondent herein. The trial After the US military forces left Subic Naval Base,
court held that petitioner and respondent TVI were jointly Philcomsat sent Globe a letter dated November 24, 1993
and severally liable for the subrogation. demanding payment of its outstanding obligations under
the Agreement amounting to US$4,910,136.00 plus
ISSUE: interest and attorneys fees. However, Globe refused to
heed Philcomsats demand.
Whether or not the loss of cargoes was due to fortuitous
event. ISSUES:

RULING: 1. Whether the termination of the RP-US Military

Bases Agreement constitute force majeure which would
NO. In order, to be considered a fortuitous event: (1) the exempt Globe from complying with its obligation to pay
cause of the unforeseen and unexpected occurrence, or rentals under its Agreement with Philcomsat;
the failure of the debtor to comply with his obligation,
must be independent of human will; (2) it must be 2. Whether Globe is liable to pay rentals under the
impossible to foresee the event which constitute the Agreement for the month of December 1992; and
caso fortuito, or if it can be foreseen it must be
impossible to avoid; (3) the occurrence must be such as 3. Whether Philcomsat is entitled to attorneys fees
to render it impossible for the debtor to fulfill his and exemplary damages.
obligation in any manner; and (4) the obligor must be
free from any participation in the aggravation of the HELD:
injury resulting to the creditor.
First Issue: Yes. Article 1174, which exempts an obligor
Petitioner and respondent TVI were jointly and severally from liability on account of fortuitous events or force
liable for the amount of paid by the consignee plus majeure, refers not only to events that are
interest computed from the date of decision of the trial unforeseeable, but also to those which are foreseeable,
court. but inevitable. Philcomsat and Globe agreed in Section 8
of the Agreement that the following events shall be
Philippine Communications Satellite Corp. vs. Globe deemed events constituting force majeure: particularly:
Telecom 1. any law, order, regulation, direction or request of the
Philippine Government. Under Article 1306 of the Civil
FACTS: Globe had been engaged in the coordination of Code, parties to a contract may establish such
the provision of various communication facilities for the stipulations, clauses, terms and conditions as they may
military bases of the US in Clark Air Base and Subic deem fit, as long as the same do not run counter to the
Naval Base. The said communication facilities were law, morals, good customs, public order or public policy.
installed and configured for the exclusive use of the US Not being contrary to law, morals, good customs, public
Defense Communications Agency (USDCA), and for order, or public policy, Section 8 of the Agreement which
security reasons, were operated only by its personnel or Philcomsat and Globe freely agreed upon has the force
those of American companies contracted by it to operate of law between them.
said facilities. The USDCA contracted with said
American companies, and the latter, in turn, contracted Second Issue: Yes. The US military forces and
with Globe for the use of the communication facilities. personnel completely withdrew from Cubi Point only on
Globe, on the other hand, contracted with local service December 31, 1992. Thus, until that date, the USDCA
providers such as the Philippine Communications had control over the earth station and had the option of
Satellite Corporation (Philcomsat) for the provision of the using the same thus the Court of Appeals did not err
communication facilities. when it affirmed the trial courts ruling that Globe is liable
for payment of rentals until December 1992.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to Third Issue: No. Philcomsat is not entitled to attorneys
establish, operate and provide an IBS Standard B earth fees and exemplary damages.
station (earth station) within Cubi Point for the exclusive
use of the USDCA. The term of the contract was for 5 The award of attorneys fees is the exception rather than
years. In turn, Globe promised to pay Philcomsat the rule, and must be supported by factual, legal and
monthly rentals for each leased circuit involved. equitable justifications. In previously decided cases, the
Court awarded attorneys fees where a party acted in
Both parties knew that the Military Bases Agreement gross and evident bad faith in refusing to satisfy the
between the Republic of the Philippines and the US was other partys claims and compelled the former to litigate
to expire in 1991. On August 6, 1992, Globe notified to protect his rights; when the action filed is clearly
Philcomsat of its intention to discontinue the use of the unfounded, or where moral or exemplary damages are
earth station effective November 8, 1992 in view of the awarded. However, in cases where both parties have
termination of the RP-US Military Bases Agreement. legitimate claims against each other and no party
actually prevailed, such as in the present case where the expropriation, several lots adjoining the then existing
claims of both parties were sustained in part, an award airport which included the parcels of land owned by the
of attorneys fees would not be warranted. predecessors-in-interest of respondents Benjamin
Tudtud et al. NAC assured the owners that they would
Exemplary damages may be awarded in cases involving reacquire the land if it is no longer needed by the airport.
contracts or quasi-contracts, if the erring party acted in a The Court of First Instance of Cebu granted the
wanton, fraudulent, reckless, oppressive or malevolent expropriation.
manner. In the present case, it was not shown that
Globe acted wantonly or oppressively in not heeding No structures related to the operation of the Cebu Lahug
Philcomsats demands for payment of rentals. It was Airport were constructed on the land expropriated.
established during the trial of the case before the trial Respondent Lydia Adlawan (Lydia), acting as attorney-
court that Globe had valid grounds for refusing to comply in-fact of the original owners, sent a letter to the general
with its contractual obligations after 1992. manager of the petitioner Mactan Cebu International
Airport Authority (MCIAA), the new owner of the lot and
Security and Trust Company and R. Manhit vs CA demanded to repurchase the lot at the same price paid
and Ferrer at the time of the taking, without interest.

Facts: Ferrer was contracted by the SBTC to construct a Lydia filed a complaint before the Regional Trial Court
bldg in Davao. The contract provided that it be finished (RTC) of Cebu City for reconveyance and damages
within 200 working days, it was finished upon stipulated against the MCIAA. The RTC of Cebu rendered
time but additional expenses were incurred amounting to judgment in favor of Tudtud et al. MCIAA appealed to the
300k on top of the original cost, these expenses were Court of Appeals but it affirmed the RTC decision.
made known to SBTC and timely demands for the MCIAA then filed a Motion for Reconsideration but was
payment of the increased cost were done by Ferrer to denied.
SBTC, the latter only recommended that the verified cost
is 200k. SBTC contend that in the contract, should there ISSUE: Whether or not Tudtud et al. are entitled for the
be any increase in the expenses, the owner shall reconveyance of the land expropriated
equitably make the appropriate adjustment on mutual
agreement of both parties. Ferrer filed for damages and HELD: Tudtud et al.s witness respondent Justiniano
the trial court ruled in his favor, the defendants were Borga declared that the original owners did not oppose
ordered to pay. On appeal, CA affirmed the tcs decision. the expropriation of the lot upon the assurance of the
NAC that they would reacquire it if it is no longer needed
Issue: WON SBTC is liable for damages and payment of by the airport. The rights and duties between the MCIAA
the additional expenses. and Tudtud et al are governed by Article 1190 of the Civil
Code which provides: When the conditions have for their
Held: CA decision AFFIRMED. purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall
Ratio: Art. 22 states that, Every person who through an return to each other what they have received. In case of
act or performance by another or any other means, the loss, deterioration, or improvement of the thing, the
acquires or comes into possession of something at the provisions which, with respect to the debtor, are laid
expense of the latter without just or legal ground, shall down in the preceding article [Article 1189] shall be
return the same to him. applied to the party who is bound to return.
It is not denied that private respondent incurred
additional expenses in constructing petitioner banks While the MCIAA is obliged to reconvey Lot No. 988 to
bldg due to a drastic and unexpected in construction Tudtud et al., they must return to the MCIAA what they
cost. Hence, to allow petitioner bank to acquire the received as just compensation for the expropriation of
constructed bldg at a price far below its actual cost Lot No. 988, plus legal interest to be computed from
would undoubtedly constitute unjust enrichment for the default, which in this case runs from the time the MCIAA
bank to the prejudice of Ferrer, such cannot be allowed complies with its obligation to the respondents. Tudtud et
by law. al., must likewise pay the MCIAA the necessary
expenses it may have incurred in sustaining Lot No. 988
MACTAN-CEBU INTERNATIONAL AIRPORT and the monetary value of its services in managing it to
AUTHORITY vs. TUDTUD Case Digest the extent that Tudtud et al., were benefited thereby.
Following Article 1187 of the Civil Code, the MCIAA may
The former owner reacquires the property expropriated if keep whatever income or fruits it may have obtained
the expropriation of the same was subject to condition from Lot No. 988, and Tudtud et al., need not account for
that when that purpose is ended or abandoned, it shall the interests that the amounts they received as just
be returned to the owner. compensation may have earned in the meantime.

FACTS: The National Airports Corporation (NAC) filed a ROQUE VS. LAPUS
complaint for expropriation in order to expand the Cebu
Lahug Airport. It sought to acquire, by negotiated sale or FACTS:
Sometime in 1964, plaintiff and defendant entered into Can private respondent be entitled to the Benefits of the
an agreement of sale covering Lots 1, 2 and 9, Block 1, third paragraph of Article 1191, New Civil Code, for the
of said property, payable in 120 equal monthly fixing of period
installments at the rate of P16.00, P15.00 per square
meter, respectively. In accordance with said agreement, RULING: No. Respondent as obligor is not entitled to the
defendant paid to plaintiff the sum of P150.00 as deposit benefits of paragraph 3 of Art. 1191, NCC Having been
and the further sum of P740.56 to complete the payment in default and acted in bad faith, he is not entitled to the
of four monthly installments covering the months of July, new period of 90 days from entry of judgment within
August, September, and October, 1954. which to pay petitioner the balance of P11,434.44 with
interest due on the purchase price of P12,325.00 for the
On January 24, 1955, defendant requested plaintiff that two lots. To allow and grant respondent an additional
he be allowed to abandon and substitute Lots 1, 2 and 9, period for him to pay the balance of the purchase price,
the subject with Lots 4 and 12, Block 2 of the Rockville which balance is about 92% of the agreed price, would
Subdivision, which are corner lots, to which request be tantamount to excusing his bad faith and sanctioning
plaintiff graciously acceded. The evidence discloses that the deliberate infringement of a contractual obligation
defendant proposed to plaintiff modification of their that is repugnant and contrary to the stability, security
previous contract to sell because he found it quite and obligatory force of contracts. Moreover, respondent's
difficult to pay the monthly installments on the three lots, failure to pay the succeeding 116 monthly installments
and besides the two lots he had chosen were better lots, after paying only 4 monthly installments is a substantial
being corner lots. In addition, it was agreed that the and material breach on his part, not merely casual,
purchase price of these two lots would be at the uniform which takes the case out of the application of the
rate of P17.00 per square meter payable in 120 equal benefits of pa paragraph 3, Art. 1191, N.C.C.
monthly installments, with interest at 8% annually on the
balance unpaid. Pursuant to this new agreement, Pursuant to Art. 1191, New Civil Code, petitioner is
defendant occupied and possessed Lots 4 and 12, and entitled to rescission with payment of damages which
enclosed them, including the portion where his house the trial court and the appellate court, in the latter's
now stands, with barbed wires and adobe walls. original decision, granted in the form of rental at the rate
However, aside from the deposit of P150.00 and the of P60.00 per month from August, 1955 until respondent
amount of P740.56, which were paid under their shall have actually vacated the premises, plus P2,000.00
previous agreement, defendant failed to make any as attorney's fees. The Court affirmed the same to be
further payment on account of the agreed monthly fair and reasonable. The Court also sustained the right
installments for the two lots in dispute, under the new of the petitioner to the possession of the land, ordering
contract to sell. Plaintiff demanded upon defendant not thereby respondent to vacate the same and remove his
only to pay the stipulated monthly installments in arrears, house therefrom.
but also to make up-to-date his payments, but defendant
refused to comply with plaintiff's demands. GIL VS CA AND HEIRS OF MATULAC

On or about November 3, 1957, plaintiff demanded upon FACTS:

defendant to vacate the lots in question and to pay the Concepcion Palma Gil, and her sister, Nieves Palma Gil,
reasonable rentals thereon at the rate of P60.00 per married to AngelVillarica, were the co-owners of a parcel
month from August, 1955. On January 22, 1960, of commercial land with an area of 829 square meters in
petitioner Felipe C, Roque filed the complaint against Davao City. The spouses Angel and Nieves Villarica
defendant Nicanor Lapuz for rescission and cancellation hadconstructed a two-storey commercial building on the
of the agreement of sale between them involving the two property.On October 13, 1953, Concepcion filed a
lots in question and prayed that judgment be rendered complaint against her sisterNieves with the then Court of
ordering the rescission and cancellation of the First Instance of Davao City for specificperformance, to
agreement of sale, the defendant to vacate the two compel the defendant to cede and deliver to her an
parcels of land and remove his house therefrom and to undividedportion of the said property with an area of
pay to the plaintiff the reasonable rental thereof at the 256.2 square meters. After dueproceedings, the court
rate of P60.00 a month from August 1955 until such time rendered judgment on April 7, 1954 in favor of
as he shall have vacated the premises, and to pay the Concepcion, ordering the defendant to deliver to the
sum of P2,000.00 as attorney's fees, costs of the suit plaintiff an undividedportion of the said property with an
and award such other relief or remedy as may be area of 256.2 square meters.Nieves appealed to the
deemed just and equitable in the premises. Court of Appeals which affirmed the assaileddecision.
The court issued a writ of execution. Nieves, however,
The Court of Appeals rendered its decision that the refused toexecute the requisite deed in favor of her
defendant Nicanor Lapuz is granted a period of ninety sister.On April 27, 1956, the court issued an order
(90) days from entry hereof within which to pay the authorizing ex-officio Sheriff Eriberto Unson to execute
balance. Hence, this appeal. the requisite deed of transfer to the plaintiff over
anundivided portion of the property with a total area of
ISSUE: 256.2 square meters.Instead of doing so, the sheriff had
the property subdivided into four lots namely,Lot 59-C-1,
with an area of 218 square meters; Lot 59-C-2, with an
area of 38square meters; Lot 59-C-3, with an area of 14 SPOUSES RAYOS vs.REYES et al
square meters; and Lot 59-C-4,with an area of 560
square meters, all covered by a subdivision plan. The FACTS: 3 parcels of unregistered land in Pangasinan
sheriff thereafter executed a Deed of Transfer to were formerly owned by the spouses Tazal who on 1
Concepcion over Lot 59-C-1 and Lot59-C-2 with a total September 1957 sold them to respondents predecessor-
area of 256.2 square meters.On October 24, 1956, in-interest, Reyes, with right to repurchase within two 2
Concepcion executed a deed of absolute sale overLot years from date thereof by paying to the vendee the
59-C-1 in favor of Iluminada Pacetes for a purchase purchase price and all expenses incident to their
price of P21,600.00 uponwhich P7,500.00 is to be paid reconveyance. After the sale the vendee a retro took
upon signing of the contract and the balance of physical possession of the properties and paid the taxes
P14,100.00 to be paid upon delivery of the Title. On thereon.
March 16, 1966, spousesIluminada Pacetes and Agapito
Pacetes executed a deed of absolute sale overthe The otherwise inconsequential sale became
disputed lots in favor Constancio Maglana. And on April controversial when 2 of the 3 parcels were again sold by
22, 1980, Maglanaewecuted a deed of sale in favor of Tazal in favor of petitioners predecessor-in-interest
Emilio Matulac for the purchase price of P150,000.00. Rayos without first availing of his right to repurchase the
And on August 4, 1959, Concepcion died, leaving all properties. In the meantime, the conventional right of
herobligations to her heirs including the petitioners.On redemption in favor of spouses Tazal expired without the
June 11, 1993, the trial court rendered judgment in favor right being exercised by either the Tazal spouses or the
of thedefendants. The trial court ruled that this Court had vendee Rayos.
affirmed, in G.R. No. 85538and G.R. No. L-60690, the
sales of the property from Concepcion Palma Gil After the expiration of the redemption period, Tazal
toIluminada Pacetes, then to Constancio Maglana and to attempted to repurchase the properties from Reyes by
Emilio Matulac; hence,the trial court was barred by the asserting that the 1 September 1957 deed of sale with
rulings of the Court. The plaintiffs appealed tothe Court right of repurchase was actually an equitable mortgage
of Appeals which affirmed the latters decision. and offering the amount of P724.00 to pay for the
alleged debt. (consignation) But Reyes refused the
ISSUE:Whether or not the trial court erred in not tender of payment and vigorously claimed that their
declaring the sale of theproperties in question from agreement was not an equitable mortgage.3
Iluminada Pacetes to Constancio Maglana, thence,from
Constancio Maglana to Emilio Matulac NULL and VOID On 9 May 1960 Francisco Tazal filed a complaint with
for there was delayincurred by Concepcion in not the CFI Reyes for the declaration of the 1 September
delivering the Title of the subject lands to Pacetes. 1957 transaction as a contract of equitable mortgage. He
also prayed for an order requiring defendant Mamerto
RULING: Article 1191 in tandem with Article 1592 of the Reyes to accept the amount of P724.00 which he had
New Civil Code are centralto the issues at bar. Under the deposited with the trial court as full payment for his debt,
last paragraph of Article 1169 of the New CivilCode, in and canceling the supposed mortgage on the three (3)
reciprocal obligations, neither party incurs in delay if the parcels of land with the execution of the corresponding
other does notcomply or is not ready to comply in a documents of reconveyance in his favor.
proper manner with what is incumbentupon him.From
the moment one of the parties fulfills his obligation, delay The trial court in the Civil Case rejected the contention of
in theother begins. Thus, reciprocal obligations are to be Tazal that the deed of sale executed on 1 September
performed simultaneously sothat the performance of one 1957 was an equitable mortgage but held that Tazal
is conditioned upon the simultaneous fulfillment of the could nonetheless redeem the three (3) parcels of land
other. The right of rescission of a party to an obligation within thirty (30) days from finality of judgment by paying
under Article 1191of the New Civil Code is predicated on to Reyes the purchase price and all expenses to execute
a breach of faith by the other party thatviolates the the reconveyance. Reyes appealed the Decision to the
reciprocity between them. The petitioners therefore, as CA which in turn elevated the appeal to this Court since
successors-in-interest of the vendor, are notthe injured only questions of law were involved. When Reyes died,
parties entitled to a rescission of the deed of absolute petitioner-spouses Rayos wrested physical possession
sale. It wasConcepcions heirs, including the petitioners, of the disputed properties from Reyess heirs.
who were obliged to deliver to thevendee a certificate of
title over the property under the latters name, free This Court considered the case closed and terminated
fromall liens and encumbrances within 120 days from for failure of the parties therein to manifest their interest
the execution of the deed of absolute sale on October to further prosecute the case. The judgment in the Civil
24, 1956, but had failed to comply with the Case became final and executory.
obligation.Furthermore, the consignation by the vendee
of the purchase price of theproperty is sufficient to defeat Subsequent to the finality of judgment in the Civil Case
the right of the petitioners to demand for arescission of petitioner-spouses did nothing to repurchase the three
the said deed of absolute sale. The petition for review (3) parcels of land within the thirty (30) day grace
was denied for lack of merit. period from finality of judgment.
(c) previous notice of the consignation had been given to
Respondents as heirs of Reyes executed an affidavit the person interested in the performance of the
adjudicating to themselves the ownership of the parcels obligation;
of land and declared the properties in their names for
assessment and collection of real estate taxes. The (d) the amount due was placed at the disposal of the
respondents registered the 1 September 1957 deed of court; and, (e) after the consignation had been made the
sale with right of repurchase with the RD. person interested was notified thereof.

Respondents filed a complaint for damages and In the instant case, petitioners failed,
recovery of ownership and possession of the 3 parcels
of land in dispute against herein petitioner-spouses first, to offer a valid and unconditional tender of payment;
Rayos and the administrator thereof before the RTC. It
was respondents theory that neither petitioners nor their second, to notify respondents of the intention to deposit
predecessors-in-interest Tazal and Rayos repurchased the amount with the court; and
the properties before buying them or when the judgment
in the Civil Case became final and executory, hence the third, to show the acceptance by the creditor of the
sale of the three (3) parcels of land to petitioner-spouses amount deposited as full settlement of the obligation, or
did not transfer ownership thereof to them. in the alternative, a declaration by the court of the
validity of the consignation. The failure of petitioners to
Petitioners argued on the other hand that the comply with any of these requirements rendered the
consignation of P724.00 in Civil Case No. A-245 had the consignation ineffective.
full effect of redeeming the properties from respondents
and their predecessor-in-interest, and that respondents Consignation and tender of payment must not be
were guilty of estoppel and laches since Reyes as their encumbered by conditions if they are to produce the
predecessor-in-interest did not oppose the sale to Rayos intended result of fulfilling the obligation. In the instant
and to petitioner-spouses Rayos. The parties then filed case, the tender of payment of P724.00 was conditional
their respective memoranda after which the case was and void as it was predicated upon the argument of
submitted for decision. Tazal that he was paying a debt which he could do at
any time allegedly because the 1 September 1957
The trial court promulgated its Decision in the Civil Case transaction was a contract of equitable mortgage and not
void the separate deeds of absolute sale thereof a deed of sale with right to repurchase. The ostensible
executed by Tazal in favor of Rayos and to spouses purposes of offering the amount in connection with a
Rayos and by Rayos to the same spouses, and ordered purported outstanding debt were to evade the stipulated
herein petitioners and Francisco Tazal to vacate and redemption period in the deed of sale which had already
reconvey the lands to respondents as heirs of Reyes expired when the tender of payment was made and the
and to pay damages. Petitioners appealed the Decision Civil Case was instituted, and as a corollary, to avail of
to the CA. the thirty (30)-day grace period under Art. 1606 of the
Civil Code within which to exercise the right to
The appellate court promulgated its Decision affirming in repurchase. Reyes was therefore within his right to
toto the judgment appealed from. Hence, the instant refuse the tender of payment offered by petitioners
petition for review. because it was conditional upon his waiver of the two
(2)-year redemption period stipulated in the deed of sale
ISSUE: with right to repurchase.

1. WON the consignation is valid Moreover, petitioners failed to prove in the Civil Cases
that any form of notice regarding their intention to
2. WON the respondents are barred by estoppel and deposit the amount of P724.00 with the CFI had been
laches served upon respondents. This requirement is not
fulfilled by the notice which could have ensued from the
3. Won the petitioners are in good faith filing of the complaint in the civil case or the stipulation
made between Tazal and Reyes regarding the
HELD: consignation of P724.00. The latter constitutes the
second notice required by law as it already concerns the
1. In order that consignation may be effective the debtor actual deposit or consignation of the amount and is
must show that: different from the first notice that makes known the
debtors intention to deposit the amount, a requirement
(a) there was a debt due; missing in the instant case. Without any announcement
of the intention to resort to consignation first being made
(b) the consignation of the obligation had been made to the persons interested in the fulfillment of the
because the creditor to whom a valid tender of payment obligation, the consignation as a means of payment is
was made refused to accept it; void.
It is also futile to argue that the deposit of P724.00 with To sanction the argument of petitioners and in the
the Court of First Instance could have perfected the process excuse them from their responsibility of securing
redemption of the three (3) parcels of land because it from the trial court in Civil Case No. A-245 a categorical
was not approved by the trial court, much less accepted declaration that the consignation of P724.00 had
by Mamerto Reyes or his heirs, herein respondents. The complied with all the essential elements for its validity
dispositive portion of the Decision in Civil Case No. A- would only dilute the rule requiring absolute compliance
245, which reads x x x x the Court, hereby renders with the requisites of consignation.26 It also disturbs a
judgment declaring the contract x x x entered into by the steady and stable status of proprietary rights, i.e., x x x
plaintiffs and the defendant and captioned Deed of Sale el acreedor tan solo, y no el juez, puede autorizar la
with Right to Repurchase as a true sale with right to variacion que para los derechos de aquel suponga la
repurchase x x x and not an equitable mortgage x x x que se intente en el objeto, cuantia o forma de las
and declaring the plaintiffs entitled to repurchase the obligaciones,27 since parties are left guessing on
property in question within thirty (30) days from finality of whether the repurchase of the properties had been
this decision x x x x plainly rejected the complaint for effected. In a broader sense, this uncertain state will only
lack of merit and necessarily also the consignation done depress the market value of the land and virtually
pursuant thereto. This conclusion is buttressed by the paralyze efforts of the landowner to meet his needs and
directive of the trial court in the body of the Decision that obligations and realize the full value of his land.
Francisco Tazal may still exercise the right to
repurchase the property in question by returning to the Moreover, we do not think that respondents causes of
[Mamerto Reyes] the purchase price of P724.00 plus all action in Civil Case No. A-2032 are now barred by
expenses incident to the reconveyance within the period estoppel and laches. The essence of estoppel and
of thirty (30)-days from the time this decision becomes laches is the failure or neglect for an unreasonable and
final x x x x21 The obvious reference of this statement unexplained length of time to do that which by exercising
was the stipulation made by the parties therein that the due diligence could or should have been done earlier; it
defendant [Mamerto Reyes] has been paying the taxes is the negligence or omission to assert a right within a
on said properties from 1958 to 1969 x x x x22 where reasonable time warranting a presumption that the party
the taxes paid constituted necessary expenses that entitled to assert it either has abandoned or declined to
petitioners had to reimburse to respondents assert it although there is no absolute rule as to what
predecessor-in-interest aside from the P724.00 earlier constitutes staleness of demand as each case is to be
deposited by Tazal. determined according to its particular circumstances.28

To be sure, while it has been held that approval of the In the instant case, it was prudent and discerning for
court or the obligees acceptance of the deposit is not respondents and their predecessor-in-interest Mamerto
necessary where the obligor has performed all acts Reyes that they deferred any action against petitioners,
necessary to a valid consignation such that court i.e., Civil Case No. A-2032, to recover ownership and
approval thereof cannot be doubted, Sia v. Court of possession of the three (3) pieces of real estate, until the
Appeals23 clearly advises that this ruling is applicable finality of judgment in Civil Case No. A-245. For patiently
only where there is unmistakable evidence on record electing not to inundate our courts of justice with cases
that the prerequisites of a valid consignation are present, the outcome of which may well depend upon the then
especially the conformity of the proffered payment to the pending civil suit, respondents cannot now be penalized
terms of the obligation which is to be paid.24 In the by barring their complaint in Civil Case No. A-2032 on
instant case, since there is no clear and preponderant the equitable grounds of estoppel and laches.
evidence that the consignation of P724.00 satisfied all
the requirements for validity and enforceability, and since We also find no reason to disturb our findings upon
Mamerto Reyes vehemently contested the propriety of petitioners assertion that they were purchasers of the
the consignation, petitioners cannot rely upon sheer three (3) parcels of land in good faith and for value. As
speculation and unfounded inference to construe the we held in David v. Bandin, the issue of good faith or
Decision of the Court of First Instance as one impliedly bad faith of the buyer is relevant only where the subject
approving the consignation of P724.00 and perfecting of the sale is registered land and the purchaser is buying
the redemption of the three (3) parcels of land. the same from the registered owner whose title to the
land is clean x x x in such case the purchaser who relies
It should be recalled that one of the requisites of on the clean title of the registered owner is protected if
consignation is the filing of the complaint by the debtor he is a purchaser in good faith for value.29 Since the
against the creditor. Hence it is the judgment on the properties in question are unregistered lands, petitioners
complaint where the court declares that the consignation as subsequent buyers thereof did so at their peril. Their
has been properly made that will release the debtor from claim of having bought the land in good faith, i.e., without
liability. Should the consignation be disapproved by the notice that some other person has a right to or interest in
court and the case dismissed, there is no payment and the property, would not protect them if it turns out, as it
the debtor is in mora and he shall be liable for the actually did in this case, that their seller did not own the
expenses and bear the risk of loss of the thing.25 property at the time of the sale.
At any rate, petitioners failed to discharge their burden of
proof that they were purchasers of the three (3) parcels There is no evidence to prove that petitioners paid at any
of land in good faith. For, as we ruled in Embrado v. time the repurchase price for the three (3) parcels of
Court of Appeals,30 the burden of proving the status of a land in dispute except for the deposit of P724.00 in the
purchaser in good faith and for value lies upon him who Court of First Instance which however fell short of all the
asserts that status, which is not discharged by simply acts necessary for a valid consignation and discharge of
invoking the ordinary presumption of good faith, i.e., that their obligation to respondents.
everyone is presumed to act in good faith, since the
good faith that is here essential is integral with the very In order that consignation may be effective the debtor
status which must be established. must show that (a) there was a debt due; (b) the
consignation of the obligation had been made because
In the proceedings a quo, what is evident is the admitted the creditor to whom a valid tender of payment was
fact of payment made by Mamerto Reyes as made refused to accept it; (c) previous notice of the
respondents predecessor-in-interest of the taxes on the consignation had been given to the person interested in
properties prior to and at the time when the contracts of the performance of the obligation; (d) the amount due
sale in favor of petitioner-spouses were perfected, which was placed at the disposal of the court; and, (e) after the
undoubtedly confirms the precedence of respondents consignation had been made the person interested was
possession of the parcels of land in question. This notified thereof.
situation should have compelled petitioners to
investigate the right of respondents over the properties NOTES:
before buying them, and in the absence of such inquiry,
the rule is settled that a buyer in the same No evidence to prove actual damages was offered in
circumstances herein involved cannot claim to be a Civil Case No. A-2032 since the parties therein
purchaser in good faith. submitted the case for decision on the basis of their
respective memoranda, hence no actual damages can
The absence of good faith on the part of petitioner- be awarded.32 In the same manner, there is no clear
spouses Teofilo and Simeona Rayos in purchasing the and convincing showing that petitioners acted in a
three (3) parcels of unregistered land precludes the wanton, fraudulent, reckless, oppressive, or malevolent
application of the rule on double sales enunciated in Art. manner to warrant the imposition of exemplary damages
1544 of the Civil Code.31 In any event, even if we apply in respondents favor.33 In any event, exemplary
Art. 1544, the facts would nonetheless show that damages cannot be adjudicated in the instant case since
respondents and their predecessor-in-interest registered there is no award of moral, temperate or compensatory
first the source of their ownership and possession, i.e., damages.
the 1 September 1957 deed of sale with right to It is appropriate to stress that the mere filing of a
repurchase, held the oldest title, and possessed the real complaint does not ipso facto entitle a party to attorneys
properties at the earliest time. Applying the doctrine of fees since this act is a means sanctioned by law to
priority in time, priority in rights or prius tempore, potior protect rights and interests even if found subsequently to
jure, respondents are entitled to the ownership and be unmeritorious.
possession of the parcels of land in dispute.

The instant Petition for Review is DENIED. The assailed

Decision of the CA is AFFIRMED with MODIFICATION
concerning the damages.