OBLICON DIGEST REVIEWER CHAPTER 2 (Credits to all
sources)
AUSTRIA vs COURT OF APPEALS (39 SCRA 527)
FACTS: Maria G. Abad received from Guillermo Austria a
pendant with diamonds to be sold on a commission basis
or to be returned on demand. While walking home, the
purse containing the jewelry and cash was snatched by
two men. A complaint of the incident was filed in the
Court of First Instance against certain persons. Abad failed
to return the jewelry or pay for its value despite demands
made by Austria. Austria brought an action against the
Abad spouses for the recovery of the pendant or of its
value and damages. Abad spouses set up the defense that
the alleged robbery had extinguished their obligation.
ISSUE: Should the Abad spouse be held liable for the loss
of the pendant?
RULING: No. The Court ruled that the exempting provision
of Article 1174 of the Civil Code is applicable in the case. It
is a recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it
is necessary that the event must be independent of the
human will or of the obligor’s will; the occurrence must
render it impossible for the debtor to fulfill the obligation
in a normal manner; and that the obligor must be free of
participation in, or aggravation of, the injury to the
creditor. To avail of the exemption granted, it is not
necessary that the persons responsible for the event
should be found or punished. It is sufficient that to
unforeseeable event which is the robbery took place
without concurrent fault or negligence on the part of the
obligor which can be proven by preponderant evidence. It
was held that the act of Maria Abad in walking home alone
carrying the jewelry was not negligent for at that time the
incidence of crimes was not high.
REPUBLIC vs LUZON STEVEDORING CORPORATION (21
SCRA 279)
FACTS: In the early afternoon of August 17, 1960, barge L-
1892, owned by the Luzon Stevedoring Corporation was
being towed down the Pasig River by two tugboats when
the barge rammed against one of the wooden piles of the
Nagtahan bailey bridge, smashing the posts and causing
the bridge to list. The river, at the time, was swollen and
the current swift, on account of the heavy downpour in
Manila and the surrounding provinces on August 15 and
16, 1960. The Republic of the Philippines sued Luzon
Stevedoring for actual and consequential damage caused
by its employees, amounting to Php 200,000. Defendant
Corporation disclaimed liability on the grounds that it had
exercised due diligence in the selection and supervision of
its employees that the damages to the bridge were caused
by force majeure, that plaintiff has no capacity to sue, and
that the Nagtahan bailey bridge is an obstruction to
navigation. After due trial, the court rendered judgment
on June 11, 1963, holding the defendant liable for the
damage caused by its employees and ordering it to pay
plaintiff the actual cost of the repair of the Nagtahan
bailey bridge which amounted to Php 192,561.72, with
legal interest from the date of the filing of the complaint.
ISSUE: Was the collision of appellant's barge with the
supports or piers of the Nagtahan bridge caused by
fortuitous event or force majeure?
RULING: Yes. Considering that the Nagtahan bridge was an
immovable and stationary object and uncontrovertibly
provided with adequate openings for the passage of water
craft, including barges like of appellant's, it was undeniable
that the unusual event that the barge, exclusively
controlled by appellant, rammed the bridge supports
raises a presumption of negligence on the part of
appellant or its employees manning the barge or the tugs
that towed it. For in the ordinary course of events, such a
thing will not happen if proper care is used. In Anglo-
American Jurisprudence, the inference arises by what is
known as the "res ipsa loquitur" rule. The appellant
strongly stressed the precautions taken by it on the day in
question: that it assigned two of its most powerful
tugboats to tow down river its barge L-1892; that it
assigned to the task the more competent and experienced
among its patrons, had the towlines, engines and
equipment double-checked and inspected' that it
instructed its patrons to take extra precautions; and
concludes that it had done all it was called to do, and that
the accident, therefore, should be held due to force
majeure or fortuitous event. These very precautions,
however, completely destroyed the appellant's defense.
For caso fortuito or force majeure (which in law are
identical in so far as they exempt an obligor from liability)
by definition, are extraordinary events not foreseeable or
avoidable, "events that could not be foreseen, or which,
though foreseen, were inevitable" (Art. 1174, Civ. Code of
the Philippines). It was, therefore, not enough that the
event should not have been foreseen or anticipated, as
was commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the
happening was not impossibility to foresee the same. The
very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually
foreseen, and was not caso fortuito.
PANTALEON vs AMERICAN EXPRESS (G.R. No. 174269, BARZAGA vs COURT OF APPEALS (G.R. No. 115129
May 8 2009) February 12, 1997)

FACTS: After the Amsterdam incident that happened
involving the delay of American Express Card to approve
his credit card purchases worth US $13,826.00 at the
Coster store, Pantaleon commenced a complaint for moral
and exemplary damages before the RTC against American
Express. He said that he and his family experienced
inconvenience and humiliation due to the delays in credit
authorization. RTC rendered a decision in favor of
Pantaleon. CA reversed the award of damages in favor of
Pantaleon, holding that AmEx had not breached its
obligations to Pantaleon, as the purchase at Coster
deviated from Pantaleon's established charge purchase
pattern.
ISSUE:
FACTS: The petitioner’s wife was suffering from a
debilitating ailment and with forewarning of her
impending death, she expressed her wish to be laid to rest
before Christmas day to spare her family of the long vigils
as it was almost Christmas. After his wife passed away,
petitioner bought materials from herein private
respondents for the construction of her niche. Private
respondents however failed to deliver on agreed time and
date despite repeated follow-ups. The niche was
completed in the afternoon of the 27th of December, and
Barzaga's wife was finally laid to rest. However, it was two-
and-a-half (2-1/2) days behind schedule.
ISSUE: Was there delay in the performance of the private
respondent's obligation?

1. Whether or not AmEx had committed a breach of its
obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are
approved “within seconds,” there really is no strict, legally
determinative point of demarcation on how long must it
take for a credit card company to approve or disapprove a
customer’s purchase, much less one specifically contracted
upon by the parties. One hour appears to be patently
unreasonable length of time to approve or disapprove a
credit card purchase. The culpable failure of AmEx herein
is not the failure to timely approve petitioner’s purchase,
but the more elemental failure to timely act on the same,
whether favorably or unfavorably. Even assuming that
AmEx’s credit authorizers did not have sufficient basis on
hand to make a judgment, we see no reason why it could
not have promptly informed Pantaleon the reason for the
delay, and duly advised him that resolving the same could
take some time.
RULING: Yes. Since the respondent was negligent and
incurred delay in the performance of his contractual
obligations, the petitioner is entitled to be indemnified for
the damage he suffered as a consequence of the delay or
contractual breach. There was a specific time agreed upon
for the delivery of the materials to the cemetery. This is
clearly a case of non-performance of a reciprocal
obligation, as in the contract of purchase and sale; the
petitioner had already done his part, which is the payment
of the price. It was incumbent upon respondent to
immediately fulfill his obligation to deliver the goods
otherwise delay would attach. An award of moral damages
is incumbent in this case as the petitioner has suffered so
much.

2. Yes. The reason why Pantaleon is entitled to damages is

not simply because AmEx incurred delay, but because the
delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code
for which moral damages are remunerative. The
somewhat unusual attending circumstances to the
purchase at Coster – that there was a deadline for the
completion of that purchase by petitioner before any
delay would redound to the injury of his several traveling
companions – gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social
humiliation sustained by Pantaleon, as concluded by the
RTC.
CATHAY PACIFIC, vs SPOUSES VASQUEZ (G.R. No. 150843.
March 14, 2003)
FACTS: In respondents’ return flight to Manila from Hong
Kong, they were deprived of their original seats in Business
Class with their companions because of overbooking. Since
respondents were privileged members, their seats were
upgraded to First Class. Respondents refused but
eventually persuaded to accept it. Upon return to Manila,
they demanded that they be indemnified in the amount of
P1million for the “humiliation and embarrassment” caused
by its employees. Petitioner’s Country Manager failed to
respond. Respondents instituted action for damages. The
RTC ruled in favor of respondents. The Court of Appeals
affirmed the RTC decision with modification in the award
of damages.
ISSUE: Whether or not the petitioners (1) breached the
contract of carriage, (2) acted with fraud and (3) were
liable for damages.
RULING:
(1) YES. Although respondents have the priority of
upgrading their seats, such priority may be waived, as
what respondents did. It should have not been imposed on
them over their vehement objection.
(2) NO. There was no evident bad faith or fraud in upgrade
of seat neither on overbooking of flight as it is within 10%
tolerance.
(3) YES. Nominal damages (Art. 2221, NCC) were awarded
in the amount of Php 5,000.00. Moral damages (Art. 2220,
NCC) and attorney’s fees were set aside and deleted from
the Court of Appeals’ ruling.
MANILA ELECTRIC CO. vs RAMOY (G.R. No. 158911,
March 4, 2008)
FACTS: In the year 1987, the National Power Corporation
(NPC) filed with the MTC Quezon City a case for ejectment
against several persons allegedly illegally occupying its
properties in Baesa, Quezon City. among the defendants in
the ejectment case was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On April 28, 1989 the MTC
rendered judgment for MERALCO to demolish or remove
the building and structure they built on the land of the
plaintiff and to vacate the premises. On June 20, 1999 NPC
wrote to MERALCO requesting the immediate
disconnection of electric power supply to all residential
and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City. In a letter
dated August 17, 1990 MERALCO requested NPC for a joint
survey to determine all the establishments which are
considered under NPC property. In due time, the electric
service connection of the plaintiffs was disconnected.
During the ocular inspection ordered by the Court, it was
found out that the residence of the plaintiffs-spouses was
indeed outside the NPC property.
ISSUES:
(1) W/N the Court of Appeals gravely erred when it found
MERALCO negligent when it disconnected the subject
electric service of respondents.
(2) W/N the Court of Appeals gravely erred when it
awarded moral and exemplary damages and attorney’s
fees against MERALCO under the circumstances that the
latter acted in good faith in the disconnection of the
electric services of the respondents.
RULING:
(1) NO. The Court agrees with the CA that under the
factual milieu of the present case, MERALCO failed to
exercise the utmost degree of care and diligence required
of it, pursuant to Articles 1170 & 1173 of the Civil Code. It
was not enough for MERALCO to merely rely on the
Decision of the MTC without ascertaining whether it had
become final and executory. Verily, only upon finality of
the said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the
subject property, thus, are not entitled to the services of
MERALCO.
(2) NO. MERALCO willfully caused injury to Leoncio Ramoy
by withholding from him and his tenants the supply of
electricity to which they were entitled under the Service
Contract. This is contrary to public policy because,
MERALCO, being a vital public utility, is expected to
exercise utmost care and diligence i the performance of its
obligation. Thus, MERALCO’s failure to exercise utmost
care and diligence in the performance of its obligation to
Leoncio Ramoy is tantamount to bad faith. Leoncio Ramoy
testified that he suffered wounded feelings because of
MERALCO’s actions. Furthermore, due to the lack of power
supply, the lessees of his four apartments on subject lot
left the premises. Clearly, therefore Leoncio Ramoy is
entitled to moral damages in the amount awarded by the
CA. Nevertheless, Leoncio is the sole person entitled to
moral damages as he is the only who testified on the
witness stand of his wounded feelings. Pursuant to Article
2232 of the Civil Code, exemplary damages cannot be
awarded as MERALCO’s acts cannot be considered
wanton, fraudulent, reckless, oppressive or malevolent.
Since the Court does not deem it proper to award
exemplary damages in this case then the CA’s award of
attorney’s fees should likewise be deleted, as pursuant to
Article 2208 of the Civil Code of which the grounds were
not present.
AREOLA vs COURT OF APPEALS (G.R. No. 95641
September 22, 1994)
FACTS: Prudential Guarantee cancelled Areola’s personal
accident insurance on the grounds that the latter failed to
pay his premiums 7 months after issuing the policy. Areola
was supposed to pay the total amount of Php 1,609.65
which included the premium of Php 1,470.00,
documentary stamp of Php 110.25 and 2% premium tax of
Php 29.40. The statement of account had a stipulation not
considering it a receipt. It also reminded the customer to
ask for a receipt after payment. There was also a
stipulation calling for a demand for a provisional receipt
after payment to an agent. A provisional receipt was sent
to petitioner telling him that the provisional receipt would
be confirmed by an official one. The company then
cancelled the policy for non-payment of premiums. After
being surprised, Areola confronted a company agent and
demanded an official receipt. The latter told him that it
was a mistake, but never gave him an official receipt.
Areola sent a letter demanding that he be reinstated or he
would file for damages if his demand was not met. The
company then told him that his payments weren’t in full
yet. The company replied to Areola by telling him that
there was reason to believe that no payment has been
made since no official receipt was issued. The company
then told him that they would still hold him under the
policy. The company then confirmed that he paid the
premium and that they would extend the policy by one
year. Thereby, the company offered to reinstate same
policy it had previously cancelled and even proposed to
extend its lifetime on finding that the cancellation was
erroneous and that the premiums were paid in full by
petitioner-insured but were not remitted by the
company's branch manager, Mr. Malapit.
However, they were too late for Areola already filed an
action for breach of contract in the trial court. The
company’s defense lay in rectifying its omission; hence,
there was no breach of contract. The court ruled in favor
of Areola and asked Prudential to pay Php 250,000 in
moral and exemplary damages. The court held that the
company was in bad faith in cancelling the policy. Had the
insured met an accident at that time, he wouldn’t be
covered by the policy.
This ruling was challenged on appeal by respondent
insurance company, denying bad faith in unilaterally
cancelling the policy. The CA absolved Prudential on the
grounds that it was not motivated by negligence, malice or
bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on what the
existing records showed. The court even added that the
errant manager who didn’t remit the profits was forced to
resign. Areola then filed for a petition in the Supreme
Court.
ISSUE:
(1) Did the erroneous act of cancelling subject insurance
policy entitle petitioner-insured to payment of damages?
(2) Did the subsequent act of reinstating the wrongfully
cancelled insurance policy by respondent insurance
company, in an effort to rectify such error, obliterate
whatever liability for damages it may have to bear, thus
absolving it?
RULING:
(1) YES. Petitioner alleged that the manager’s
misappropriation of his premium payments is the
proximate cause of the cancellation of the insurance
policy. Subsequent reinstatement could not possibly
absolve respondent insurance company from liability, due
to the breach of contract. He contended that damage had
already been done. Prudential averred that the equitable
relief sought by petitioner-insured was granted to the
filing of the complaint, petitioner-insured is left without a
cause of action. Reinstatement effectively restored
petitioner-insured to all his rights under the policy.
The court held that Malapit's fraudulent act of
misappropriating the premiums paid by petitioner-insured
is directly imputable to respondent insurance company. A
corporation, such as respondent insurance company, acts
solely thru its employees. The latters' acts are considered
as its own. Malapit represented its interest and acted in its
behalf. His act of receiving the premiums collected is well
within the province of his authority. Thus, his receipt of
said premiums is receipt by private respondent insurance
company who, by provision of law is bound by the acts of
its agent. Article 1910 thus reads:
“Art. 1910. The principal must comply with all the
obligations which the agent may have contracted within
the scope of his authority.”
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies
it expressly or tacitly. Malapit's failure to remit the
premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration
from liability could result therefrom. The fact that private
respondent insurance company was itself defrauded due
to the anomalies that took place does not free the same
from its obligation to petitioner Areola. As held in
Prudential Bank v. Court of Appeals:
“A bank is liable for wrongful acts of its officers done in the
interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority. Accordingly, a banking
corporation is liable to innocent third persons where the
representation is made in the course of its business by an
agent acting within the general scope of his authority even
though the agent is secretly abusing his authority and The RTC ruled in favor of Tanguilig, but this decision was
attempting to perpetrate a fraud upon his principal or overturned by the Court of Appeals which ruled in favor of
some other person.” Herce.

Prudential is liable for damages for the fraudulent acts
committed by Malapit. Reinstating the insurance policy
cannot obliterate the injury inflicted. A contract of
insurance creates reciprocal obligations for both insurer
and insured. Reciprocal obligations are those which arise
from the same cause and in which each party is both a
debtor and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other.
(2) NO. Due to the agreement to enter into a contract of
insurance where Prudential promised to extend protection
to petitioner-insured against the risk insured, there was a
debtor creditor relationship between the two parties.
Under Article 1191, the injured party is given a choice
between fulfillment or rescission of the obligation in case
one of the obligors fails to comply with what is incumbent
upon him. However, said article entitles the injured party
to payment of damages, regardless of whether he
demands fulfillment or rescission of the obligation. The
damages would be nominal because the insurance
company took steps to rectify the contract. There was also
no actual or substantial damage inflicted. Nominal
damages are "recoverable where a legal right is technically
violated and must be vindicated against an invasion that
has produced no actual present loss of any kind, or where
there has been a breach of contract and no substantial
injury or actual damages whatsoever have been or can be
shown.”
ISSUE: Can the collapse of the windmill be attributed to
force majeure? Thus, extinguishing the liability of
Tanguilig?
RULING: YES. In order for a party to claim exemption from
liability by reason of fortuitous event under Art 1174 of
the Civil Code the event should be the sole and proximate
cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals, the S.C. held that 4
requisites must concur that there must be:
(a) the cause of the breach of the obligation
must be independent of the will of debtor
(b) the event must be either unforeseeable or
unavoidable;
(c) the event be such to render it impossible for
the debtor to fulfill his obligation in a normal
manner; and
(d) the debtor must be free from any
participation in or aggravation of the injury to
the creditor.
Tanguilig merely stated that there was a strong wind, and
a strong wind in this case is not fortuitous, it was neither
unforeseeable nor unavoidable, places with strong winds
are the perfect locations to put up a windmill, since it
needs strong winds for it to work.

JACINTO TANGUILIG vs COURT OF APPEALS and VICENTE

HERCE JR. (G.R. No. 125994; June 29, 2001)

FACTS: Herce contracted Tanguilig to construct a windmill

system for him, for consideration of Php 60,000.00.
Pursuant to the agreement Herce paid the downpayment
of Php 30,000.00 and installment of Php 15,000.00, leaving
a Php 15,000.00 balance. Herce refused to pay the balance
because he had already paid this amount to SPGMI which
constructed a deep well to which the windmill system was
to be connected, and assuming that he owed the Php
15,000.00 this should be offset by the defects in the
windmill system which caused the structure to collapse
after strong winds hit their place. According to Tanguilig,
the Php 60,000.00 consideration is only for the
construction of the windmill and the construction of the
deep well was not part of it. The collapse of the windmill
cannot be attributed to him as well, since he delivered it in
good and working condition and Herce accepted it without
protest. Herce contested that the collapse is attributable
to a typhoon, a force majeure that relieved him of liability.
FAR EAST BANK vs COURT OF APPEALS (G.R. No. 108164;
February 23, 1995)
FACTS: Private respondent Luis A. Luna applied for, and
was accorded, a Far East card issued by petitioner FEBTC.
Clarita informed FEBTC that she lost her credit card. In
order to replace the lost card, Clarita submitted an
affidavit of loss. In cases of this nature, the bank’s internal
security procedures and policy would be to record the lost
card, along with the principal card, as a “Hot Card” or
“Cancelled Card” in its master file. Luis then tendered a
despedida lunch for a close friend. Then he presented his
Far East card to pay for the lunch, however, the card was
not honored, forcing him to pay the bill in cash. Naturally,
Luis felt embarrassed by this incident. Private respondent
Luis Luna, through his counsel, demanded from FEBTC the
payment of damages. Adrian Festejo, a vice president of
the bank, expressed the bank’s apologies, admitting that
they have failed to inform Luis about its security policy.
Private respondents then filed a complaint for damages in
the RTC, which rendered a decision ordering FEBTC to pay
private respondents moral damages, exemplary damages,
and attorney’s fees.
ISSUE: Whether or not private respondents are entitled of
moral damages.
HELD: NO. In culpa contractual, moral damages may be
recovered where the defendant is shown to have acted in
bad faith or with malice in the breach of the contract.
Concededly, the bank was negligent for failing to inform
Luis of his own card’s cancellation. Nothing in the findings
of the trial court and the appellate court can sufficiently
indicate any deliberate intent on the part of FEBTC to
cause harm to private respondents. The failure to inform
Luis is not considered to be so gross that it would amount
to malice or bad faith. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from
the negative idea of negligence in that malice or bad faith
contemplates a state of mind affirmatively operating with
furtive design or ill-will. Article 23 of the Civil Code
contemplates a conscious act to cause harm. In relation to
a breach of contract, its application can be warranted only
when the defendant’s disregard of his contractual
obligation is so deliberate as to approximate a degree of
misconduct certainly no less worse than fraud or bad faith.
Most importantly, Article 23 is a mere declaration of a
general principle in human relations that clearly must, in
any case, give way to the specific provision of Article 2224
of the Civil Code authorizing the grant of moral damages in
culpa contractual solely when the breach is due to fraud or
bad faith. The decision is modified by deleting the award
of moral and exemplary damages to private respondents;
in its stead, petitioner is ordered to pay nominal damages
sanctioned under Article 2223 of the Civil Code.
SALUDAGA vs FAR EASTERN UNIVERSITY (553 SCRA 741)
FACTS: It is the obligation of any college institution to
provide a safe and secure environment for every student.
As for the students, they have the obligation to give back
the respect for their respective colleges and to excel and
do well with the institution’s goals. Far Eastern University
failed to comply with their obligation when a student of
theirs, whose name is Joseph Saludaga was shot inside the
campus by their security guard named Alejandro Rosete.
The victim petitioned a case against FEU and Edilberto C.
De Jesus, president of FEU. The University also failed to
check the qualifications of the security guards hired
through Galaxy, the third party which hires security guards
for the university. From there, there are also complaints
for Galaxy being the first employers of Rosete. It is also
said that the safety of the university should not only be
within the hands of the security guards. Damages are
taken by Saludaga by surprised including physical and
moral damages obtained from the said accidental shooting
by Rosete who claimed that it was an accident.
ISSUE: Whether or not Far Eastern University failed to
comply with their obligation in implementing a safe and
secure learning environment.
HELD: The court dismissed the petitioner’s complaints for
Edilberto De Jesus as well as the counterclaims of the
respondents. The Regional Trial Court of Manila found FEU
to be liable for the damages and a breach of their
obligation to the petitioner. FEU was ordered to pay actual
damage of Php 35,298.25, plus 6% interest per annum
from the filing of the case until the finality of decision.
After the execution, the rate shall be 12% per annum until
its satisfaction. FEU was ordered to pay temperate
damages in the amount of Php 20,000. Moral damages for
Php 100,000, attorney’s fees and litigation expenses for
Php 50,000. Galaxy was and its presidents were ordered to
jointly and severely pay the respondent FEU damages
equivalent to the amount awarded to Saludaga.
FIL-ESTATE vs SPS RONQUILLO (G.R. No. 185798;
January 13, 2014)
FACTS: Petitioner Fil-Estate, owner and developer of the
Central Park Place Tower, while co-petitioner Fil-Estate
Network, Inc. is its authorized marketing agent.
Repondents Spouses Conrado and Maria Vicotria Ronquillo
purchased from petitioners an 82-square meter
condominium unit at the Central Park Place Tower in
Mandaluyong City for a pre-selling contract price of Php
5,174,000. On August 29, 1997, respondents entered into
a reservation agreement wherein they deposited P200,
000 as reservation fee. Respondents paid the full down
payment of Php 1,552,200 and had been paying the Php
63,363.33 monthly amortizations until September 1998.
Respondents also stopped paying their monthly
amortization when they learned that construction works
stopped. Claiming to have paid a total of Php 2,198,949.96
to petitioners, respondents demanded a full refund of
their payment with interest. When their demands went
unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing
and Land Use Regulatory Board (HLURB). Respondents
prayed for refund of Php 2,198,949.96 representing the
total amortization payments, Php 200,000 as and by way
of moral damages, attorney’s fees and other litigation
expenses. The HLURB issued an Order of Default against
petitioners for failing to file their answer within the
reglementary period despite service of summons.
Petitioners filed a motion to lift order of default and
attached their position paper attributing the delay in
construction to the 1997 Asian financial crisis. Petitioners
denied committing fraud or misrepresentation which
could entitle respondents to an award of moral damages.
The HLURB rendered judgment ordering petitioners to
jointly and severally pay respondents the amount of Php
2,198,949.96, as well as the attorney’s fees, costs of suit
and administrative fine.
The Arbiter considered petitioners’ failure to develop the
condominium project as a substantial breach of their
obligation which entitles respondents to seek for
rescission with payment of damages. He also stated that
mere economic hardship is not an excuse for contractual
and legal delay. The HLURB reiterated that the
depreciation of the peso as a result of the Asian financial
crisis is not a fortuitous event which will exempt
petitioners from the performance of their contractual
obligation.
After the exhaustion of the remedies available, petitioners
sought relief from the Court of Appeals through a petition
for review under Rule 43 containing the same arguments
they raised before the HLURB and the Office of the
President but was denied for lack of merit.
The appellate court agreed to the HLURB Arbiter’s ruling.
The appellate court supported the HLURB Arbiter’s
conclusion, which was affirmed by the HLURB and the
Office of the President, that petitioners’ failure to develop
the condominium project is tantamount to a substantial
breach which warrants a refund of the total amount paid,
including interest. The appellate court pointed out that
petitioners failed to prove that the Asian financial crisis
constitutes a fortuitous event which could excuse them
from the performance of their contractual and statutory
obligations. Petitioners sought reconsideration but it was
denied by the Court of Appeals. Aggrieved, petitioners
filed the instant petition advancing substantially the same
grounds for review.
ISSUE: Whether or not the Asian financial crisis constitute
a fortuitous event which would justify delay by petitioners
in the performance of their contractual obligation.
HELD: It is apparent that these issues were repeatedly
raised by petitioners in all the legal fora. The rulings were
consistent that first, the Asian financial crisis is not a
fortuitous event that would excuse petitioners from
performing their contractual obligation; second, as a result
of the breach committed by petitioners, respondents are
entitled to rescind the contract and to be refunded the
amount of amortizations paid including interest and
damages and third petitioners are likewise obligated to
pay attorney’s fees and the administrative fine.
This petition did not present any justification for us to
deviate from the rulings of the HLURB, the Office of the
President and the Court of appeals. Indeed, the non-
performance of petitioners’ obligation entitles
respondents to rescission under Article 1191 of the New
Civil Code which states:
“Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. The injured
party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.”
Conformably with these provisions of law, respondents are
entitled to rescind the contract and demand
reimbursement for the payments they had made to
petitioners.
LORENZO SHIPPING vs BJ MARTHEL (443 SCRA 163; ISSUE: Whether or not the petitioner would have a cause
November 19, 2004) of action for rescission against the respondent.

FACTS: Petitioner Lorenzo Shipping is engaged in coastwise
shipping and owns the cargo M/V Dadiangas Express. BJ
Marthel is engaged in trading, marketing and selling
various industrial commodities. Lorenzo Shipping ordered
for the second time cylinder lines from the respondent
stating the term of payment to be 25% upon delivery, the
balance payable in 5 bi-monthly equal installments, no
again stating the date of the cylinder’s delivery. It was
allegedly paid through postdated checks but the same was
dishonored due to insufficiency of funds. Despite due
demands by the respondent, petitioner failed contending
that time was of the essence in the delivery of the
cylinders and that there was a delay since the respondent
committed said items “ within two months after receipt of
fir order”. RTC held respondents bound to the quotation
with respect to the term of payment, which was reversed
by the Court of appeals ordering appellee to pay appellant
Php 954,000 plus interest. There was no delay since there
was no demand.
ISSUE: Whether or not respondent incurred delay in
performing its obligation under the contract of sale
RULING: By accepting the cylinders when they were
delivered to the warehouse, petitioner waived the claimed
delay in the delivery of said items. Supreme Court held
that time was not of the essence. There having been no
failure on the part of the respondent to perform its
obligations, the power to rescind the contract is unavailing
to the petitioner. Petition is denied. Court of appeals
decision is affirmed.
HELD: No, the petitioner would not have a cause of action
for rescission against the respondent. The Supreme Court
ruled that in reciprocal obligations, as in a contract of sale,
the general rule is that the fulfillment of the parties'
respective obligations should be simultaneous. Hence, no
demand is generally necessary because, once a party
fulfills his obligation and the other party does not fulfill his,
the latter automatically incurs in delay. But when different
dates for performance of the obligations are fixed, the
default for each obligation must be determined by the
rules given in the first paragraph of the present article,
that is, the other party would incur in delay only from the
moment the other party demands fulfillment of the
former's obligation. Thus, even in reciprocal obligations, if
the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the
obligor can be considered in default and before a cause of
action for rescission will accrue. The Complaint only
alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Without a
previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission
against respondent as the latter would not yet be
considered in breach of its contractual obligation.

SOLAR HARVEST INC. vs DAVAO CORRUGATED CARTON

CORP. (G.R. no. 176868; July 26, 2010)

FACTS: Petitioners entered into an agreement with the

respondent for the purchase of corrugated carton boxes
specifically designed for petitioner's business of exporting
fresh bananas. The agreement was not reduced into
writing. Petitioner deposited in respondent's US Dollar
Savings Account as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any
boxes from respondent. Petitioner wrote a demand letter
for reimbursement of the amount paid. Respondent
replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up
from the former's warehouse 30 days from completion, as
agreed upon. Petitioner filed a Complaint for sum of
money and damages against respondent. The Complaint
averred that the parties agreed that the boxes will be
delivered within 30 days from payment but respondent
failed to manufacture and deliver the boxes within such
time.