MODES OF BREACH

A. FRAUD

GERALDEZ V CA
REGALADO; February 23, 1994
NATURE
- Petition for review on Certiorari
- This is an action for damages by reason of contractual breach filed by Lydia Geraldez against Kenstar Travel
Corporation.

FACTS
- Lydia came to know about the respondent through advertisements about tours in Europe and eventually availed of
one of the packages they offered. The package was VOLARE 3 which covered 22-day tour of Europe for 190,000
Php which she paid for herself and her sister.
- Her disappointments (because it was contrary to what was in the brochure) during the trip were:
There was no European tour manager for their group of tourist
The hotels which she and the group were billeted were not first- class
The UGC Leather Factory, which was a highlight of the tour, was not visited
The Filipino lady tour guide was performing said job for the first time.

- RTC: granted a writ of preliminary attachment against private respondent on the ground respondent committed
fraud in contracting an obligation (as per petitioners motion) but said writ was also lifted upon filing a counterbond of
Php 990k
- Lydia also filed other complaints at the Department of Tourism and the Securities and Exchange Commission which
fined the respondent Php 5k and Php 10k respectively.
- RTC awarded moral damages, nominal damages, exemplary damages, and for attorneys fees to Lydia Geraldez
worth Php 500k, Php 200k, Php 300k and Php 50k respectively. Respondent also had to pay for the costs of the suit.
- CA modified the RTCs decision since they found no malice could be imputed against Kenstar Travel Corporation.

ISSUE
WON private respondent acted in bad faith or with gross negligence in discharging its obligations under the contract.

HELD
Yes, Kenstar Travel Corporation did commit fraudulent misrepresentations amounting to bad faith to the prejudice of
Lydia Geraldez and the members of the tour group.

Reasoning
- On respondents choice of tour guide
By providing the Volare 3 tourist group with an inexperienced and a first timer tour escort, KTC manifested
its indifference to the convenience, satisfaction and peace of mind of its clients during the trip.
Respondent should have selected an experienced European tour guide, or it could have allowed Zapanta (the lady
guide) to go as an understudy under the guidance, control, and supervision of an experienced and competent
European or Filipino tour guide who couldve given her training.
- The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of Zapanta in
attentively following the itinerary for the day.

This incompetence must necessarily be traced to the lack of due diligence on the part of KTC in the selection
of its employees.
The UGC leather factory was one of the highlights of the tour and it was incumbent upon the organizers of the tour to
take special efforts to ensure the same.

Clearly, KTCs choice of Zapanta as tour guide is a manifest disregard of its specific assurances to the tour group,
resulting in agitation and anxiety on their part, and which is contrary to the elementary rules of good faith and fair
play.

- On the European Tour Manager

KTC: the euro tour manager refers to an organization and not to an individual;
Geraldez didnt attend the pre-departure briefing, wherein we explained the concept of the euro tour manager
SC: the advertisement reveals that the contemplated tour manager contemplated is a natural person not a juridical
one as KTC asserts. Furthermore, the obligation to provide not only a European tour manager, but with local
European tour guides were likewise never made available. Zapanta couldnt even remember the name of the
European guide with her supposedly.
From the advertisement, it is beyond cavil that the import of the he is a natural and not a juridical person (in
reference to the euro tour guide). There is no need for further interpretation when the wordings are clear.
The meaning that will determine the legal effect of a contract is that which is arrived at by objective
standards; One is bound not by what he subjectively intends, but by what he leads others reasonably to
think he intends.
KTC relies in the delimitation of its responsibility printed on the face of its brochure.
(see page 330)
SC:
* CONTRACT OF ADHESION: contracts drafted by only one party (i.e.corporations); the only participation of
the other party is the affixing of his signature or his adhesion thereto. Such a contract must be strictly
construed against the one who drafted the same, especially where there are stipulations that are printed in
fine letters and are hardly legible.

SC: Private respondents cannot rely on its defense of substantial compliance with
the contract.
- On the First Class Hotels
The respondents likewise committed a grave misrepresentation when it assured in its Volare 3 tour package that
the hotels it had chosen would provide the tourists complete amenities and were conveniently located along the way
for the daily itineraries. It turned out that some of the hotels were not sufficiently equipped with even the basic
facilities and were at a distance from the cities covered by the projected tour.
- Even assuming arguendo that there is indeed a difference in classifications, it cannot be denied that a first-class
hotel could at the very least provide basic necessities and sanitary accommodations.
- if it could not provide the tour participants with first-class lodgings on the basis of the amount that they paid, it could
and should have instead increased the price to enable it to arrange for the promised first-class accommodations.
- Damages
Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith.
- The 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.
- Dolo Causante causal fraud , referred to in Art. 1338,
- are those deceptions or misrepresentations of a serious character employed by
one party - without which the other party would NOT have entered into the contract essential cause of the consent

- effects: nullity of the contract and indemnification of damages

- Dolo Incidente incidental fraud, referred to in Art. 1334,

- are those which are not serious in character
-without which the other party would still have entered into the contract
- some particular or accident of the obligation
- effects: damages
- SC: KTC is responsible for damages whether it has committed either dolo causante or incidente.
- Lydia joined the tour with the belief of a euro tour guide accompanying them; she suffered serious anxiety and
distress when the group was unable to visit the leather factory and when she didnt receive first-class
accommodations in their lodgings.
These entitle her to moral damages.
- Exemplary damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages.
According to the Code Commission, exemplary damages are required by public policy, for wanton acts must be
suppressed.
- Under the present state of law, extraordinary diligence is not required in travel or tour contracts, such as that in the
case at bar, the travel agency acting as tour operator must nevertheless be held to strict accounting for contracted
services, considering the public interest in tourism, whether in the local or in the international scene.

Disposition MORAL DAMAGES Php 100k, EXEMPLARY DAMAGES Php 50k,

ATTYS FEES Php 20k and costs against the respondent KTC. Award for nominal damages is deleted.

Note Nominal damages are awarded when there the complainant suffered actual or substantial damage from the
breach of contract.

B. NEGLIGENCE
GUTERREZ V GUTIERREZ
MALCOLM; September 23, 1931

NATURE
Appeal from the judgment of the CFI of Manila

- On Feb 2, 1930, a passenger truck and a private automobile collided while attempting to pass each other on the
Talon bridge on the Manila South Rd in Las Pinas. The truck was driven by the chauffer Abelardo Velasco (AV) and
was owned by Saturnino Cortez (SCor). The auto was being operated by Bonifacio Gutierrez (BG), 18 y/o, and was
owned by his parents Mr./Mrs. Manuel Gutierrez (MG).
- At the time of the collision, BG was with his mother and several other members of the family. MG was not in the car.
- A passenger of the autobus, Narciso Gutierrez (NG) was en route from San Pablo to Manila. The collision resulted
in NG suffering a fractured right leg requiring him medical assistance.
- The collision was caused by negligence. While the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile and vice versa.

ISSUES:
What are the liabilities of the owners and drivers of the vehicles involved in the collision

HELD
- BG was an incompetent chauffer as he was driving in an excessive speed. The guarantee the father gave at the
time the son was granted a license to operate motor vehicles gave the father responsible for the acts of his son.
- SCor and AVs liability is based on the contract. The position of the truck on the bridge and the speed in operating
the machine and the lack of care employed reached such conclusion. The fact that 2 drivers were approaching a
narrow bridge, neither willing to slow up and give right of way inevitably resulted to the collision and the accident.
- The contention that there was contributory negligence as the plaintiff kept his foot outside the truck was not pleaded
and was dismissed as speculative.

Ratio
In the US it is uniformly held that the head of the house, the owner of the vehicle, who maintains it for the general use
of his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where
the car is occupied and being used for the pleasure of the other members of the family, other than the child driving it.

DE GUIA V MANILA ELECTRIC, RAILROAD & LIGHT CO

STREET; January 28, 1920

NATURE
APPEAL from a judgment of the Court of First Instance of Manila.

FACTS
-The plaintiff is a physician residing in Caloocan City.
-Sept 4, 1915, at about 8pm, the defendant boarded a car at the end of the line with the intention of coming to
Caloocan.
-At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform
holding the handle of the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the
track ran for a short distance and hit a concrete post.
-the post was shattered: at the time the car struck against the concrete post, the plaintiff was allegedly standing on
the rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left
part of his chest struck against the door causing him to fall. In the falling, the plaintiff alleged that his head struck one
of the seats and he became unconscious.
-the plaintiff was taken to his home which was a short distance away from the site of the incident. A physician of the
defendant company visited the plaintiff and noted that the plaintiff was walking about and apparently suffering
somewhat from bruises on his chest. The plaintiff said nothing about his head being injured and refused to go to a
hospital.
-The plaintiff consulted other physicians about his condition, and all these physicians testified for the plaintiff in the
trial court.
-the plaintiff was awarded with P6,100, with interest and costs, as damages incurred by him in consequence of
physical injuries sustained. The plaintiff and the defendant company appealed.

ISSUES
1. WON the defendant has disproved the existence of negligence
2. What is the nature of the relation between the parties?
3. WON the defendant is liable for the damages
4. If liable for damages, WON the defendant could avail of the last paragraph of Art 1903 on culpa aquiliana (Art
2180)
5. What is the extent of the defendants liability?
5.1 Did the trial judge err in the awarding of the damages for loss of professional earnings (P900)?
5.2 Did the trial judge err in the awarding of the damages for inability to accept a position as a district health
officer?
5.3 Did the trial judge err in not awarding damages for the plaintiffs supposed incapacitation for future
professional practice (P30,000)?
5.4 Is the plaintiff reasonable in demanding P10,000 for the cost of medical treatment and other expenses
incident to his cure?
6. WON the trial judge erred in treating written statements of the physicians who testified as primary evidence?
1. NO, the existence of negligence in the operation of the car must be sustained, as not being clearly
contrary to the evidence.
Ratio An experienced and attentive motorman should have discovered that something was wrong and would have
stopped before he had driven the car over the entire distance from the point where the wheels left the track to the
place where the post was struck.
Reasoning The motorman alleged that he reduced his speed to the point that the car barely entered the switch
under its own momentum, and this operation was repeated as he passed out. Upon getting again on the straight
track he put the control successively at points one, two, three and lastly at point four. At the moment when the control
was placed at point four he perceived that the rear wheels were derailed and applied the brake; but at the same
instant the car struck the post, some 40 meters distant from the exit of the switch. However, testimonial evidence
alleged that the rate of a car propelled by electricity with the control at point "four" should be about five or 6 miles per
hour (around 8 kph) and other evidence showed that the car was behind schedule time and that it was being driven,
after leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. The car was
practically empty (so its possible that it could run faster???). The court granted that there is negligence as shown by
the distance which the car was allowed to run with the front wheels of the rear truck derailed, aside from the fact that
the car was running in an excessive speed.

2. The relation between the parties was of a contractual nature.

Ratio The company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of
care which, under the circumstances, is required by law and custom applicable to the case.
Reasoning The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to
convey him for hire.

3. YES, the defendant is liable for the damages

Ratio/ Reasoning Upon failure to comply with that obligation arising from the contract, the company incurred the
liability defined in articles 1103-1107 of the Civil Code.

4. No, the defendant could not avail of the last paragraph of Art 1903
Ratio/ Reasoning The last paragraph of article 1903 of the civil code refers to liability incurred by negligence in the
absence of contractual relation, that is, to the culpa aquiliana of the civil law and not to liability incurred by breach of
contract; therefore, it is irrelevant to prove that the defendant company had exercised due care in the selection and
instruction of the motorman who was in charge of its car and that he was in experienced and reliable servant

5. The defendant is liable for the damages ordinary recoverable for the breach of contractual obligation,
against a person who has acted in good faith, which could be reasonably foreseen at the time the obligation
is
contracted.
Ratio The extent of the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to such as
might be reasonably foreseen in the light of the facts then known to the contracting parties.
Reasoning The court has the power to moderate liability according to the circumstances of the case, i.e. when the
defendant must answer for the consequences of the negligence of its employees. Also, an employer who has
displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in good faith
(w/n meaning of article 1107, old CC)

5.1. NO, the trial judge was liberal enough to the plaintiff.
Reasoning As a result of the incident, the plaintiff was unable to properly attend his professional labors for 3 months
and suspend his practice for that period. By testimonial evidence, his customary income, as a physician, was about
P300/month.
So the trial judge accordingly allowed P900 as damages for loss of earnings.

5.2 YES. The trial judge erred in awarding such damages.

Ratio Damage of this character could not, at the time of the accident, have been foreseen by the delinquent party as
a probable consequence of the injury inflicted.
Reasoning The representative from Negros Occidental has supposedly asked Dr. Montinola to nominate the plaintiff
as district health officer of Negros Occidental for two years, with a salary of P1,600 per annum and a possible outside
practice worth of P350. However, even if true, the damages were too speculative to be the basis of recovery in a civil
action.

5.3 NO. the trial court was fully justified in rejecting the exaggerated estimate of damages allegedly created.
Ratio/ Reasoning The plaintiff alleged, even showing testimonial evidences from numerous medical experts, that he
developed infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing
symptoms of a serious and permanent character, and these manifestations of disorder rendered him liable to a host
of other dangerous diseases, and that restoration to health could only be accomplished after long years of complete
repose.
-The medical experts introduced by the defendant testified however that the plaintiffs injuries, considered in their
physical effects, were trivial and that the attendant nervous derangement, with its complicated train of ailments, was
merely simulated.
-According to the court, the evidence showed that immediately after the incident the plaintiff, sensing in the situation
a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the aid of his own
professional knowledge, supplemented by suggestions obtained from his professional friends and associates, he
enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him incapable of
appreciating at their true value the symptoms of disorder which he developed.

5.4 No. He is only justified with P200, or the amount actually paid to Dr. Montes (the doctor who treated the
plaintiff) which is the obligation supposedly incurred with respect to treatment for said injuries.
Ratio In order to constitute a proper element of recovery in an action of this character, the medical service for which
reimbursement is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as
was reasonably necessary in view of his actual condition.
Reasoning Dr. Montes, in his testimony, speaks in the most general terms with respect to the times and extent of the
services rendered; and it is not clear that those services which were rendered many months, or year, after the
incident had in fact any necessary or legitimate relation to the injuries received by the plaintiff.
-On the obligation supposedly incurred by the plaintiff to three other physicians: (1) it does not appear that said
physicians have in fact made charges for those services with the intention of imposing obligations on the plaintiff to
pay them; (2) in employing so many physicians the plaintiff must have had in view the successful promotion of the
issue of this lawsuit rather than the bona fide purpose of effecting the cure of his injuries.

. YES, certificates or the written statements of the physicians which were referred to in the trial cannot be
admitted as primary evidence since it is fundamentally of a hearsay nature
Ratio The only legitimate use of certificates could be put, as evidence for plaintiff, was to allow the physician who
issued it to refer thereto, to refresh his memory upon details which he might have forgotten
Disposition Judgment from the trial court modified by reducing the amount of the recovery to P1,100, with legal
interest from Nov. 8, 1916 (all judges 6 (ponente counted) concurred)

SARMIENTO V SPS. CABRIDO

CORONA; April 9, 1003

Petition for review on certiorari of a decision of the Court of Appeals

FACTS
Tomasa Sarmientos friend, Dra. Virginia Lao, requested her to find someone to reset a pair of diamond earrings into
two gold rings. Sarmiento sent Tita Payag with the earrings to Dingdings Jewelry Shop, owned and managed by
spouses Luis and
Rose Cabrido, which accepted the job order for P400. Petitioner provided 12 grams of gold to be used in crafting the
pair of ring settings. After 3 days, Payag delivered to the jewelry shop one of the diamond earrings which was earlier
appraised as
worth .33 carat and almost perfect in cut and clarity. Respondent Marilou Sun went on to dismount the diamond from
original settings. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. He removed the diamond by
twisting the setting with a pair of pliers, breaking the gem in the process. Petitioner required the respondents to
replace the diamond with the same size and quality. When they refused, the petitioner was forced to buy a
replacement in the amount of P30,000. Rose Cabrido, manager, denied having any transaction with Payag whom
she met only after the latter came to seek compensation for the broken piece of jewelry. Marilou, on the other hand,
admitted knowing Payag to avail their services and recalled that when Santos broke the jewelry, Payag turned to her
for reimbursement thinking she was the owner. Santos also recalled that Payag requested him to dismount what
appeared to him as sapphire and that the stone accidentally broke. He denied being an employee of the Jewelry
shop. The MTCC of Tagbilaran City rendered a decision in favor of the petitioner. On appeal,
Respondents conceded to the existence of an agreement for crafting a pair of gold rings mounted with diamonds but
denied they had obligation to dismount the diamonds from the original setting. Petitioner claims that dismounting the
diamonds from the original setting was part of the obligation assumed by respondents under the contract of service.
The RTC ruled in favor of the respondents. CA affirmed the judgment of the RTC.

ISSUES
1. WON dismounting of the diamond from its original setting was part of the obligation
2. WON respondents are liable for damages
3. WON respondents are liable for moral damages

HELD
1. YES
Ratio The contemporaneous and subsequent acts of the parties reveal the scope of obligation assumed by the
jewelry shop to reset the pair of earrings.
Reasoning Marilou expressed no reservation regarding the dismounting of the diamonds. She could have instructed
Payag to have the diamonds dismounted first, but instead, she readily accepted the job order and charged P400.
After the new settings were completed, she called petitioner to bring the diamond earrings to be reset. She examined
one of them and went on to dismount the diamond from the original setting. After failing to do the same, she
delegated it to the goldsmith.
Having acted the way she did, she cannot deny that the dismounting was part of the shops obligation to reset the
pair of earrings.

2. YES
Ratio Those who, in the performance of their obligations are guilty of fraud, negligence or delay and those who in
any manner contravene the tenor thereof, are liable for damages. The fault or negligence of the obligor consists in
the omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
Reasoning Santos acted negligently in dismounting the diamond from its original setting. Instead of using a
miniature wire, which is the practice of the trade, he used a pair of pliers. Marilou examined the diamond before
dismounting and found the same to be in order. The subsequent breakage could only have been caused by Santos
negligence in using the wrong equipment. Res ipsa loquitur. Facts show that Marilou, who has transacted with Payag
on at least 10 occasions, and Santos, who has been accepting job referrals through respondents for 6 mos. now, are
employed at the jewelry shop. The jewelry shop failed to perform its obligation with the ordinary diligence required by
the circumstances.

3. YES
Ratio Moral damages may be awarded in a breach of contract when there is proof that defendant acted in bad faith,
or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation.
Reasoning Santos was a goldsmith for more than 40 years. He should have known that using a pair of pliers would
have entailed unnecessary risk of breakage. The gross negligence of their employee makes the respondents liable of
moral damages.
Disposition Petition was granted and CA decision was reversed. Respondents were ordered to pay P30,000 as
actual damages and P10,000 as moral damages.

DELAY

FRANCISCO VS. CHEMICAL BULK CARRIERS, INCORPORATED

SANTOS VENTURA HOCORMA FDN V SANTOS

QUISUMBING; November 4, 2004

FACTS
- Santos Ventura Hocorma Foundation Inc (SVHFI) and Ernesto Santos executed a Compromise Agreement on
October 26, 1990. The agreement was judicially approved on September 30, 1991. The agreement stipulated that 1)
SVHFI shall
Santos P1.5 Million immediately upon the execution of the agreement, and the balance of P13 Million shall be paid
within a period of not more than two years from the execution of the agreement; 2) Immediately upon the execution of
the agreement Santos shall cause the dismissal with prejudice of Civil Cases and for the immediate lifting of the
various notices of lis pendens on the real properties; provided, however, that in the event that defendant Foundation
shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any such sale shall be
partially devoted to the payment of the Foundations obligations.
- SVHFI sold two real properties, which were previously subjects of lis pendens.
Discovering the disposition made by the SVHFI, Santos sent a letter to the petitioner demanding the payment of the
remaining P13 million, which SVFHI ignored. Santos applied with the RTC for the issuance of a writ of execution of
its compromise judgment. The RTC granted the writ. On November 22, 1994, petitioners real properties located in
Mabalacat, Pampanga were auctioned.Santos 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. TC dismissed petition. CA reversed and
ordered SVHFI to pay 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.

ISSUE
WON Santos is entitled to legal interest.

HELD
YES.
- When the petitioner failed to pay its due obligation after the demand was made, it incurred delay. Interest as
damages is generally allowed as a matter of right.
Santos has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of
compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is
in the form of interest.
- Article 1169 of the New Civil Code provides: Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extra-judicially demands from them the fulfillment of their obligation.
- In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation
be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extra-judicially.
- 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 two-year period must be counted from
October 26, 1990 (date of execution of the compromise agreement, not on the judicial approval on September 30,
1991). When Santos wrote a demand letter on October 28, 1992, the obligation was already due and demandable.
Therefore 3 requisites present: 1) The obligation was already due and demandable after the lapse of the two-year
period from the execution of the contract. The obligation is liquidated because the debtor knows precisely how much
he is to pay and when he is to pay it. 2) Petitioner delayed in the performance. It was able to fully settle its
outstanding balance only on February 8, 1995. 3) The demand letter sent to the petitioner was in accordance with an
extra-judicial demand contemplated by law.

VASQUEZ V AYALA CORPORATION

TINGA; November 19, 2004

NATURE
Petition for Review on Certiorari
FACTS
-April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez entered into a Memorandum of Agreement
(MOA) with AYALA Corporation with Ayala buying from the Vazquez spouses, all of the latters shares of stock in
Conduit Development, Inc.
- The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being
developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the Don
Vicente Village.
The development was then being undertaken for Conduit by G.P. Construction and Development Corp.
-Under the MOA, Ayala was to develop the entire property, less what was defined as the Retained Area consisting
of 18,736 square meters. Ayala agreed to offer 4 lots adjacent to the retained area for sale to the Vazquez spouses at
the prevailing price at the time of purchase. The relevant provisions of the MOA on this point are:

5.7. The BUYER hereby commits that it will develop the Remaining
Property into a first class residential subdivision of the same class as its New Alabang Subdivision, and that
it intends to complete the first phase under its amended development plan within three (3) years from the
date of this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the
Retained Area at the prevailing market price at the time of the purchase.

The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits development
plan, but Ayalas amended development plan which was still to be formulated as of the time of the MOA.
While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase
thereof or Village 1, in the
Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.
-Under the MOA, the Vasquez spouses made several express warranties, as follows:
3.1. The SELLERS shall deliver to the BUYER
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the

Company showing:
A list of all persons and/or entities with whom the Company has pending contracts, if any.

3.1.5. Audited financial statements of the Company as at Closing date.

6. Representation and Warranties by the SELLERs
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of
this Agreement and at the Closing:
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened
against or affecting the SELLERS with respect to the Shares or the Property; and
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the
Remaining Property, free from all liens and encumbrances and that the Company shall have no obligation to any
party except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance
with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of
Closing, and those disclosed to BUYER, the Company as of the date thereof, has no liabilities of any nature
whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become
due and whether incurred in respect of or measured in respect of the Companys income prior to Closing or arising
out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the
Company as at closing or any liability of any nature and in any amount not fully reflected or reserved against
such Audited Financial Statements referred to above, and those disclosed to BUYER.
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not
engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or
other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable
grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the
Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by
the Company of any term, covenant or condition of any instrument or agreement to which the company is a
party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will
constitute such default or breach.

-After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala
then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he
was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction.
- G.P. Construction was not able to reach an amicable settlement with Lancer so Lancer sued G.P. Construction,
Conduit and Ayala
-G.P. Construction in turn filed a cross-claim against Ayala.
-G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property.
-The suit was terminated on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer
and GP Construction the total of P4,686,113
.-Vasquez spouses sent several reminder letters of the approaching so-called deadline on Ayalas obligation to sell 4
lots to them.
-However, no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots.
-One of the letters signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected
development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the legal
problems with the previous contractor.
-By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale.
-The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990.
-This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.
TC ruled in favor or petitioners
CA ruled in favor of respondents

ISSUES
Procedural
WON the court should review the factual findings of the Court of Appeals as they are in conflict with those of the trial
court
Subsantive
1. WON AYALA Corporation is in default for failure to finish the development of the phase in question within 3 years
2. WON the provisions of the MOA constitutes an option to buy for spouses Vasquez
HELD
Procedural
YES. It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of
petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being
conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict
between the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of
warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such
factual issues as an exception to the general rule

Substantive

1. NO. In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.
- Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes.There was no fixed date in the MOA, and the demand letters which were
mere reminders were sent even before three years could pass after the signing. Since the MOA does not specify a
period for the development of the subject lots, petitioners should have petitioned the court to fix the period in
accordance with Article 1197 of the Civil Code. As no such action was filed by petitioners, their complaint for specific
performance was premature, the obligation not being demandable at that point.
Accordingly, AYALA Corporation cannot likewise be said to have delayed performance of the obligation.
- Moreover, a representative of the spouses even told AYALA that the date of reckoning shall be from the date the
case with lancer was finished.
2. It is a mere right of first refusal and not an option contract. Although the paragraph has a definite object, i.e., the
sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the price for
which the subject lots will be sold are not specified. The phrase at the prevailing market price at the time of the
purchase connotes that there is no definite period within which AYALA Corporation is bound to reserve the subject
lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price at which the
subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another
thing certain or if the determination thereof is left to the judgment of a specified person or persons.

VDA. DE VILLARUEL V MANILA MOTOR CO. INC. AND

COLMENARES
REYES; December 13, 1958

NATURE
Appeal from a judgment of the CFI of Negros Occidental

FACTS
- This case is a petition of the judgment that ordered Manila Motor Co., Inc. to pay Villaruel for the lease of their
building from June 1, 1942 to March 29, 1945 as well as for them to pay for the destruction of the property.
- Manila Motor Co., Inc. leased the building from Villaruel and entered a contract, the contract lasts for 5 years and
that the amount of Php. 350 a month should be paid. It is to be placed on Manila Motor Co., Inc. possession on the
31st day of
October 1940. The leasing continued until the invasion in 1941. At this time no payment of rental was done during the
said period. When the Americans liberated the country they took possession of the said property and paid for the
same amount to Villaruel. Manila Motor Co., Inc. wanted to resume the contract given that the contract gives them
the option to continue such lease. Villaruel however would want from June 1, 1942 until March 29, 1945. While the
trial was ongoing, the property got burned. Villaruel then sought for a supplemental complaint demanding
reimbursement. CFI granted the petition of Villaruel giving rise for this appeal.

ISSUE
WON Manila Motor Co., Inc. is liable to pay for the rental fees at the time of the Japanese Occupation and the
destruction of property

HELD
No. The occupation is a pertubacion de derecho (trespassing under color of title) and not pertubacion de hecho
(mere act of trespass). This is because the Japanese Occupation was legitimate following both International and
Domestic law recognize the use of private properties at the time of war. Applying Art. 1560 the lessors are liable for it
and that such occurrence resulted to the deprivation of the lessee from the peaceful use and enjoyment of the
property leased. The obligation ceased during such deprivation. Also, mere disturbance entail that the lessee shall
have a direct action against the trespasser but the military occupation was not what the drafters had on mind for such
occupation is not preventable. Further more, the fact that the military seizure was considered a fortuitous event
means that the failure of one party to fulfill its commitment entails that the other party is excused to do his correlative
performance since the causa of the lease must exist throughout the term of the contract.
- It is unwarranted by the Moratorium Order under EO No. 32. The refusal to accept placed the lessors in default to
bear supervening risks of accidental injury or destruction. Failure to consign does not eradicate the default of the
lessors nor the risk of loss that lay upon them.

Disposition Manila Motor Co., Inc. is asked to pay only Php. 1750 from July to November 1946 and not for the
petitioned amount.

TENGCO V CA
PADILLA; October 19, 1989
NATURE
Review on certiorari of the decision of CA.
FACTS
- Lutgarda Cifra, the owner of the premises at No. 164 Int., Gov. Pascual St., Navotas, Metro Manila leased the said
property to Emilia Tengco. The contract was not in writing, hence, not recorded.
- While the contract of lease was still subsisting, Lutgarda Cifra transferred the ownership of the property to Benjamin
Cifra.
- Tengco, despite her knowledge of this transfer, attempted to pay her rentals to the person whom she used to pay
her dues. But that person refused to accept the payment as she is no longer had the authority to accept payments.
Tengco, on theother hand, did not give the payment to Benjamin Cifra or consigned the amount to the court.
- The record of the case shows that on 16 September 1976, Benjamin Cifra, Jr. filed an action for umlawful detainer
with the MTC of Navotas to evict the peititioner,

Emilia Tengco, from the said premises for her alleged failure to comply with the terms and conditions of the lease
contract by failing and refusing to pay the stipulated rentals despite repeated demands. After trial, judgment was
rendered against Tengco and ordered the defendant and any and all persons claiming rights under her to vacate the
premises occupied by her and to surrender possession thereof to the plaintiff.

ISSUES
1. WON Benjamin Cifra, Jr. is the owner of the leased premises
2. WON the lessor was guilty of mora accipiendi
3. WON laches had deprived the lessor of the right to eject her considering that the Complaint was filed only in
September 1976 whereas his cause of action arose sometime in February, 1974 when she defaulted in the payment
of rentals

HELD
1. YES. The question of whether or not private respondent is the owner of the leased premises is one of fact which is
within the cognizance of the trial court whose findings thereon will not be disturbed on appeal unless there is a
showing that the trial court had overlooked, misunderstood, or misapplied some fact or circumstance of weight and
substance that would have affected the result of the case.

2. NO. Under the circumstances, the refusal to accept that proffered rentals is not without justification. The ownership
of the property had been transferred by Lutgarda Cifra, the original lessor, to Benjamin Cifra and the person to whom
payment was offered had no authority to accept payment. It should be noted that the contract of lease between the
petitoner and Lutgarda Cifra, the former owner of the land, was not in writing and, hence, unrecorded. The Court has
held that a contract of lease executed by the vendor, unless recorded, ceases to have effect when the property is
sold, in the absence of a contrary agreement.

3. NO. The tenant's mere failure to pay rent does not ipso facto make unlawful his possession of the leased
premises. It is failure to pay rents after a demand therefore is made that entitles the lessor to bring an action of
Unlawful Detainer,
Moreover, the lessor has the privilege to waive his right to bring an action against his tenant and give the latter credit
for the payment of the rents and allow him to continue indefinitely in the possession of the premises. During such
period, the tenant would not be in illegal possession of the premises and the landlord can not maintain an action until
after he has taken steps to convert the legal possession into an illegal possession. Consequently, petitioner's non-
payment of the rentals on the premises, notwithstanding demand made by Cifra, and her failure to avail of the
remedy provided for in Article 1256 of the Civil Code, entitles private respondent to eject her from the premises.

Disposition: The petition is denied.

CENTRAL BANK OF THE PHILIPPINES V COURT OF

APPEALS
MAKASIAR; October 3, 1985
NATURE
Petition for certiorari to review the decision of the Court of Appeals.

FACTS
- Island Savings Bank approved the loan application for P80K of Sulpicio Tolentino who executed a real estate
mortgage over his 100 hectare land.
- The loan called for a lump sum of P80K, repayable in semi-annual installments for 3 yrs, w/ 12% annual interest. It
was required that Tolentino shall use the loan solely as additional capital to develop his other property into a
subdivision.
- A mere P17K partial release of the loan was made by the bank and Tolentino and his wife signed a promissory note
for the P17K at 12% annual interest payable w/in
3 yrs. An advance interest was deducted fr the partial release but this prededucted interest was refunded to Tolentino
after being informed that there was no fund yet for the release of the P63K balance. The bank VP and Treasurer
promised release of the balance.
- Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the bank fr
making new loans and investments. And after the bank failed to restore its solvency, the Central Bank prohibited
Island Savings Bank
fr doing business in the Philippines.
- Island Savings Bank in view of the non-payment of the P17K filed an application for foreclosure of the real estate
mortgage.
- Tolentino filed petition for specific performance or rescission and damages w/ preliminary injunction, alleging that
since the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the real estate
mortgage.
- Trial court found Tolentinos petition unmeritorious. CA affirmed dismissal of
Tolentinos petition for specific performance, but it ruled that the bank can neither foreclose the real estate mortgage
nor collect the P17K loan.

ISSUES
1. WON Tolentinos action for specific performance can prosper
2. WON Tolentino is liable to pay the P17K covered by the promissory note
3. If liable to pay P17K, WON Tolentinos real estate mortgage can be foreclosed

HELD
1. NO
- The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the other party
not ready nor willing incurs in delay. When Tolentino executed real estate mortgage, he signified willingness to pay.
That time, the banks obligation to furnish the P80K loan accrued. Now, the Central Bank resolution made it
impossible for the bank to furnish the P63K balance.
- The prohibition on the bank to make new loans is irrelevant bec it did not prohibit the bank fr releasing the balance
of loans previously contracted.
- Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a breach of contract.
- The banks asking for advance interest for the loan is improper considering that the total loan hasnt been released.
A person cant be charged interest for nonexisting debt.
- The alleged discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials should
have been more responsible and the bank bears risk in case the collateral turned out to be overvalued. Furthermore,
this was not raised in the pleadings so this issue cant be raised.
- The bank was in default and Tolentino may choose bet specific performance or rescission w/ damages in either
case. But considering that the bank is now prohibited fr doing business, specific performance cannot be granted.
Rescission is the only remedy left, but the rescission shld only be for the P63K balance.

2. YES
- The promissory note gave rise to this liability. His failure to pay made him party in default, hence, not entitled to
rescission. This time, it is the bank which has right to rescind the promissory note.
- Since both Tolentino and the bank are in default, both are liable for damages.
Liability may be offset.

3. NO
- Since the bank failed to furnish the balance, the real estate mortgage became unenforceable to such extent.

CONTRAVENTION OF TENOR OF OBLIGATION

TELEFAST COMMUNICATIONS /PHILIPPINE WIRELESS, INC.

V CASTRO
PADILLA; February 29, 1988

NATURE
Petition for Review on Certiorari of the decision of the Intermediate Appellate Court
dated 11 February 1986, in Castro, Sr. vs Telefast Communication/Philippine
Wireless, Inc.
FACTS
- On November 2, 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr. and mother of the other
plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia Crouch, who was then in the
Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170
announcing Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges. However, the telegram never reached its addressee.
Consolacion was interred with only her daughter Sofia in attendance. Neither the husband nor any of the other
children of the deceased, then all residing in the United States, returned for the burial.
- When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send had
not been received. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach
of contract.
The only defense of the defendant was that it was unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." No evidence appears on record that defendant ever made any attempt to
advise the plaintiff
Sofia C. Crouch as to why it could not transmit the telegram.
- The CFI of Pangasinan, after trial, ordered the defendant to pay the plaintiffs damages as follows, with interest at
6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and
P20,000.00, as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
- Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to
each of the plaintiffs and costs.
- On appeal by petitioner, the Court of Appeals affirmed the trial court's decision but eliminated the award of
P16,000.00 as compensatory damages to Sofia C. Crouch
and the award of P1,000.00 to each of the private respondents as exemplary damages. The award of P20,000.00 as
moral damages to each - Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000. 00 for each.]
- Petitioner appeals from the judgment of the appellate court contending that the award of moral damages should be
eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness." Under its theory, it can
only be held liable for P 31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was never sent to the
addressee thereof.

ISSUE
WON petitioner can be henld liable for moral damages.

HELD
Yes. Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176
also provides that "whoever, by act or omission, causes damage to another, there being fault or negligence, is
obliged to pay for the damage done." Petitioner and Sofia Crouch entered into a contract whereby, for a fee,
petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do,
despite performance by Crouch of her obligation by paying the required charges. Petitioner was, therefore, guilty of
contravening its obligation to said private respondent and is thus liable for damages.
- This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard
would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed
thirty [30] years ago.
Art. 2217 of the Civil Code is applicable to this case. It states: "Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate
results of the defendant's wrongful act or omission."
- Petitioner's act or omission which amounted to gross negligence, was precisely the cause of the suffering private
respondents had to undergo.
- As the appellate court properly observed: Who can seriously dispute the shock, the mental anguish and the sorrow
that the overseas children must have suffered upon learning of the death of their mother after she had already been
interred, without being given the opportunity to even make a choice on whether they wanted to pay her their last
respects? There is no doubt that these emotional sufferings were proximately caused by appellant's omission and
substantive law provides for the justification for the award of moral damages.
- The trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she
incurred when she came to the Philippines from the United States to testify before the trial court is sustained. Had
petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs.
Crouch's testimony.
- The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of
P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.

Disposition Petition is DENIED. The Decision appealed from is modified so that petitioner is held liable to private
respondents in the following amounts:
[1] P10,000.00 as moral damages, to each of private respondents;
[2] P1,000.00 as exemplary damages, to each of private respondents;
[3] P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;
[4] P5,000.00 as attorney's fees; and
[5] Costs of suit.