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1. Villaroel

On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from thespouses
Mariano Estrada and Severina a loan of P1, 000 payable after seven years (ExhibitoA). Alejandra died,
leaving as sole heir to the defendant.Spouses Mariano Estrada and Severina alsodied, leaving as sole
heir to the plaintiff Bernardino Estrada. On August 9, 1930, the defendant signeda document (Exhibito
B) by which the applicant must declare in the amount of P1, 000, with aninterest of 12
percent per year. This action relates to the recovery of this amount. The Court of First
Instance of Laguna, which was filed in this action, condemn the defendant to paythe claimed amount of
P1, 000 with legal interest of 12 percent per year since the August 9, 1930until full pay. He appealed the
sentence. It will be noted that the parties in the present case are, respectively, the only heirs and
creditors of the original debtor. This action is brought under the defendant's liability as the only son of
the originaldebtor in favor of the plaintiff contracted, sole heir of primitive loa creditors. It is recognized
that theamount of P1, 000 to which contracts this obligation is the same debt of the mother's parents
sued theplaintiff. Although the action to recover the original debt has prescribed and when the lawsuit
was filed in thiscase, the question raised in this appeal is primarily whether, notwithstanding such
requirement, theaction taken is appropriate. However, this action is based on the original
obligation contracted by themother of the defendant, who has already prescribed, but in
which the defendant contracted theAugust 9, 1930 (Exhibito B) by assuming the fulfillment of that
obligation, as prescribed. Being theonly defendant in the original herdero debtor eligible successor into
his inheritance, that debt broughtby his mother in law, although it lost its effectiveness by prescription,
is now, however, for a moral obligation, that is consideration enough to create and make effective and
enforceable obligation voluntarily contracted its August 9, 1930 in Exhibito B. The rule that a new
promise to pay a debt prrescrita must be made by the same person obligated orotherwise legally
authorized by it, is not applicable to the present case is not required in compliancewith the mandatory
obligation orignalmente but which would give it voluntarily assumed thisobligation.It confirms the
judgment appealed from, with costs against the appellant. IT IS SO ORDERED.
Imperial, Diaz, Laurel, and Horrilleno, MM., Concur.

2. Fisher vs Robb

Defendant John C. Robb was told by the board of directors of the Philippine Greyhound Club, Inc. to
make a business trip to Shanghai to study the operation of a dog racing course. In Shanghai, defendant
met plaintiff A.O. Fisher who was a manager of a dog racing course. Plaintiff upon knowing defendant’s
purpose of his trip, became interested in the Philippine Greyhound Club and asked defendant if he could
be one of the stockholders. Defendant answered in affirmative which thereupon filed a blank
subscription and sent Greyhound Club Php3,000 in payment of the first installment of his subscription.
Upon receiving a call from the said club, he paid the second installment amounting to Php2,000. Due to
manipulations of those who control the said club and during defendant’s absence, the company was
changed to “Philippine Racing Club.” Defendant endeavored the investments of those who subscribed,
particularly of that of plaintiff. Defendant,. through sending a letter, assured plaintiff for any loss which
he might suffer in connection with Philippine Greyhound Club in the same that he could not expect
anyone to reimburse him for his own losses which were more than that of plaintiff.
Whether a moral obligation will sustain an express executory promise

NO. Defendant, although morally responsible because of the failure of the enterprise, is not a
consideration under Article 1261 of the Civil Code as an essential element for the legal existence for an
onerous contract which could bind the promisor to comply with his promise.
Article 1261 states, “there is no contract unless the following requisites exists: consent of the
contracting parties; definite object; consideration.” In the present case, it does not appear that plaintiff
consented to the said form of reimbursement. The first requisite of 1261 is lacking.
With regards of the third requisite, it is now a well-established rule that a mere moral obligation arising
from wholly ethical motives not connected with any legal obligation will not furnish a consideration
from an executory promise.

3. Barredo v Garcia

At about 1:30am on May 3, 1936, Fontanilla’s taxi collided with a “kalesa” thereby killing the 16 year old
Faustino Garcia. Faustino’s parents filed a criminal suit against Fontanilla and reserved their right to file
a separate civil suit. Fontanilla was eventually convicted. After the criminal suit, Garcia filed a civil suit
against Barredo – the owner of the taxi (employer of Fontanilla). The suit was based on Article 1903 of
the civil code (negligence of employers in the selection of their employees). Barredo assailed the suit
arguing that his liability is only subsidiary and that the separate civil suit should have been filed against
Fontanilla primarily and not him.

ISSUE: Whether or not Barredo is just subsidiarily liable.

HELD: No. He is primarily liable under Article 1903 which is a separate civil action against negligent
employers. Garcia is well within his rights in suing Barredo. He reserved his right to file a separate civil
action and this is more expeditious because by the time of the SC judgment Fontanilla is already serving
his sentence and has no property. It was also proven that Barredo is negligent in hiring his employees
because it was shown that Fontanilla had had multiple traffic infractions already before he hired him –
something he failed to overcome during hearing. Had Garcia not reserved his right to file a separate civil
action, Barredo would have only been subsidiarily liable. Further, Barredo is not being sued for damages
arising from a criminal act (his driver’s negligence) but rather for his own negligence in selecting his
employee (Article 1903).

4. Mendoza

Where in a multiple highway accident involving a truck which hit a jeep which then hit a Mercedes Benz
coming from the opposite direction, two criminal actions for reckless imprudence was filed against the
drivers of the truck and jeep, and the driver of the truck was found guilty and the driver of the jeep
acquitted, a civil action for damages against the owner of the truck would prosper as there is no res
judicata, the parties and causes of action being different. Furthermore, under Art. 31 of the Civil Code,
When the civil action is based on an obli¬gation not arising from crime, the civil action may proceed
independently of the criminal proceed¬ings regardless of result of the latter. Citing Garcia v. Florido,
"As we have stated at the outset, the same negligent act causing damages may produce a civil liabil¬ity
arising from crime or create an action for quasi-delict or culpa extra-contractual. The former is a violation
of the criminal law, while the latter is a distinct and independent negligenc, having always had its own
foundation and individuality. Some legal writers are of the view that in accord¬ance with Article 31, the
civil action based upon quasi-delict may proced independently of the criminal proceeding for criminal
negligence and regardless of the result of the latter. Hence, the proviso in Section 2 of Rule 111
(requiring reservation of civil actions) with reference to Articles 32, 33, and 34 of the Civil Code, is
contrary to the letter and spirit of the said articles, for these articles were drafted and are intended to
constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso,
which is procedura, may also be regarded as an unauthorized amendment of substantive law, Articles 32,
33 and 34 of the Civil Code, which do not provide for the reservation required in the proviso."
However, a civil action for damages against the owner-driver of the jeep would not prosper because civil
liability arising from crime co-exists with criminal liability in criminal cases. Hence, the offended party had
the option to prosecute on civil liability arising from crime or from quasi-delict. His active participation in
the criminal case implies that he opted to recover the civil liability arising from crime. Hence, since the
acquittal in the criminal case, which was not based on reasonable doubt, a civil action for damages can
no longer be instituted.

Breach of Oblig

5. Song
Philippines (rescission of a contract will not be permitted for a slight or

casual breach, but only for such substantial and fundamental breach as would defeat the very object
of the parties in making the agreement.)

Facts: Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where it would deliver molasses to
the latter.
Hawaiian-Philippine Co. was able to deliver 55,006 gallons of molasses before the breach of contract.

SFC filed a complaint for breach of contract against Hawaiian-Philippine Co. and asked P70,369.50.
Hawaiian-Philippine Co. answered that there was a delay in the payment from Song Fo & Co. and that
Hawaiian-Philippine Co. has the right to rescind the contract due to that and claims it as a special

The judgment of the trial court condemned Hawaiian-Philippine Co. to pay Song Fo & Co. a total of
P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs.

(1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses?

(2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Co.?

(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract
imprudently breached by Hawaiian-Philippine Co., what is the measure of damages?


(1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as seen in the documents
presented in court. The language used with reference to the additional 100,000 gallons was not a
definite promise.

(2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to
make the payments for the delivery of molasses as shown in the documents presented by the parties.
The Supreme Court said that Hawaiian-Philippine Co. does not have the right to rescind the contract. It
should be noted that the time of payment stipulated for in the contract should be treated as of the
presence of the contract. There was only a slight breach of contract when the payment was delayed for
20 days after which Hawaiian-Philippine Co. accepted the payment of the overdue accounts and
continued with the contract, waiving its right to rescind the contract. The delay in the payment of Song
Fo & Co. was not such a violation for the contract.

(3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater
expense to which it was put in being compelled to secure molasses from other sources to which
Supreme Court ruled that P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from
October 2, 1923 until payment.

The second cause of action was based on the lost profits on account of the breach of contract. Supreme
Court said that Song Fo & Co. is not entitled to recover anything under the second cause of action
because the testimony of Mr. Song Heng will follow the same line of thought as that of the trial court
which in unsustainable and there was no means for the court to find out what items make up the
P14,000 of alleged lost profits.

6. Velarde et al v CA (see full text)

Facts: David Raymundo (private respondent) is the absolute and registered owner of a parcel of land,
located at 1918 Kamias St., Dasmariñas Village Makati, together with the house and other
improvements, which was under lease. It was negotiated by David’s father with plaintiffs Avelina and
Mariano Velarde (petitioners). A Deed of Sale with Assumption of Mortgage was executed in favor of the
plaintiffs. Part of the consideration of the sale was the vendee’s assumption to pay the mortgage
obligations of the property sold in the amount of P 1,800,000.00 in favor of the Bank of the Philippine
Islands. And while their application for the assumption of the mortgage obligations is not yet approved
by the mortgagee bank, they have agreed to pay the mortgage obligations on the property with the
bank in the name of Mr. David Raymundo. It was further stated that “in the event Velardes violate any
of the terms and conditions of the said Deed of Real Estate Mortgage, they agree that the downpayment
P800,000.00, plus all the payments made with the BPI on the mortgage loan, shall be forfeited in Favor
of Mr. Raymundo, as and by way of liquidated damages, w/out necessity of notice or any judicial
declaration to that effect, and Mr. Raymundo shall resume total and complete ownership and
possession of the property, and the same shall be deemed automatically cancelled”, signed by the

Pursuant to said agreements, plaintiffs paid BPI the monthly interest loan for three months but stopped
in paying the mortgage when informed that their application for the assumption of mortgage was not
approved. The defendants through a counsel, wrote plaintiffs informing the latter that their non-
payment to the mortgagee bank constituted non-performance of their obligation and the cancellation
and rescission of the intended sale. And after two days, the plaintiffs responded and advised the vendor
that he is willing to pay provided that Mr. Raymundo: (1) delivers actual possession of the property to
them not later than January 15, 1987 for their occupancy (2) causes the release of title and mortgage
from the BPI and make the title available and free from any liens and encumbrances (3) executes an
absolute deed of sale in their favor free from any liens and encumbrances not later than Jan. 21, 1987.
The RTC of Makati dismissed the complaint of the petitioners against Mr. Raymundo for specific
performance, nullity of cancellation, writ of possession and damages. However, their Motion for
Reconsideration was granted and the Court instructed petitioners to pay the balance of P 1.8 million to
private respondent who, in turn were ordered to execute a deed of absolute sale and to surrender
possession of the disputed property to petitioners.

Upon the appeal of the private respondent to the CA, the court upheld the earlier decision of the RTC
regarding the validity of the rescission made by private respondents.

Issue: Whether the rescission of contract made by the private respondent is valid.

Held: There is a breach of contract because the petitioners did not merely stopped paying the mortgage
obligations but they also failed to pay the balance purchase price. Their conditional offer to Mr.
Raymundo cannot take the place of actual payment as would discharge the obligation of the buyer
under contract of sale.

Mr. Raymundo’s source of right to rescind the contract is Art. 1191 of the Civil Code predicated on a
breach of faith by the other party who violates the reciprocity between them. Moreover, the new
obligations as preconditions to the performance of the petitioners’ own obligation were repudiation of
an existing obligation, which was legally due and demandable under the contract of sale.

The breach committed by the petitioners was the non-performance of a reciprocal obligation. The
mutual restitution is required to bring back the parties to their original situation prior to the inception of
the contract. The initial payment and the mortgage payments advanced by petitioners should be
returned by private respondents, lest the latter unjustly enriched at the expense of the other. Rescission
creates the obligation to return the obligation of contract. To rescind, is to declare a contract void at its
inception and to put an end to it as though it never was.

The decision of the CA is affirmed with modification that private respondents are ordered to return to
petitioners, the amount they have received in advanced payment.

7. Angeles v Calasanz (clarification of rescission – read full text)

(when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted
and received delayed payments of installments, though the plaintiffs-appellees have been in arrears
beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have
waived and are now estopped from exercising their alleged right of rescission)

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta,
Rizal for the amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a
downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in
monthly installments of P41.20 until fully paid, the installment being due and payable on the 19th day of
each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate
payment already amounted to P4,533.38.

On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the
remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said
contract because the plaintiffs failed to meet subsequent payments. The plaintiffs’ letter with their plea
for reconsideration of the said cancellation was denied by the defendants.

The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to
execute in their favor the final deed of sale alleging inter alia that after computing all subsequent
payments for the land in question, they found out that they have already paid the total amount
including interests, realty taxes and incidental expenses. The defendants alleged in their answer that the
plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay
monthly installments corresponding to the month of August, 1966 for more than 5 months, thereby
constraining the defendants to cancel the said contract.

The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal.

Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants?

No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the
sum of P3,920 plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to
transfer the title to the buyer upon payment of the said price.

The contract to sell, being a contract of adhesion, must be construed against the party causing it. The
Supreme Court agree with the observation of the plaintiffsappellees to the effect that the terms of a
contract must be interpreted against the party who drafted the same, especially where such
interpretation will help effect justice to buyers who, after having invested a big amount of money, are
now sought to be deprived of the same thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and its
entirety is most unfair to the buyers.

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have
already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few
remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of
P671.67 without any interest thereon, the defendant must immediately execute the final deed of sale in
favor of the plaintiffs and execute the necessary transfer of documents, as provided in par.12 of the

8. Delta

Private Respondents are owners of an iceplant and cold storage who ordered black iron pipes to Delta
Motors (herein petitioner) for which the latter provided two letter quotations indicating the selling price
and delivery of said pipes. The terms of payment are also included in the letter quotations which must
be complied with by the respondents. Private respondents made initial payments on both contracts but
delivery of the pipes was not made by Delta Motors so that the Genuinos are not willing to give
subsequent payments notwithstanding the agreed terms of payment requiring them of such. In July
1972 Delta offered to deliver the iron pipes but the Genuinos did not accept the offer because the
construction of the ice plant building where the pipes were to be installed was not yet finished. Three
years later, on April 15, 1975, Hector Genuino, in behalf of España Extension Ice Plant and Cold Storage,
asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the request. But petitioner
Delta is unwilling to deliver said iron pipes unless the Genuinos agree to a new quotation price set by
the former. Private Respondents rejected the new quoted prices and instead filed a complaint for
specific performance with damages seeking to compel Delta to deliver the pipes. Meanwhile, Delta, in
its answer prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code.

Issue: Whether or not Delta is entitled for rescission of contract as the latter is subject to suspensive
conditions and only upon their performance or compliance would its obligation to deliver the pipes

Held: No. While there is merit in Delta's claim that the sale is subject to suspensive conditions, the Court
finds that it has, nevertheless, waived performance of these conditions and opted to go on with the
contracts although at a much higher price. Art. 1545 of the Civil Code provides:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with the contract or he may waived performance of
the condition. . .

it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact
that not only does it have in its possession and ownership the black iron pipes, but also the down
payments private respondents have paid. Delta cannot ask for increased prices based on the price offer
stipulation in the contracts and in the increase in the cost of goods. Reliance by Delta on the price offer
stipulation is misplaced. The moment private respondents accepted the offer of Delta, the contract of
sale between them was perfected and neither party could change the terms thereof. Neither could
petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission.

9. Vermen v. CA

Under the conditions of the so-called “Offsetting Agreement”, Vermen Realty (the first party in the
contract) and Seneca Hardware (the second party) were under a reciprocal obligation. Seneca Hardware
shall deliver to Vermen Realty construction materials worth P552,000.00. Vermen Realty's obligation
under the agreement is threefold: he shall pay Seneca Hardware P276,000.00 in cash; he shall deliver
possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00)
to Seneca Hardware; upon completion of Vermen Pines Condominiums Phase II, Seneca Hardware shall
be given option to transfer to similar units therein. As found by the appellate court and admitted by
both parties, Seneca Hardware had paid Vermen Realty the amount of P110,151.75, and at the same
time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen
Pines Condominiums, Vermen Realty delivered to Seneca Hardware units 601 and 602 at Phase I of the
Vermen Pines Condominiums (Rollo, p. 28). In 1982, the Vermen Realty repossessed unit 602. As a
consequence of the repossession, the officers of the Seneca Hardware corporation had to rent another
unit for their use when they went to Baguio on April 8, 1982.

In its reply the Vermen Realty corporation averred that Room 602 was leased to another tenant because
Seneca Hardware corporation had not paid anything for purchase of the condominium unit. Vermen
Realty corporation demanded payment of P27,848.25 representing the balance of the purchase price of
Room 601.
On June 21, 1985, Seneca Hardware filed a complaint with the Regional Trial Court of Quezon City
(Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, Seneca
Hardware alleged that Vermen Realty Vermen Realty Corporation had stopped issuing purchase orders
of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of
deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting
After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the
plaintiff (Seneca Hardware in this petition) to pay defendant (Vermen Realty in this petition) on its
counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of
condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

Do the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by
Seneca Hardware?

Yes. The Court ruled in favor of Seneca Hardware. There is no controversy that the provisions of the
Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or established at
the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor
between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous
fulfillment of the other obligation Under the agreement, Seneca Hardware shall deliver to Vermen
Realty construction materials. Vermen Realty's obligation under the agreement is three-fold: he shall
pay Seneca Hardware P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I,
Vermen Pines Condominiums (with total value of P276,000.00) to Seneca Hardware; upon completion of
Vermen Pines Condominiums Phase II, Seneca Hardware shall be given option to transfer to similar units
therein. Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term
is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with what is
incumbent upon him.

In the case at bar, Vermen Realty argues that it was Seneca Hardware who failed to perform its
obligation in the Offsetting Agreement. Seneca Hardware, on the other hand, points out that the subject
of the Offsetting Agreement is Phase II of the Vermen Pines Condominiums. It alleges that since
construction of Phase II of the Vermen Pines Condominiums has failed to begin it has reason to move
for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium
units to it.

It is evident from the facts of the case that Seneca Hardware did not fail to fulfill its obligation in the
Offsetting Agreement. The discontinuance of delivery of construction materials to Vermen Realty
stemmed from the failure of Vermen Realty to send purchase orders to Seneca Hardware.

The impossibility of fulfillment of the obligation on the part of Vermen Realty necessitates resolution of
the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial
breach of the Offsetting Agreement.

10. Cetus

Private respondents were the lessees of the premises originally owned by Susana Realty. The payments
of the rentals were paid by them to a collector of the Susana Realty who went the premises monthly.
Susana Realty, however, sold the property to petitioner Cetus Development, Inc. The private
respondents then continued to pay their monthly rentals to a collector sent by the petitioner. In
succeeding months, for three months, the private respondents failed to pay their rentals because no
collector came. They then contacted the petitioner over the telephone as to where they should pay their
rentals. The petitioner then told them that they would send a collector to collect the rentals. Private
respondents waited but no collector came. Petitioner then sent a letter to each of the private
respondents demanding that they vacate the subject premises and to pay their arrearages within 15
days from the receipt thereof. With this, private respondents immediately upon the receipt of such
demand, tendered their payments which were accepted by the petitioner with the condition that the
acceptance was without prejudice to the filing of ejectment suit. For failure of the private respondents
to vacate the premises as demanded, petitioner filed an ejectment suit against them.

Whether or not there was a delay of payment by the private respondents to the petitioner
considering that upon receipt of the demand letter, they immediately tendered their payments.
No. There was no failure yet on the part of the private respondents to pay rents for three
consecutive months. It has been duly established that it has been customary for private respondents to
pay their rentals through a collector sent by the lessor.
Article 1169 of the Civil Code provides that those obliged to deliver or to do something incur in
delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their
The moment the petitioner extrajudicially demand the payment of the rentals, private
respondents immediately answered their obligation by paying their arrearages of rentals to the

11. Aerospace

FACTS: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred
(500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its
purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as
buyer committed to secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from
Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should
be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi,
Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was
aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East
Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a
date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid
on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500
MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez,
acting for the petitioner, addressed letters to private respondent, concerning additional orders of
sulfuric acid to replace its sunken purchases.
ISSUE: Should expenses for the storage and preservation of the purchased fungible goods, namely
sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

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

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

12. Santos

Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002, as well as
the April 12, 2002, Resolution of the Court of Appeals, The appellate court reversed the Decision, dated
October 4, 1996, of the Regional Trial Court of Makati City, and likewise denied petitioner's Motion for

On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their
pending litigations. The pertinent portions of the Agreement, include the following: (1) Defendant
Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the execution of
this agreement and (b) The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not more than two years from the
execution of this agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of
the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3) Failure of
compliance of any of the foregoing terms and conditions by either or both parties to this agreement
shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement.

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay
the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos
applied with the Regional Trial Court of Makati City, for the issuance of a writ of execution of its
compromise judgment dated September 30, 1991. The RTC granted the writ.
Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts,
however, were futile.

On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In
the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of
Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland,
Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of
redemption within one year from the date of registration of the said properties.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging
that there was delay on the part of petitioner in paying the balance of P13 million.


a)W/N the CA committed reversible error when it awarded legal interest in favor of the respondents
notwithstanding the fact that neither in the compromise agreement nor in the compromise of judgment
by the judge provides for payment of interest to the respondent?

b)W/N the CA erred in awarding legal interest to the respondents although the obligation of the
petitioner to the respondent is to pay a sum of money that had been converted into an obligation to pay
in kind?

c)W/N respondents are barred from demanding payment of interest by reason of the waiver provision in
the compromise agreement, which became the law among the parties.


On October 4, 1996, the trial court rendered a Decision dismissing the respondents' complaint and
ordering them to pay attorney's fees and exemplary damages to petitioner. Respondents then appealed
to the Court of Appeals.

The only issue to be resolved is whether the respondents are entitled to legal interest.

The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the
appealed Decision is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay
appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of P13 million at the rate
of 12% per annum from the date of demand on October 28, 1992 up to the date of actual payment of
the whole obligation; and (2) P20,000 as attorney's fees and costs of suit. SO ORDERED.


Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of
obligations. It is the non-fulfillment of the obligation with respect to time. In the case at bar, the
obligation was already due and demandable after the lapse of the two-year period from the execution
of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand
letter on October 28, 1992, to the petitioner, the obligation was already due and demandable.
Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and
when he is to pay it.

The petition lacks merit

In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It
was judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise
agreement as a consensual contract became binding between the parties upon its execution and not
upon its court approval. From the time a compromise is validly entered into, it becomes the source of
the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace
and terminate controverted claims.

As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and
unambiguous. It provides that the balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not more than two (2) years from
the execution of this agreement.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court
of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against
petitioner. SO ORDERED

13. Vazquez

Daniel Vasquez owns Conduit Development, Inc. In 1981, Vasquez enters into a Memorandum of
Agreement (MOA) with Ayala Corporation wherein Ayala bought Conduit from Vasquez. Ayala
committed to develop Conduit’s lands including 4 parcels of land adjacent to Vasquez’ retained land. Be
it noted that these parcels of land were in the 3rd phase of Ayala’s development plan. Paragraph 5.15 of
the MOA provides:

5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four developed
lots next to the “Retained Area” at the prevailing market price at the time of the purchase.”

In 1990, Ayala was able to develop the said lots. (This was after some slump, and some litigation
between Conduit’s former contractor (GP construction) and GP’s subcontractor (Lancer Builders).) Ayala
then offered to sell the 4 parcels of land to Vasquez at P6.5k/sq. m. which was the market price in 1990.
Vasquez refused the offer. Vasquez contended that the purchase price should be P460/sq. m. which was
the market price in 1981 (time of purchase). Ayala then lowered the purchase price to P5k/sq. m. but
Vasquez refused again. Instead he made a counter offer to buy the lots at P2k/sq. m. This time, Ayala

ISSUE: Whether or not Paragraph 5.15 of the MOA is an option contract or right of first refusal.

HELD: No. The said paragraph is a mere right of first refusal. Although the paragraph has a definite
object, i.e., the sale of the 4 lots, the period within which they will be offered for sale to Vasquez 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 is bound to reserve the subject lots for Vasquez to exercise his 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.

Further, paragraph 5.15 was inserted into the MOA to give Vasquez the first crack to buy the subject lots
at the price which Ayala would be willing to accept when it offers the subject lots for sale. It is not
supported by an independent consideration.

14. Abella v Francisco

Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the
Tala Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of
October, 1928, he signed the following document: jgc: chan roble h

"MANILA, October 31, 1928

"Received from Mr. Julio C. Abella the amount of five hundred pesos (500), payment on account of lots Nos.
937, 938, 939, 940, 941, 942, 943, 944, and 945 of the Tala Estate, barrio of Novaliches, Caloocan, Rizal,
containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per hectare, the balance
being due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter. (Sgd.) G. B.
FRANCISCO — P500 — Phone 67125." cralaw virtua1aw li bra ry

After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to George C.
Sellner, collecting P10,000 on account thereof on December 29, 1928.

Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another
payment of P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th of
the same year, the defendant, being in the Province of Cebu, wrote to Roman Mabanta of this City of Manila,
attaching a power of attorney authorizing him to sign in behalf of the defendant all the documents required
by the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter the defendant instructed
Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform him
that the option would be considered cancelled, and to return to him the amount of P915.31 already
delivered. On January 3, 1929, Mabanta notified the plaintiff that he had received the power of attorney to
sign the deed of conveyance of the lots to him, and that he was willing go execute the proper deed of sale
upon payment of the balance due. The plaintiff asked for a few days’ time, but Mabanta, following the
instructions he had received from the defendant, only gave him until the 5th of that month. The plaintiff did
not pay the rest of the price on the 5th of January, but on the 9th of the month attempted to do so;
Mabanta, however, refused to accept it, and gave him to understand that he regarded the contract as
rescinded. On the same day, Mabanta returned by check the sum of P915.31 which the plaintiff had paid.

The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in question,
upon receipt of the balance of the price, and asks that he be judicially declared the owner of said lots and
that the defendant be ordered to deliver them to him.

The court below absolved the defendant from the complaint, and the plaintiff appealed.

In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of the
lots within the stipulated time; and that since the contract between plaintiff and defendant was an option for
the purchase of the lots, time was an essential element in it.

It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the date,
extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been
admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He contends that
Mabanta, as attorney-in-fact for the defendant in this transaction, granted him an extension of time until the
9th of January. But Mabanta has stated that he only extended the time until the 5th of that month.
Mabanta’s testimony on this point is corroborated by that of Paz Vicente and by the plaintiff’s own admission
to Narciso Javier that his option to purchase those lots expired on January 5, 1929.

In holding that the period was an essential element of the transaction between plaintiff and defendant, the
trial court considered that the contract in question was an option for the purchase that the contract in
question was an option for the purchase of the lots, and that in an agreement of this nature the period is
deemed essential. The opinion of the court is divided upon the question of whether the agreement was an
option or a sale, but even supposing it was a sale, the court holds that time was an essential element in the
transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain obligation
which fell due in the month of December, 1928. The time fixed for the payment of the price was therefore
essential for the defendant, and this view in borne out by his letter to his representative Mabanta instructing
him to consider the contract rescinded if the price was not completed in time. In accordance with article
1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to pay the price within the
time specified.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

15. Dela cruz v. Legazpi

Subsequent non-payment of the price at the time agreed upon did not convert the contract into one
without cause or consideration: a nudum pactum.

Plaintiff sued defendant Legaspi to compel delivery of the parcel of land sold to plaintiff. The complaint
alleged the defendant’s refusal to accept payment of the purchase price of P450 undue retention of the

The defendants alleged that before the document of sale was made, the plaintiff agreed to pay the
defendants the price right after the document is executed that very day but after the document was
signed and ratified by the Notary Public and after the plaintiff has taken the original of the said
document, the sad plaintiff refused to pay. They asserted that for lack of consideration and for deceit,
the document of said should be annulled.

Whether or not the contract of sale is void on the ground that it lacks consideration

No. It cannot be denied that when the document was signed the cause or consideration existed: P450.
The document specifically said so. Subsequent non-payment of the price at the time agreed upon did
not convert the contract into one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4
Phil. 650; Puato vs. Mendoza, 64 Phil, 457). The situation was rather one in which there is failure to pay
the consideration, with its resultant consequences. In other words, when after the notarization of the
contract, plaintiff failed to hand the money to defendants as he previously promised, there was default
on his part at most, and defendants’ right was to demand interest — legal interest —.

16. Villaruel vs Manila Motor

On May 31, 1940, the plaintiffs Villaruel anddefendant Manila Motor Co. Inc. entered into a contract
whereby the defendant agreed to lease plaintiffs buildingpremises.
On October 31, 1940, the leased premises were placed inthe possession of the defendant until the
invasion of 1941.The Japanese military occupied and used the propertyleased as part of their quarters
from June, 1942 to March,1945, in which no payment of rentals were made. Upon theliberation of the
said city, the American forces occupiedthe same buildings that were vacated by the Japanese.When the
United States gave up the occupancy of thepremises, defendant decided to exercise their option
torenew the contract, in which they agreed. However, beforeresuming the collection of rentals, Dr.
Alfredo Villaruelupon advice demanded payment of rentals correspondingto the time the Japanese
military occupied the leasedpremises, but the defendant refused to pay. As a resultplaintiff gave notice
seeking the rescission of the contractand the payment of rentals from June, 1942 to March,1945; this
was rejected by the defendant. Despite the factthe defendant under new branch manager paid to
plaintiffthe sum of P350 for the rent, the plaintiff still demandedfor rents in arrears and for the
rescission of the contract oflease. The plaintiff commenced an action before the CFC ofNeg. Occidental
against defendant company. During thependency of the case, the leased building was burneddown.
Because of the occurrence, plaintiffs demandedreimbursement from the defendants, but having
beenrefused, they filed a supplemental complaint to include a3rd cause of action, the recovery of the
value of the burnedbuilding. The trial court rendered judgment in favor of theplaintiff. Hence the
defendants appeal.

Is Manila Motor Co. Inc. liable for the loss of theleased premises?

No. Clearly, the lessor's insistence upon collectingthe occupation rentals for 1942-1945 was
unwarranted inlaw. Hence, their refusal to accept the current rentalswithout qualification placed them
in default (moracreditoris or accipiendi) with the result that thereafter,they had to bear all supervening
risks of accidental injuryor destruction of the leased premises. While not expresslydeclared by the Code
of 1889, this result is clearly inferablefrom the nature and effects of mora.In other words, the only effect
of the failure toconsign the rentals in court was that the obligation to paythem subsisted and the lessee
remained liable for theamount of the unpaid contract rent, corresponding to theperiod from July to
November, 1946; it being undisputedthat, from December 1946 up to March 2, 1948, when the
commercial buildings were burned, the defendantsappellantshave paid the contract rentals at the rate
ofP350 per month. But the failure to consign did noteradicate the default (mora) of the lessors nor the
risk ofloss that lay upon them.

17. Central Bank v. CA

The bank’s asking for advance interest for the loan is improper considering that the total loan hasn’t
been released. A person can’t be charged interest for nonexisting debt. The alleged discovery by the
bank of overvaluation of the loan collateral is not an issue. Since Island Savings Bank failed to
furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent.
Facts: Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for
the loan, executed on the same day a real estate mortgage over his 100-hectare land located
in Cubo, Las Nieves, Agusan. The loan called for a lump sum of P80,000, repayable in semi-
annual installments for 3 yrs, with 12% annual interest. After the agreement, a mere P17K
partial release of the loan was made by the bank and Tolentino and his wife signed a
promissory note for the P17,000 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.

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 from 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 with 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

Issues: 1) Whether or not Tolentino’s can collect from the bank for damages

2) Whether or not the mortgagor is liable to pay the amount covered by the promissory

3) Whether or not the real estate mortgage can be foreclosed


1) Whether or not Tolentino’s can collect from the bank for damages

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 bank’s 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 bank’s asking for advance interest for the loan is improper considering that the total loan
hasn’t been released. A person can’t 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 can’t 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) Whether or not the mortgagor is liable to pay the amount covered by the promissory note

The promissory note gave rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of
the Civil Code). If there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note
setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date
for him to perform his reciprocal obligation to pay. Since both parties were in default in the
performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable
for damages.

3) Whether or not the real estate mortgage can be foreclosed

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares
is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of
21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.

18. Woodhouse v Halili

On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili stating among others that: 1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the bottling and distribution of the
said beverages, and requested, in order that he may close the deal with him, that the right to
bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation. Pursuant to this request, plaintiff was given “a thirty days’ option
on exclusive bottling and distribution rights for the Philippines”. The contract was finally signed
by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendant’s consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved

1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission
2. WON false representation, if it existed, annuls the agreement to form the partnership

1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf
of the proposed partnership.” The existence of this provision in the final agreement does not
militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was
made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also
agreed upon that the franchise was to be transferred to the name of the partnership, and that,
upon its dissolution or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for
the partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of
an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the
share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of
the agreement to form a partnership was to be carried out at a later date. , The defendant may not
be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to
do it, as he pleases.

Dispostive Postion: With modification above indicated, the judgment appealed from is hereby

19. Geraldez

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

Issue: Whether or not the respondent company committed fraud in order for the petitioner to enter into
the contract.

Held: This fraud or dolo, which is present or employed at the time of birth or perfection of a contract,
may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are
those deceptions or misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those, which are not serious in character and without which the
other party would still have entered into the contract. Dolo causante determines or is the essential
cause of the consent, while dolo incidente refers only to some particular or accident of the obligations.
The effects of dolo causante are the nullity of the contract and the indemnification of damages, and dolo
incidente also obliges the person employing it to pay damages.

In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which
deceptions became patent in the light of after-events when, contrary to its representations, it employed
an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its
promise of a European tour manager and the visit to the leather factory, it is indubitably liable for
damages to petitioner.

20. Gutierrez

On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on a bridge. The truck was driven by the chauffeur Abelardo Velasco, and
was owned by saturnine Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18
years of age, and was owned by Bonifacio’s father and mother, Mr. and Mrs. Manuel Gutierrez. At the
time of the collision, the father was not in the car, but the mother, together with several other members
of the Gutierrez family were accommodated therein.

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

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

HELD: Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand, Saturnino Cortez’s
and his chauffeur Abelardo Velasco’s obligation rise from culpa contractual.

The youth Bonifacio was na incompetent chauffeur, that he was driving at an excessive rate of speed,
and that, on approaching the bridge and the truck, he lost his head and so contributed by his negligence
to the accident. The guaranty given by the father at the time the son was granted a license to operate
motor vehicles made the father responsible for the acts of his son. Based on these facts, pursuant to the
provisions of Art. 1903 of the Civil Code, the father alone and not the minor or the mother would be
liable for the damages caused by the minor.

The liability of Saturnino Cortez, the owner of the truck, and his chauffeur Abelardo Velasco rests on a
different basis, namely, that of contract.

21. Vasquez
 Borja (see saved page)

22. de

doctor who is in a cable car, standing in the rear platform was thrown away & got bruises when the train was
derailed off track and crashed a post. Witnesses claim that it was on a higher speed than normal but MER
claims fortuitous event claiming the presence of big stone which was the cause of derailment of train.
The relation between the parties was, therefore, of a contractual nature, and the duty of the carrier is
to be determined with reference to the principles of contract law, that is, 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.
Although in case like this the defendant must answer for the consequences of the negligence of its
employee, the court has the power to moderate liability according to the circumstances of the case (art. 1103,
Civ. Code): Furthermore, we think it obvious that an employer who has in fact displayed due diligence in
choosing and instructing his servants is entitled to be considered a debtor in good faith, within the meaning of
article 1107 of the same Code. Construing these two provisions together, applying them to the facts of this
case, it results that the defendant's liability is limited to such damages as might, at the time of the accident,
have been reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff
and which were in fact a necessary result of those injuries.
23. US

On November 2, 1911, defendant Segundo Barias, a motorman for the Manila Electric Railroad and Light
Company, was driving his car along Rizal Avenue and stopped at an intersection to take on some passengers.
He looked backward, presumably to be sure that all passengers were aboard, and then started the car. At that
moment, Fermina Jose, a 3-year old child, walked or ran in front of the car. She was knocked down and dragged
at some distance to death. Defendant knew nothing of this until his return, when he was informed of what
happened. He was charged and found guilty of homicide resulting from reckless negligence.


Whether the evidence shows such carelessness or want of ordinary care on the part of the defendant as to
amount to reckless negligence


Negligence is want of the care required by the circumstances. It is a relative or comparative, not an absolute,
term and its application depends upon the situation of the parties and the degree of care and vigilance which
the circumstances reasonably require. Where the danger is great, a high degree of care is necessary, and the
failure to observe it is a want of ordinary care under the circumstances.

The evidence shows that the thoroughfare on which the incident occurred was a public street in a densely
populated section of the city. The hour was six in the morning, or about the time when the residents of such
streets begin to move about. Under such conditions a motorman of an electric street car was clearly charged
with a high degree of diligence in the performance of his duties. He was bound to know and to recognize that
any negligence on his part in observing the track over which he was running his car might result in fatal
accidents. He had no right to assume that the track before his car was clear. It was his duty to satisfy himself
of that fact by keeping a sharp lookout, and to do everything in his power to avoid the danger which is
necessarily incident to the operation of heavy street cars on public thoroughfares in populous sections of the
city. At times, it might be highly proper and prudent for him to glance back before again setting his car in
motion, to satisfy himself that he understood correctly a signal to go forward or that all the passengers had
safely alighted or gotten on board. But we do insist that before setting his car again in motion, it was his duty
to satisfy himself that the track was clear, and, for that purpose, to look and to see the track just in front of his
car. This the defendant did not do, and the result of his negligence was the death of the child.

We hold that the reasons of public policy which impose upon street car companies and their employees the
duty of exercising the utmost degree of diligence in securing the safety of passengers, apply with equal force
to the duty of avoiding the infliction of injuries upon pedestrians and others on the public streets and
thoroughfares over which these companies are authorized to run their cars. And while, in a criminal case, the
courts will require proof of the guilt of the company or its employees beyond a reasonable doubt, nevertheless
the care or diligence required of the company and its employees is the same in both cases, and the only
question to be determined is whether the proofs shows beyond a reasonable doubt that the failure to exercise
such care or diligence was the cause of the accident, and that the defendant was guilty thereof.

Standing erect, at the position he would ordinarily assume while the car is in motion, the eye of the average
motorman might just miss seeing the top of the head of a child, about three years old, standing or walking
close up to the front of the car. But it is also very evident that by inclining the head and shoulders forward very
slightly, and glancing in front of the car, a person in the position of a motorman could not fail to see a child on
the track immediately in front of his car; and we hold that it is the manifest duty of a motorman, who is about
to start his car on a public thoroughfare in a thickly-settled district, to satisfy himself that the track is clear
immediately in front of his car, and to incline his body slightly forward, if that be necessary, in order to bring
the whole track within his line of vision. Of course, this may not be, and usually is not necessary when the car
is in motion, but we think that it is required by the dictates of the most ordinary prudence in starting from a

24. Sarmiento

Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find
somebody to reset a pair of diamond earrings into two gold rings. Accordingly, petitioner sent a certain Tita Payag
with the pair of earrings to Dingding’s Jewelry Shop, owned and managed by respondent 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, Tita Payag
delivered to the jewelry shop one of Dra. Lao’s diamond earrings which was earlier appraised as worth .33 carat and
almost perfect in cut and clarity. Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its
original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos 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.
Petitioner filed a complaint for damages on June 28, 1994.
private respondents vigorously denied any transaction between Dingdings’ Jewelry Shop and the petitioner, through
Tita Payag.


1. MTC: declared respondents liable.
2. RTC: absolving the respondents of any responsibility arising from breach of contract. while ostensibly admitting
the existence of the said agreement, private respondents, nonetheless denied assuming any obligation to dismount
the diamonds from their original settings.
3. CA: declared the private respondents not liable for damages.


- dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents
under the contract of service.
- agreement was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the
said diamonds from their original setting.

Whether respondents are liable

it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be
the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their
original settings. However, Santos employed a pair of pliers in clipping the original setting, thus resulting in
breakage of the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required by
the circumstances. It should be pointed out that Marilou examined the diamond before dismounting it from the
original setting and found the same to be in order. Its subsequent breakage in the hands of Santos could only have
been caused by his negligence in using the wrong equipment. Res ipsa loquitur. (the thing speaks for itself)
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, 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.23[23] 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.
Marilou and Zenon Santos were employed at Dingding’s Jewelry Shop in order to perform activities which were
usually necessary or desirable in its business.
Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount
of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner

25. Crisostomo

Estela L. Crisostomo contracted the services of Caravan Travel and Tours International,
Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed
"Jewels of Europe". The package tour cost her P74, 322.70. She was given a 5% discount
on the amount, which included airfare, and the booking fee was also waived because
petitioner’s niece, Meriam Menor, was former’s company’s ticketing manager.
Menor went to her aunt’s residence on a Wednesday to deliver petitioner’s travel documents and plane
tickets. Estela, in turn, gave Menor the full payment for the package tour. Menor then told her to be at the
Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British Airways.

Without checking her travel documents, Estela went to NAIA on Saturday, to take the flight for the first leg
of her journey from Manila to Hongkong. She discovered that the flight she was supposed to take had
already departed the previous day. She learned that her plane ticket was for the flight scheduled on June
14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon Estela to take another tour the "British Pageant”, which cost P20,
881.00. She gave caravan travel and tours P7, 980.00 as partial payment and commenced the trip in July

Upon petitioner’s return from Europe, she demanded from respondent the reimbursement of P61, 421.70,
representing the difference between the sum she paid for "Jewels of Europe" and the amount she owed
respondent for the "British Pageant" tour. Despite several demands, respondent company refused to
reimburse the amount, contending that the same was non-refundable.

Estela filed a complaint against Caravan travel and Tours for breach of contract of carriage and damages.
A) Will the action prosper?
B) Will she be entitled to damages?


No, for there was no contract of carriage.

By definition, a contract of carriage or transportation is one whereby a certain person or association of

persons obligate themselves to transport persons, things, or news from one place to another for a fixed

From the above definition, Caravan Travel and Tours is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier. Caravan
Travel and Tours did not undertake to transport Estela from one place to another since its covenant with its
customers is simply to make travel arrangements in their behalf. Caravan travel and tour’s services as a
travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers
for tours.

While Estela concededly bought her plane ticket through the efforts of respondent company, this does not
mean that the latter ipso facto is a common carrier. At most, Caravan Travel and Tours acted merely as an
agent of the airline, with whom the former ultimately contracted for her carriage to Europe.
B) No.

The negligence of the obligor in the performance of the obligation renders him liable for damages for the
resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise
due care and prudence in the performance of the obligation as the nature of the obligation so demands.

In the case at bar, Caravan Travel and Tours exercised due diligence in performing its obligations under
the contract and followed standard procedure in rendering its services to Estela. The plane ticket issued to
petitioner clearly reflected the departure date and time, contrary to Estela’s contention. The travel
documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to her two
days prior to the trip. The Caravan Travel and Tours also properly booked Estela for the tour, prepared the
necessary documents and procured the plane tickets. It arranged Estela’s hotel accommodation as well as
food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.

From the foregoing, it is clear that the Caravan Travel and Tours performed its prestation under the contract
as well as everything else that was essential to book Estela for the tour.
Hence, Estela cannot recover and must bear her own damage.

26. Chavez v Gonzales

FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired
and there was breach of contract by non-performance, it was academic for the plaintiff to have first
petitioned the court to fix a period for the performance of the contract before filing his complaint.

Where the defendant virtually admitted non-performance of the contract by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of the Civil Code
of the Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would serve
no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the
tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is
liable for the cost of the labor or service expended in the repair of the typewriter, which is in the amount of
P58.75, because the obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170
of the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received

PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of
the actual basis thereof must be proved. As no findings of fact were made on the claims for damages and
attorney’s fees, there is no factual basis upon which to make an award therefor.

QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the trial
court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its
findings of fact.

27. Telefast

1. The petitioner is a company engaged in transmitting telegrams. The plaintiffs
are the children and spouse of Consolacion Castro who died in the Philippines. One of
the plaintiffs, Sofia sent a telegram thru Telefast to her father and other siblings in the
USA to inform about the death of their mother. Unfortunately, the deceased had
already been interred but not one from the relatives abroad was able to pay their last
respects. Sofia found out upon her return in the US that the telegram was never
received. Hence the suit for damages on the ground of breach of contract. The
defendant-petitioner argues that it should only pay the actual amount paid to it.
2. The lower court ruled in favor of the plaintiffs and awarded compensatory,
moral, exemplary, damages to each of the plaintiffs with 6% interest p.a. plus
attorney’s fees. The Court of Appeals affirmed this ruling but modified and
eliminated the compensatory damages to Sofia and exemplary damages to each
plaintiff, it also reduced the moral damages for each. The petitioner appealed
contending that, 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, and that the moral
damages should be removed since defendant's negligent act was not motivated by
"fraud, malice or recklessness.
Issue: Whether or not the award of the moral, compensatory and exemplary damages is

RULING: Yes, there was a contract between the petitioner and private respondent Sofia C.
Crouch whereby, for a fee, petitioner undertook to send said private respondent's message
overseas by telegram. Petitioner failed to do this despite performance by said private
respondent of her obligation by paying the required charges. Petitioner was therefore guilty of
contravening its 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. 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

Award of Moral, compensatory and exemplary damages is proper.

The petitioner's act or omission, which amounted to gross negligence, was precisely the cause
of the suffering private respondents had to undergo. Art. 2217 of the Civil Code 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."

Then, the 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. 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 for each of the private
respondents, as a warning to all telegram companies to observe due diligence in transmitting
the messages of their customers.

28. Arrieta

Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a public bidding held by
the National Rice and Corn Corporation (NARIC). NARIC was looking for someone to supply
20,000 metric tons of Burmese Rice. Arrieta was the lowest bidder at $203.00 per metric ton
hence she won the bidding. So a contract was made whereby Arrieta is to deliver the rice
supply and NARIC is to pay for the imported rice “by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the Arrieta and/or supplier in Burma,
immediately.” Arrieta then proceeded to contact her supplier in Burma (Thiri Setkya) and
arranged the sale of the 20k metric ton of Burmese Rice, Arrieta promised Setkya that he will
be paid by NARIC on August 4, 1952. Arrieta also made a 5% deposit (P200k) as advance
payment to Setkya.
Meanwhile, NARIC tried to open a letter of credit ion the amount of $3,614,000.00 with the
Philippine National Bank. PNB agreed to open the letter of credit but only on the condition
that NARIC deposits 50% of the said amount. NARIC failed to do this and the letter of credit
was not opened when the obligation to pay Setkya became due. Because of this, Arrieta lost
the opportunity to profit from the sale as the agreement was eventually forfeited. Her 5%
depoit was likewise forfeited pursuant to Burma laws.
ISSUE: Whether or not Arrieta is entitled to damages.
HELD: Yes. It is clear upon the records that the sole and principal reason for the cancellation
of the allocation contracted by Arrieta in Rangoon, Burma, was the failure of the letter of credit
to be opened with the contemplated period. The letter of credit is in US currency. Normally,
parties can stipulate as to which currency shall be used in paying off an obligation provided
that the exchange rate prevailing at the time of judgment shall prevail over the rate of
exchange at the time of the breach. This rule however is of no application in the case at bar
due to the passage of Republic Act 529 which expressly declares such stipulations as
contrary to public policy, void and of no effect. If there is any agreement to pay an obligation
in a currency other than Philippine legal tender, the same is null and void as contrary to public
policy (Republic Act 529), and the most that could be demanded is to pay said obligation in
Philippine currency “to be measured in the prevailing rate of exchange at the time the
obligation was incurred.

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NOTE: This is a 1964 case. RA 529 has already been repealed by Republic Act 8183 which
provides that every monetary obligation must be paid in Philippine currency which is legal
tender in the Philippines. However, the parties may agree that the obligation or transaction
shall be settled in any other currency at the time of payment. (The Philippine Negotiable
Instruments Law, De Leon and De Leon Jr., p. 29)
29 Magat