Leano-Case Study-Module2-BAPS3APOLSCI120

Leano, Naoimi Jose Merl R.
MTH/3:30-5:30/POLSCI 120
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CASE DIGEST #1:
G.R. NO. 106063 (NOVEMBER 21, 1996)
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &BAUERMANN, INC., petitioners, vs. MAYFAIR
THEATER, INC., respondents.
FACTS:
Carmelo entered into a contract with respondent for the latter to lease A PORTION OF THE
SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of
1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 150 square meters.The contract is set for the next 20
years.
2 years later, the parties entered into yet another contract involving; A PORTION OF THE
SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of
1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 150 square meters.
Stipulated in the contract was; That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions
thereof.
Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is
contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same for
US$1,200,000. It also asked the respondent if it’s willing to the property for six to seven million pesos.
Respondent through Mr. Yang told the petitioner that it would respond once a decision was made.
Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would
decide to sell the property. Carmelo did not reply.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building,
which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.
Mayfair instituted the action a quo for specific performance and annulment of the sale of the
leased premises to Equatorial. Carmelo’s defense; as special and affirmative defense (a) that it had
informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the same to
Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was
Leano, Naoimi Jose Merl R. MTH/3:30-5:30/POLSCI 120
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impossible since the property was not a condominium; and (b) that the option to purchase invoked by
Mayfair is null and void for lack of consideration.
Equitorial’s allegation; that the option is void for lack of consideration (sic) and is unenforceable
by reason of its impossibility of performance because the leased premises could not be sold separately
from the other portions of the land and building. It counterclaimed for cancellation of the contracts of
lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the
currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect
of Mayfair's claims.
Trial Court rendered decision in favor of Carmelo and Equitorial.
ISSUE/S:
1. Whether or not the subject stipulation in the contracts is an option or a right of first refusal
2. Whether or not the sale is resistible, if the stipulation is a right of first refusal.
DECISION/S:
1. We agree with the respondent Court of Appeals that the aforecited contractual stipulation
provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option
contract. It is a contract of a right of first refusal. As such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
SC - an option contract is one necessarily involving the choice granted to another for a
distinct and separate consideration as to whether or not to purchase a determinate thing at a
predetermined fixed price.
2. YES. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is
first set aside or rescinded. Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. The records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.
*Accordingly, even as it recognizes the right of first refusal, this Court should also order that
Mayfair be authorized to exercise its right of first refusal under the contract to include the entirety
of the indivisible property. The boundaries of the property sold should be the boundaries of the
offer under the right of first refusal.
CASE DIGEST #2:
G.R. NO. 2724 (AUGUST 24, 1950)
JOSE DE LEON, CECILIO DE LEON, ALBINA DE LEON, in their individual capacity, and JOSE DE LEON and
CECILIO DE LEON, as administrators of the intestate estate of Felix de Leon, Petitioner, vs. ASUNCION
SORIANO, Respondent.
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FACTS:
Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners herein and defendants in the court
below, were natural children of Felix de Leon, deceased, while Asuncion Soriano, respondent herein and
plaintiff below, is his widow. In the administration and settlement of the decedent’s estate then pending
in the Court of First Instance, the said widow, on the one hand, and the natural children, on the other,
reached on March 23, 1943 an agreement, approved by the probate court, whereby the natural children
obligated themselves, among other things, as follows:
"2. At the end of each agricultural year, by which shall be understood for the purposes of this agreement
the month of March of every year, the following amounts of palay shall be given to the party of the
FIRST PART (Asuncion Soriano) by the parties of the SECOND PART (De Leons): in the month of March of
the current year 1943; one thousand two hundred (1,200) cavanes of palay (macan); in the month of
March of 1944, one thousand four hundred (1,400) cavanes of palay (macan); in the month of March
1945, one thousand five hundred (1,500) cavanes of palay (macan); and in the month of March of 1946
and every succeeding year thereafter, one thousand six hundred (1,600) cavanes of palay (macan).
Delivery of the palay shall be made in the warehouse required by the government, or if there be none
such, at the warehouse to be selected by the party of the FIRST PART, in San Miguel, Bulacan, free from
the cost of hauling, transportation, and from any and all taxes or charges.
"It is expressly stipulated that this annual payment of palay shall cease upon the death of the party of
the FIRST PART and shall not be transmissible to her heirs or to any other person, but during her lifetime
this obligation for the annual payment of the palay hereinabove mentioned shall constitute a first lien
upon all the rice lands of the estate of Dr. Felix de Leon in San Miguel, Bulacan."
The defendants made deliveries to the plaintiff of 1,200 cavanes of palay in 1934, 700 in 1944, 200 in
1945, and another 200 in 1946, a total of 2,300 cavanes which was 3,400 cavanes short of the 5,700
cavanes which should have been delivered up to and including 1946. They reasoned out that due to the
the Huk troubles in Central Luzon which rendered impossible full compliance with the terms of the
agreement;" and it was contended that "inasmuch as the obligations of the defendants to deliver the
full amount of the palay is depending upon the produce as this is in the nature of an annuity, . . . the
obligations of the defendants have been fully fulfilled by delivering in good faith all that could be
possible under the circumstances. It was to recover this shortage or its value that this action was
commenced.
ISSUE/S:
Whether or not the excuse as to why the petitioners failed to perform their obligation is valid.
DECISION/S:
No. Article 1182 of the Civil Code which was in force at the time agreement in question was
entered into, provide that "Any obligation which consists in the delivery of a determinate thing shall be
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extinguished if such thing should be lost or destroyed without fault on the part of the debtor and before
he is in default. Inversely, the obligation is not extinguished if the thing that perishes is indeterminate.
Manresa explains the distinction between determinate and generic thing in his comment on
article 1096 of the Civil Code of Spain, saying that the first is a concrete, particularized object, indicated
by its own individuality, while a generic thing is one of whose determination is confined to that of its
nature, to the genus (genero) to which it pertains, such as a horse, a chair.
Except as to quality and quantity, the first of which is itself generic, the contract sets no bounds
or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the
produce of any particular land. Any palay of the quality stipulated regardless of origin on however
acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the
obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause did
not excuse performance.
Where a person by a contract charges himself with an obligation possible to be performed, he

must perform it, unless its performance is rendered impossible by the act of God, by the law, or by the
other party, it being the rule that in case the party desires to be excused from performance in the event
of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is not
excused by subsequent" inability to perform, by unforseen difficulties, by unusual or unexpected
expenses, by danger, by inevitable accident, by the breaking of machinery, by strikes, by sickness, by
failure of a party to avail himself of the benefits to be had under the contract, by weather conditions, by
financial stringency, or by stagnation of business. Neither is performance excused by the fact that the
contract turns out to be hard and improvident, unprofitable or impracticable, ill advised, or even foolish,
or less profitable, or unexpectedly burdensome. (17 C. J. S. 946 - 948).
In the absence of a statute to the contrary, conditions arising from a state of war in which the
country is engaged, will not ordinarily constitute an excuse for non-performance of contract; and
impossibility of performance arising from the acts of the legislature and the executive branch of
government in war time does not, without more, constitute an excuse for non-performance. (17 C.J.S.,
953, 954.)
CASE DIGEST #3:
G.R. NO. 91029 (FEBRUARY 7, 1991)
NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS & ALBERTO NEPALES,
respondents.
FACTS:
On September 20, 1979, Norkis sold a specific motorcycle to Nepales for P7,500, payable via
Letter of Guaranty from the Development Bank of the Philippines (DBP). This was to be secured by a
chattel mortgage over the vehicle. Norkis then issued a Sales Invoice, signed by Nepales. The motorcycle
was also registered in Nepales’ name. The latter paid the fees evidence by official receipt. The
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registration was made to facilitate the execution of the chattel mortgage. On January 22, 1980, the
motorcycle was released to one Julian Nepales, an alleged agent of the buyer. On February 3, the
motorcycle was totally wrecked in an accident while driven by one Payba. On March 20, DBP released
the loan proceeds. Nepales paid Norkis out of the same and demanded delivery of the motorcycle.
Norkis failed. Thus, the buyer filed a complaint for specific performance with damages on ground of
non-delivery.
The RTC ruled in favor of the Nepales, ordering Norkis to pay Nepales the value of the
motorcycle or to deliver another motorcycle of the same brand, kind and quality. It also awarded
damages. The CA, affirmed with modification as to the award of damages. The Supreme Court affirmed.
ISSUE/S:
Whether or not there had already been a transfer of ownership of the motorcycle to private
respondent at the time it was destroyed.
DECISION/S:
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be
coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De
Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).
In other words, the critical factor in the different modes of effecting delivery, which gives legal
effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee.
Without that intention, there is no tradition (Abuan v. Garcia, 14 SCRA 759).
The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated
September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private
respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales the
ownership and dominion over the motorcycle, but only to comply with the requirements of the
Development Bank of the Philippines for processing private respondent’s motorcycle loan. On March 20,
1980, before private respondent’s loan was released and before he even paid Norkis, the motorcycle
had already figured in an accident while driven by one Zacarias Payba. Payba was not shown by Norkis
to be a representative or relative of Private Respondent. The latter’s supposed relative, who allegedly
took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on
February 3, 1980. Norkis’ claim that Julian Nepales was acting as Alberto’s agent when he allegedly took
delivery of the motorcycle (p. 20, Appellants’ Brief), is controverted by the latter. Alberto denied having
authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction
with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). These circumstances more than
amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales’
action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of
risk by the buyer, the things sold remain at seller’s risk until the ownership thereof is transferred to the
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buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing
sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and
possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of
res perit domino.
CASE DIGEST #4:
G.R. NO. 7756 (JULY 30, 1955)
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner, vs. CRISPIN JETURIAN, ET AL.,
respondents.
FACTS:
Respondents Crispin Jeturian and others, numbering about sixty, filed in 1951 a petition in the
Court of Industrial Relations against the respondent Philippine Long Distance Telephone Co. (case No.
639-V) claiming, as prewar employees of the said company, (1) monetary benefits allegedly due them
under a pension plan established on September 18, 1923, by the petitioner company's predecessor,
Philippine Telephone and Telegraph Co., later adopted by the Philippine Long Distance Telephone Co.,
and (2) salaries allegedly due them from January 1946.

ISSUE/S:
Whether or not the pre-war employees are entitled to the pension.
DECISION/S:
Yes. But with the exception of those who died or left before the outbreak of the war. The pension plan
was not a gratuity but an inducement for employees to continue indefinitely in service. The plan ripened
into a binding contract upon its implied acceptance of the employees. Acceptance is inferred from their
entering the employ of the company and staying after the plan was made known. PLDT argues that it
can only be held liable under the conditions expressly set in the pension plan. But the Court held that
the Company that violated the contract with its employees, by discontinuing the plan without their
consent, is not in the position to insist upon the terms of the very contract they have.
CASE DIGEST #5:
G.R. NO. 4440 (AUGUST 29, 1952)
BUNGE CORPORATION and UNIVERSAL COMMERCIAL AGENCIES, plaintiffs-appellants, vs. ELENA

CAMENFORTE and COMPANY, doing business or trading under the name and style of Visayan Products
Company, ET AL., defendants-appellants.
FACTS:
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Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract was entered into
between the Visayan Products Company and Bunge Corporation (represented by the Universal
Commercial Agencies) whereby the former sold to the latter 500 long tons of merchantable Philippine
copra in bulk at the prices of $188.80, U.S. currency, per ton, less 1 per cent brokerage per short ton of
2,000 pounds, C & F Pacific Coast, U.S.A.; that, according to the terms and conditions of the contract, the
vendor should ship the stipulated copra during the month of November or December 1947, to San
Francisco, California, U.S.A. for delivery to the vendee; that, notwithstanding repeated demands made
by the vendee, the vendor failed to ship and deliver the copra during the period agreed upon; that
believing in good faith that the vendor would ship and deliver the copra on time, the vendee sold to El
Dorado Oil Works the quantity of copra it had purchased at the same price agreed upon; and that
because of the failure of the vendor to fulfill its contract to ship and deliver the quantity of copra agreed
upon within the period stipulated, the vendee has suffered damages in the amount of of $188.80.
ISSUE/S:
Whether or not the appellants’ civil liability be extinguished due to force majeure.
DECISION/S:
No. A perusal of the contract is necessary to see the feasibility of this contention. The contract is
embodied in Exhibit C. A perusal of this contract shows that the subject matter is Philippine copra. The
sale is to be made by weight, — 500 long tons. It does not refer to any particular or specific lot of copra,
nor does it mention the place where the copra is to be acquired. No portion of the copra has been
earmarked or segregated. The vendor was at liberty to acquire the copra from any part of the
Philippines. The sale simply refers to 500 long tons of the Philippine copra. The subject-matter is,
therefore, generic, not specific.
Having this view in mind, it is apparent that the copra which appellants claim to have gathered
and stored in a bodega at San Ramon, Samar, sometime in December, 1947, in fulfillment of their
contract, and which they claim was later destroyed by storm, in the supposition that the claim is true,
cannot be deemed to be the one contemplated in the contract. It may be the one chosen by appellants
in the exercise of the discretion given to them under the contract, which they could exercise in a manner
suitable to their interest and convenience, but it cannot certainly be considered as the copra
contemplated by the parties in the contract. And this must be so because the copra contemplated in the
contract is generic and not specific.
It appearing that the obligation of appellant is to deliver copra in a generic sense, the obligation
cannot be deemed extinguised by the destruction or disappearance of the copra stored in San Ramon,
Samar. Their obligation subsists as long as that commodity is available. A generic obligation is not
extinguished by the loss of a thing belonging to a particular genus. Genus nunquan perit.
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CASE DIGEST #6:
G.R. NO. 44349 (OCTOBER 29, 1976)
JESUS V. OCCENA and EFIGENIA OCCENA, petitioners, vs. HON. RAMON V. JABSON, Presiding Judge of
the Court Of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and TROPICAL HOMES,
INC., respondents.
FACTS:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the
release of an obligor when the service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to modify or revise the subdivision
contract between the parties or fix a different sharing ratio from that contractually stipulated with the
force of law between the parties. Private respondent's complaint for modification of the contract
manifestly has no basis in law and must therefore be dismissed for failure to state a cause of action. On
February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the
terms and conditions of its subdivision contract with petitioners (landowners of a 55,330 square meter
parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant worldwide
spiraling of prices, which are not within the control of plaintiff, of all commodities including basis raw
materials required for such development work, the cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest contemplation of the parties at the time said
agreement was entered into and to such a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally changed; 'That further performance by the
plaintiff under the contract. That further performance by the plaintiff under the contract, Annex 'S', will
result in situation where defendants would be unjustly enriched at the expense of the plaintiff; will
cause an iniquitous distribution of proceeds from the sales of subdivided lots in manifest actually result
in the unjust and intolerable exposure of plaintiff to implacable losses, all such situations resulting in an
unconscionable, unjust and immoral situation contrary to and in violation of the primordial concepts of
good faith, fairness and equity which should pervade all human relations.
ISSUE/S:
Whether or not there is a sufficient cause for the Court to modify the contract.
DECISION/S:
No. If respondent's complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it had "become
so difficult as to be manifestly beyond the contemplation of the parties", then respondent court's
upholding of respondet's complaint and dismissal of the petition would be justifiable under the cited
codal article. Without said article, respondent would remain bound by its contract under the theretofore
prevailing doctrine that performance therewith is ot excused "by the fact that the contract turns out to
be hard and improvident, unprofitable, or unespectedly burdensome", 3 since in case a party desires to
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be excuse from performance in the event of such contingencies arising, it is his duty to provide threfor in
the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court
"render judgment I modifying the terms and Conditions of the Contract by fixing the proper shares that
should pertain to the herein parties out of the gross proceed., from the sales of subdivided lots of
subject subdivision". The cited article does not grant the courts this authority to remake, modify or
revise the contract or to fix the division of shares between the parties as contractually stipulated with
the force of law between the parties, so as to substitute its own terms for those covenanted by the
partiesthemselves. Respondent's complaint for modification of contract manifestly has no basis in law
and therefore states no cause of action. Under the particular allegations of respondent's complaint and
the circumstances therein averred, the courts cannot even in equity grant the relief sought.
CASE DIGEST #7:
G.R. NO. 55372 (MAY 31, 1989)
LETTY HAHN, petitioner, vs. COURT OF APPEALS, JOSIE M. SANTOS and FRANCISCO SANTOS,
respondents.
FACTS:
The basic facts as determined by the trial court 1 and affirmed by the respondent court 2 are no
longer in issue. It has been established that Santos received two diamond rings with a total value of
P47,000.00 in 1966 from the petitioner. She issued separate receipts therefor in which she
acknowledged that they had been delivered by Letty Hahn to her for sale on commission and that they
would be returned upon demand if unsold. 3 The rings were not sold nor were they returned when
demanded by Hahn.
Hahn sued for recovery of the rings or their value. While the civil case was pending, she also
filed a criminal action for estafa against Santos. Santos was acquitted on reasonable doubt. 4 In the civil
action, however, where she also pleaded that the contracts between her and Hahn were not of agency
but of sale, Santos did not fare as well.
The trial court ordered her to return the two rings or pay the plaintiff their value, which was
increased to P65,000.00, with legal interest, plus P10,000 moral damages, P5,000 exemplary damages,
and P6,000.00 attorney's fees. 5 The increase on the original value of the rings was based on Article 1250
of the Civil Code calling for an adjustment of the payment due in case of extraordinary inflation or
deflation. The moral and exemplary damages were imposed because of the defendant's "seeming lack of
scruples and conscientiousness."
ISSUE/S:
1. Whether or not the respondent erred in not allowing the upward adjustment of the original
price of the two rings.
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2. Whether or not the respondent erred in disallowing the moral and exemplary damages
granted by the trial court.
DECISION/S:
1. No. In this regard, Article 1250 of the Civil Code provides —
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of the obligation should be the basis of payment,
unless there is an agreement to the contrary.
By extraordinary inflation or deflation of currency is understood to be any uncommon decrease

or increase in the purchasing power of currency which the parties could not have reasonably foreseen
and which has been due to war and the effects thereof, or any unusual force majeure or fortuitous
event. (Civil Code of the Philippines, Dean Capistrano, Vol. III, p. 186.)
Under the circumstances, we do not find any legal justification in applying the so-called 'floating
rate," since there has been no 'extraordinary inflation" of currency within the meaning of the
aforequoted Art. 1250 of the Civil Code.
The Court holds that, in determining the accountability of the private respondent, the trial judge should
have applied the following provisions of the Civil Code, as the respondent court apparently did:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
The Court notes, however, that the respondent court should also have imposed interest on the interest
due on the principal amount of P47,000.00, conformably to Article 2212. The interest due started to
earn interest from the date it was judicially demanded with the filing of the complaint on January
6,1967.
2. Yes. We hold that the moral and exemplary damages should be restored in light of her
dubious conduct as recounted in the petitioner's brief and the following findings of the trial
court which we have no reason to disturb:
The Court cannot but take note of the relative ease with which i Josie M. Santos says
one thing at one given time and another altogether i n subsequently afterwards, even if
the statements different version are both under the sanction of an oath. This seeming
lack of scruples and conscientiousness on her part do not place her in a favorable light
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under the painstaking scrutiny of the Court. There is so much deviousness and
complexity in her testimony that does not invite the confidence of the Court.
CASE DIGEST #8:
G.R. NO. 27454 (APRIL 30, 1970)
ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO GONZALES, defendant-appellee.
FACTS:
On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a typewriter
repairman for the cleaning and servicing of the said typewriter but the latter was not able to finish the
job. During October 1963, the plaintiff gave the amount of P6.00 to the defendant which the latter asked
from the plaintiff for the purchase of spare parts, because of the delay of the repair the plaintiff decided
to recover the typewriter to the defendant which he wrapped it like a package. When the plaintiff
reached their home he opened it and examined that some parts and screws was lost. That on October
29, 1963 the plaintiff sent a letter to the defendant for the return of the missing parts, the interior cover
and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the
missing parts, the interior cover and the P6.00. The plaintiff brought his typewriter to Freixas Business
Machines and the repair cost the amount of P89.85. He commenced this action on August 23, 1965 in
the City Court of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as
attorney’s fees. The defendant made no denials of the facts narrated above, except the claim of the
plaintiff that the cost of the repair made by Freixas Business Machines be fully chargeable against him.
ISSUE/S:
Whether or not the defendant is liable for the total cost of the repair made by Freixas Business
Machines with the plaintiff typewriter?
DECISION/S:
No, he is not liable for the total cost of the repair made by Freixas Business Machines instead he
is only liable for the cost of the missing parts and screws. The defendant contravened the tenor of his
obligation in repairing the typewriter of the plaintiff that he fails to repair it and returned it with the
missing parts, he is liable under “ART. 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore it may be decreed that what has been poorly done he undone.”
CASE DIGEST #9:

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G.R. NO. 4811 (JULY 31, 1953)
CHARLES F. WOODHOUSE, plaintiff-appellee, vs. FORTUNATO F. HALILI, defendant-appellant.
FACTS:
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 damages.
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
ISSUE/S:
1. Whether or not the plaintiff represent to defendant that he had an exclusive franchise.
2. Whether or not fraud would vitiate the contract.
3. Whether or not the plaintiff is entitled to receive payment for damages.
DECISION/S:
ABPS3-A
1. YES. We conclude from all the foregoing that plaintiff did actually represent to defendant that
he was the holder of the exclusive franchise. The defendant was made to believe, and he
actually believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have
gone to California and incurred expenses for the trip, unless he believed that plaintiff did have
that exclusive privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive
franchise, as he induced him to that belief, and he may not be allowed to deny that defendant
was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
2. It must be noted that fraud is manifested in illimitable number of degrees or gradations, from
the innocent praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In consequence, article
1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the incidental deceit, which only renders
the party who employs it liable for damages. This Court had held that in order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo causante),
inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31
Phil. 160.) The record abounds with circumstances indicative that 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. Correction
appears in this same original draft, but the change is made not as to the said obligation but as to
the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership."
The contract in its final form retains the substituted term "partnership." The defendant was,
therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be
secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise,
or the option thereto, at the time the contract was perfected. But while he had already lost his
option thereto (when the contract was entered into), the principal obligation that he assumed
or undertook was to secure said franchise for the partnership, as the bottler and distributor for
the Mission Dry Corporation. We declare, therefore, that if he 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.
3. Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered
and the profits reasonably expected to be received, embraced in the terms daño
emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per
cent of the net profits of the business. Against this amount of damages, we must set off the
damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high
percentage of share in the profits. We can do no better than follow the appraisal that the parties
themselves had adopted.
ABPS3-A
CASE DIGEST #10:
G.R. NO. 10394 (DECEMBER 13, 1958)
CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees, vs. MANILA MOTOR CO., INC. and
ARTURO COLMENARES, defendants-appellants.
FACTS:
Plaintiffs Villaruel and Defendant Manila Motors Co. entered into a contract in which the
plaintiff agreed to lease to defendant a 500sqm space of a building for automobile showroom, office,
and storage. Another building for a repairshop and a 5 bedroom residence for the Bacolod branch
manager.
The term of lease was for 5 years (and renewable for another 5 years) starting from the time
that the building was to be delivered to the lessee. Manila Motor company then agreed to pay Plaintiifs
300 pesos as monthly rental payable on the 5th of each month and 50 pesos for the residential house.
The premises were in their possession on October 31, 1940. This continued until 1941 after which the
property was held by the Japanese forces until March 29, 1945. No payment was made during those
time.
The American forces later occupied the same and rentals were paid by the occupants at the
same rate that the defendant paid plaintiffs. When the American forces left the premises, the branch
manager decided to extend the lease for another 5 years and they agreed that the 7 month occupancy
of the US forces would not be counted as part of the new 5 year lease, the residential part would be
used to Arturo Colmanares.
Before resuming the collection of the rentals, Dr. Viallruel with the advice of Atty Hilado,
demanded payment for the period occupied by the Japanese forces. Defendant refused to pay and
Plaintiff gave a notice for recession of the contract of lease and payment of the rentals from June 1,
1942 to March 31, 1941 (P11,900) which was also rejected by the Defendant in a letter dated July 27,
1946
On the same month, Rafael Frey offered to pay the Paintiff P350 for the full month of July.
Plaintiff accepted the payment provided that it was without prejudice to their previous demand and
increased rentals until the bldgs. Are returned to them. Dr. Villaruel indicated his willingness to limit the
condition of his acceptance to be that "neither the lessee nor the lessors admit the contention of the
other by the mere fact of payment". As no accord could still be reached between the parties as to the
context of the receipt, no payment was thereafter tendered until the end of November, 1946.
The plaintiff commenced an action before the CFC of Neg. Occidental against Defendant
Company. During the pendency of the case, the leased building was burned down. Because of the
occurrence, plaintiffs demanded reimbursement from the defendants, but having been refused, they
filed a supplemental complaint to include a 3rd cause of action, the recovery of the value of the burned
building. The trial court rendered judgment in favor of the plaintiff. Hence the defendants appeal.
ABPS3-A
ISSUE/S:
Whether or not Manila Motors Co. is liable for the loss of the leased premises.
DECISION/S:
No. Clearly, the lessor's insistence upon collecting the occupation rentals for 1942-1945 was
unwarranted in law. Hence, their refusal to accept the current rentals without qualification placed them
in default (mora creditoris or accipiendi) with the result that thereafter, they had to bear all supervening
risks of accidental injury or destruction of the leased premises. While not expressly declared by the Code
of 1889, this result is clearly inferable from the nature and effects of mora. In other words, the only
effect of the failure to consign the rentals in court was that the obligation to pay them subsisted and the
lessee remained liable for the amount of the unpaid contract rent, corresponding to the period from July
to November, 1946; it being undisputed that, from December 1946 up to March 2, 1948, when the
commercial buildings were burned, the defendants appellants have paid the contract rentals at the rate
of P350 per month. But the failure to consign did not eradicate the default (mora) of the lessors nor the
risk of loss that lay upon them.
The pertinent articles of the Civil Code of Spain of 1889 provide:
ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter of the contract;
2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable
condition for the purpose for which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the
contract.
ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use
of the leased property; but the lessee shall have a direct action against the trespasser.
It the third person, be it the Government or a private individual, has acted in reliance upon a right, such
action shall not be deemed a mere act of disturbance.
CASE DIGEST #11:
G.R. NO. 2827 (OCTOBER 3, 1907)
MARIA LOPEZ Y VILLANUEVA, plaintiff-appellant, vs. TAN TIOCO, defendant-appellee.
FACTS:
Maria Lopez, the plaintiff, alleges that she entered into a verbal contract which the defendant to
deliver to him certain sugar, which he obligated himself to store in Iloilo until he received instructions
from her to sell, whereupon he was to credit her account with its market value in Iloilo on the day upon
ABPS3-A
which such instructions were communicated to him; that in accordance with the terms of the agreement
she delivered to the defendant 7,713.99 piculs of sugar; that she gave instructions to sell on the 29th of
September, 1904; that on the 29th day of September, 1904, the market value of the sugar she thus
delivered was as follows: 1,085.13 piculs of No. 1, at 5.35 pesos, Mexican currency; 1,741.56 piculs of
No. 2, at 5.12 pesos, Mexican currency; 4,823.67 piculs of No. 3. at 4.87 pesos, Mexican currency; 16.23
piculs of la clase humeda, at 3.37 at 3 pesos, Mexican currency; and 47.40 piculs of coriente, at 3 pesos,
Mexican currency; that had the sugar been sold on the 1st of December, 1904, the date on which the
complaint was filed, it would have brought a still higher price, and that crediting her with the market
value of the sugar on the 1st day of December, 1904, the balance due on account would be 22,638.94
pesos, Mexican currency.
The defendant, Tan Tioco, admits the truth of the foregoing, allegations, but insists that he
received authority to sell the sugar on the 26th of March, 1904, when the market price in Iloilo was
much lower than on the 29th of September, 1904, or the 1st of December, 1904, and that crediting the
plaintiff with the market value of the sugar as of the 26th of March, 1904, the balance due the plaintiff
would amount to but 1,082.95 pesos, Mexican currency, which he admits he is indebted to her in
accordance with the terms of their agreement.
The trial court was of opinion that the evidence sustained the contention of the defendant, and
gave judgment in favor of the plaintiff for 1,082.95 which the defendant admitted to be due on account.
From this judgment the plaintiff appeals and prays that the judgment of the trial court be served and
that judgment be rendered in her favor for the balance due, after crediting the plaintiff with the market
value of the sugar of the day of the filing of the complaint.
ISSUE/S:
Whether or not the sugar in question should be credited, at its market value on the day when
the complaint was filed, and not when it was sold.
DECISION/S:
This contention is not well founded. Article 1100 of the Civil Code, in which counsel appears to
rely, prescribes that:
Person obliged to deliver or to do something are in default from the moment when the creditor
demands the fulfillment of their obligation, judicially or extrajudicially.
Under the terms of the contract, when is the basis of the plaintiff's cause of action, her account was to
be credited with the market value of the sugar on the day when the authority to sell was first
communicated to the defendant. Neither the law for the contract imposed the obligation upon the
plaintiff to make judicial rather than extrajudicial demand for the sale of the sugar. She did, in fact, make
an extrajudicial demand, and it is the defendant's default in complying with this demand which entitles
her to relief in this action.
ABPS3-A
The market value of the 7,713.99 piculs of sugar in question on the 29th day of September,
1904, estimated upon the basis alleged in the complaint and proven at the trial, was 38,470.43 pesos,
Mexican currency, and this, together with the sum of 12,000 pesos, Mexican currency, on the credit side
of the plaintiff's account, which is not in controversy, amount to 50,470.43 pesos, Mexican currency;
deducting therefrom 41,757.90 pesos, Mexican currency; the amount of the advances made by the
defendant to the plaintiff, the balance in favor of the plaintiff and for which judgment should be given
amounts to 8,712.53 pesos, Mexican currency.
CASE DIGEST #12:
G.R. NO. 22359 (NOVEMBER 28, 1924)
JULIO DE LA ROSA, plaintiff-appellant, vs. THE BANK OF THE PHILIPPINE ISLANDS, defendant-
appellant.
FACTS:
This action was instituted on June 11, 1923, by means of a complaint on the ground that the
defendant bank started a contest of designs and plans for the construction of a building, announcing
that the prizes would be awarded not later that on November 30, 1921; that the plaintiff took part in
said contest, having performed work and incurred expenses for that purpose; that said bank refrained
from naming judges and awarding the prizes in accordance with the conditions stipulated. The plaintiff
prays that judgment be rendered in his favor for the sum of P30,000 as damages, with interest and the
costs.
The defendant bank answered denying the facts contained in the second and following
paragraphs of the complaint.
After the trial, the court rendered judgment ordering the defendant bank to pay the plaintiff an
indemnity of P4,000 and the costs.
ISSUE/S:
Whether or not the defendant bank was in default in not awarding the prizes on November, 30,
1921.
DECISION/S:
We do not find sufficient reason for considering that the date set for the reward of the prizes
was the principal inducement to the creation of the obligation. And, taking into consideration the
criterion that must be followed in order to judge whether or not the time for the performance of the
obligation is the principal inducement in a given case, we hold that it was not in the instant case.
The distinguished Manresa explains the matter in the following terms:

ABPS3-A
These words ("principal inducement" in paragraph 2 of article 1100 of the Civil Code) whose
special meaning in connection with this article and the circumstances of each obligation does not permit
of their being confused with the permanent general idea, and the distinct clearness of consideration of
contracts, may give rise to serious doubts by reason of the breadth of expression, and must be judged in
each particular case, it being impossible to give a general rule to explain them. It will for instance, be
unquestionable that the hypothesis implied in this exception is affected when the matter, for instance, is
the delivery of things of the rendition of services to be employed in agricultural work, and the time of
said work has been designated as the date for the fulfillment of the obligation; it will also exist when, for
instance, fruits or any objects are to be delivered which might be used by the creditor in industrial
operations having a determinate period for carrying them out and designated for their delivery; and,
finally, it will also assist whenever, as in these cases, it appears that the obligation would not have been
created for a date other than that fixed.
The defendant bank cannot be held to have been in default through the mere lapse of time. For
this judicial or extrajudicial demand was necessary for the performance of the obligation, and it was not
alleged here, nor does it appear that before bringing this action the plaintiff had ever demanded it from
the defendant bank in any manner whatsoever. The defendant bank, therefore, was not in default.
CASE DIGEST #13:
G.R. NO. 14977 (MARCH 30, 1920)
NICOLAS LIZARES, Plaintiff-Appellant, v. ROSENDO HERNAEZ, Defendant-Appellant, and ENRICA

ALUNAN VIUDA DE LIZARES, defendant in cross-complaint-appellant.
FACTS:
The plaintiff, Nicolas Lizares, and the defendant, Rosendo Hernaez, entered into a contract,
whereby the former became the lessee of the two haciendas Panaogao and Matagoy No. 2. Among the
improvements existing upon the hacienda Panaogao, and which the plaintiff was entitled to use, was a
large iron-roofed camarin, containing furnaces, boilers, mills, engines, and other apparatus for the
manufacture of sugar. At about 7 p. m., on March 16, 1918, a fire of unknown origin occurred at this
sugar mill, which destroyed the camarin and greatly damaged the sugar-milling apparatus. Upon the
actual occasion of the fire in question the plaintiff was absent on business in the city of Iloilo, having left
Amando Ereñeta in charge of the hacienda. The latter had left the camarin at about 5 pm on the date
referred to; and when the fire occurred, he was at the corral where the carabaos were kept, a short
distance away from the camarin. Instead of hastening to the fire at once, after the alarm was given, he
remained a little while in the corral in order to get the animals into a place of safety. Felipe Beldua,
apparently next in authority to Amando Ereñeta, and who was engaged in the sugar-boiling department,
had left the camarin at about 4 pm in order to get something to eat. As he was returning to the camarin,
and while yet a short distance away, he discerned the flames rising from a pile of bagasse at the north
side of the camarin. He was the first person to see the fire and at once gave alarm. It should be noted
that the fire did not originate in that part of the bagasse which was lying in closest proximity to the
ABPS3-A
stoking-stands but a little distance away where it was unnoticed by the stokers. When Felipe Beldua left
the camarin, two of his assistants remained on duty, and the evidence shows that other employees,
such as the stokers, machine-cleaners, and sugar boilers, were busy at work. The stoker Lucas Bendado
was on duty at the cabcacan immediately in front of the opening of the furnaces at the time the fire
occurred. Amando Ereneta, who was first in charge of the camarin at the time, was employed by the
plaintiff to look after the animals, and his duties were not such as to require him to be continually inside
the camarin. Soon after the fire the plaintiff informed the defendant of the calamity and made demand
upon him for the reconstruction of the camarin. The defendant refused to recognize the existence of
any obligation on his part to reconstruct the camarin, insisting that the plaintiff, being the lessee, and
not himself, as lessor, was responsible for the fire and answerable for the damage occasioned thereby.
These antagonistic views presently culminated in the litigation now before us. A case was filed by the
lessee to rescind the contract and to recover a sum of money as damages by reason of the failure of the
defendant to comply with certain obligations incumbent upon him under the contract. The trial court
rescinded the contract, found the lessor liable for damages, and found the lessee indebted for rent. The
trial court found that the fire which destroyed the camarin was of unknown and accidental origin and
that no fault or negligence was attributable to the plaintiff in regard either to the conditions antecedent
to the fire or the manner in which the flames were resisted. He was, therefore, of the opinion that the
loss caused by the fire was due to casus fortuitus, for the consequences of which no one was
responsible.
ISSUE/S:
1. Whether or not a loss of a thing under lease which could not have been prevented should be
borne by the lessee.
2. Whether or not the loss of a thing deposited which could not have been prevented should be
borne by depositary.
DECISION/S:
No. It must be admitted that when a loss of the leased property occurs, there is a presumption
against the lessee, which makes him responsible, in the absence of proof that the loss happened
without his fault. But the question whether there has been fault on his part must be determined in
relation with other provisions of the Civil Code as well as in the light of the general principles of
jurisprudence. Under article 1561 of the Civil Code the lessee of lands is not responsible for a loss
resulting from inevitable cause; and in article 1106 the general rule is declared that, in the absence of
express provision to the contrary, no one is liable for events which cannot be foreseen or which, if
foreseen, are inevitable. As applied to the case before us we are of the opinion that when the trial court
found that reasonable precautions had been taken by the lessee to prevent fires, but that nevertheless
fire did occur, of inscrutable origin, which destroyed, the camarin in spite of all that could be done to
prevent it, this is equivalent to a finding that the lessee was without fault and that the loss was in fact
due to an inevitable cause. In other words the presumpting against the lessee is overcome by proving
that the usual and proper care was used to protect the leased property from fire. Upon principle the
responsibility of the lessee for the property leased is substantially the same as that of a person who has
ABPS3-A
possession of movable property belonging to another, as in the case of bailment. It is a well known fact
in legal history that the doctrines of English law applicable to the bailment of chattels are in great part
identical with those developed by the civil law of Rome, of which indeed the English doctrines may be
considered mere emanations. In bailment ordinary care and diligence are required of the bailee and he
is not liable for the inevitable loss or destruction of the chattel, not attributable to his fault. If while the
bailment continues, the chattel is destroyed, or stolen, or perishes, without negligence on the bailee's
part, the loss, as in other hirings, falls upon the owner, in accordance with the maxim res perit domino.
Upon this point the civil and common law are agreed; and we find nothing to the contrary in the Spanish
Civil Code. Article 1183 declares that when a thing is lost while in the possession of the debtor it shall be
presumed that the loss occurred by his fault and not by fortuitous event in the absence of proof to the
contrary. But where it is found, and the fact is indisputable, this is equivalent to a finding that the fire
was not attributable to the fault of the defendant and negatives every idea of negligence on its part with
reference to the origin of the fire. This was casus fortuitus such as to exempt the defendant from
liability. Article 1183 must be construed in relation with the next preceding article (1182), which says
that the obligation to deliver a thing is extinguished when the thing is destroyed without the fault of the
debtor. We now pass to the consideration of a special clause found in the contract of lease (paragraph 4,
[b] ), declaring that the lessee shall be obliged, upon his own account and risk, to make all repairs upon
the improvements existing on the haciendas which were the subject of the lease, and to bear the
expense of the same without right to reimbursement. The obligation fixed upon the lessee by the special
provision of the contract is also limited to repairs (composiciones). From an examination of the two
provisions it is evident that the two different Spanish words used in the sense of repairs (reparaciones,
composiciones) are exactly equivalent; and it is seen that the obligation imposed by the code on the
lessor is transferred by the contract to the lessee. In both cases, however, the obligation is limited to the
making of repairs, which is a very different thing from reconstruction in case of total loss. The Spanish
terms "reparaciones" and "composiciones," like the English word "repairs" in its ordinary acceptation,
must be understood to apply to the restoration of things after injury or partial destruction, without
complete loss of identity in the thing repaired. (34 Cyc., 1336, 1337.) In subsection (d) of paragraph 4 of
the contract it is declared to be the duty of the lessee to maintain the improvements on the haciendas in
good condition and to deliver them in the same state to the lessor upon the termination of the lease.
This is merely a statement of the obligation imposed by law generally upon all lessees; and the duty thus
defined is to be understood as subject to the limitations and exceptions recognized by law. There is
nothing in this provision which deprives the lessee of the defense arising from the destruction of the
property without his fault. It results in our opinion that there was no positive duty on the part of either
the lessor or lessee to reconstruct the camarin after it had been totally destroyed by fire; neither can
therefore be held liable to the other for any damages which may supposedly have resulted from the
failure to reconstruct. The judgment of the trial court must therefore be modified by eliminating the
item of P1,736.01, which was awarded to the plaintiff as damages for the failure of the defendant to
promptly reconstruct the camarin.
ABPS3-A
CASE DIGEST #14:
G.R. NO. 3885 (DECEMBER 17, 1951)
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. LEE TAY and LEE CHAY, INC., defendant-
appellant.
FACTS:
 That the plaintiff, The Bachrach Motor Co., Inc., is a domestic corporation, organized and
existing in accordance with the laws of the Philippines, with its principal office and place of
business in the City of Manila, Philippines, and that the capital stock of the same is owned
and held by Filipino and American citizens;
 That the defendant, Lee Tay and Lee Chay, Inc., is likewise a domestic corporation organized
and exiting in accordance with the laws of the Philippines, with its principal office and place
of business in the City of Manila, Philippines, and that the capital stock of the same is owned
and held by Chinese nationals;
 That on October 11, 1941, in the City of Manila, Philippines, the defendant duly made,
executed and delivered to the plaintiff a promissory note in the sum of P3,472, payable in
monthly installments, the first installment being payable on November 11, 1941, and the
last installment on February 12, 1943; that a true and correct copy of said promissory note is
attached to this stipulation as Appendix "A" and made an integral part hereof; that said
promissory note represented the unpaid balance of one White chassis, Model 704-R, Serial
No. 217787, Motor No. 13713, purchased by the defendant from the plaintiff; that there is
now due and owing from the defendant in favor of the plaintiff on the said promissory note,
as of October 6, 1948, the sum of P2,861.24, plus interest thereon at the stipulated rate of
12 per cent per annum, from said date until paid, and plus attorney's fees which the parties
hereto have stipulated to be in the amount equivalent to 25 per cent of the amount due, or
in the amount of P715.31;
 That shortly after the outbreak of the war on December 8, 1941, the same truck was among
the other trucks of the defendant that were commandeered by the USAFFE;
 That neither the plaintiff nor the defendant has filed office claim for the said truck to the
United States Government, and have not received any compensation for the same from the
United States Government;lawphil.net
 That the defendant has not filed any claim for war damage and as a consequence does not
except to receive any war damage payment from the United States War Damage
Commission.
ISSUE/S:
1. Whether or not the plaintiff is entitled to payment of interests during the period of Japanese
occupation, that is to say, from January 2, 1942 up to February 3, 1945;
ABPS3-A
2. Whether or not the commandeering of the truck referred to in paragraphs 3 and 4 above,
exempts the defendant from the payment of the obligation represented by the promissory
note, Appendix "A".
DECISION/S:
1. There is no principle of law by virtue of which the obligation was extinguished during the
Japanese occupation. However, the appellant claims that at least the accrual of the interest
was stopped; that is, the indebtedness did not bear interest during the Japanese occupation.
This question is purely academic, for as seen from paragraph 3 of the agreed statement of
facts, the plaintiff appellee was generous enough to demand interest only from October 6,
1948, very much after the termination of the Japanese occupation.
2. As to the theory that the seizure of the truck by the (USAFFE) relieved the appellant from
paying the balance of its value to the plaintiff, it is enough to say that in the first place, the
truck became the property of the appellant when it was delivered to him by the appellee,
and consequently, the appellant should suffer the loss; and, in the second place, the
appellant could have filed a claim with the United States Government and he would have
been paid. His negligent omission cannot be imputed to the appellee. The appellant says
that it should have been the appellee who should have filed the claim; the appellee could
not have done so, because it was no longer the owner of the vehicle.
CASE DIGEST #15:
G.R. NO. 21263 (APRIL 30, 1965)
LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee, vs. PERFECTO A. TABORA,

defendant-appellant.
FACTS:
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative Publishing Company
one complete set of American Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one
set of American Jurisprudence, General Index, consisting of 4 volumes, for a total price of P1,675.50
which, in addition to the cost of freight of P6.90, makes a total of P1,682.40. Tabora made a partial
payment of P300.00, leaving a balance of P1,382.40. The books were duly delivered and receipted for by
Tabora on May 15, 1955 in his law office Ignacio Building, Naga City.
In the midnight of the same date, however, a big fire broke out in that locality which destroyed
and burned all the buildings standing on one whole block including at the law office and library of
Tabora As a result, the books bought from the company as above stated, together with Tabora's
important documents and papers, were burned during the conflagration. This unfortunate event was
immediately reported by Tabora to the company in a letter he sent on May 20, 1955. On May 23, the
company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of
the Philippine Reports. As Tabora failed to pay he monthly installments agreed upon on the balance of
ABPS3-A
the purchase price notwithstanding the long time that had elapsed, the company demanded payment of
the installments due, and having failed, to pay the same, it commenced the present action before the
Court of First Instance of Manila for the recovery of the balance of the obligation. Plaintiff also prayed
that defendant be ordered to pay 25% of the amount due as liquidated damages, and the cost of action.
ISSUE/S:
Whether or not the appellant’s contention is tenable.
DECISION/S:
This contention cannot be sustained. While as a rule the loss of the object of the contract of sale
is borne by the owner or in case of force majeure the one under obligation to deliver the object is
exempt from liability, the application of that rule does not here obtain because the law on the contract
entered into on the matter argues against it. It is true that in the contract entered into between the
parties the seller agreed that the ownership of the books shall remain with it until the purchase price
shall have been fully paid, but such stipulation cannot make the seller liable in case of loss not only
because such was agreed merely to secure the performance by the buyer of his obligation but in the
very contract it was expressly agreed that the "loss or damage to the books after delivery to the buyer
shall be borne by the buyer." Any such stipulation is sanctioned by Article 1504 of our Civil Code, which
in part provides:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery.
Neither can appellant find comfort in the claim that since the books were destroyed by fire
without any fault on his part he should be relieved from the resultant obligation under the rule that an
obligor should be held exempt from liability when the loss occurs thru a fortuitous event. This is because
this rule only holds true when the obligation consists in the delivery of a determinate thing and there is
no stipulation holding him liable even in case of fortuitous event. Here these qualifications are not
present. The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor
bound himself to assume the loss after the delivery of the goods to him. In other words, the obligor
agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to
the rule provided for in Article 1262 of our Civil Code.
CASE DIGEST #16:
G.R. NO. 124922 (JUNE 22, 1998)
JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING, petitioner,
vs.
COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION, respondents.
ABPS3-A
FACTS:
Jimmy Co entrusted his 1998 model of a Nissan pick-up car to Broadway Motor Sales
Corporation for repair services. He was due to retrieve his vehicle on July 21, 1990. However, due to
some technical difficulties such as a weak battery, the pick-up date was rescheduled to July 24, 1990.
When Jimmy Co returned on the rescheduled date, he was unable to retrieve his vehicle as it was
carnapped earlier that morning while being tested out on the road. Jimmy Co filed a suit for damages
against Broadway Motor Sales Corporation who, in retort, claimed the defense of the carnapping as a
fortuitous event. The Regional Trial Court ruled in favor of Jimmy Co. The Court of Appeals reversed the
RTC decision and subscribed to the defendant Broadway Motor Sales Corporation’s defense.
ISSUE/S:
Whether or not a repair shop can be held liable for the loss of a customer’s vehicle while the
same is in its custody for repair or other job services.
DECISION/S:
YES. It is not defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se
cannot be considered a fortuitous event. The fact that a thing was unlawfully and forcefully taken from
another’s rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous
event. To be considered as such, carnapping entails more than the mere forceful taking of another’s
property. It must be proved and established that the event was an act of God or was done solely by third
parties and that neither the claimant nor the person alleged to be negligent has any participation.
In accordance with the Rules of Evidence,, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it – which in this case is the private respondent. However,
other than the police report of the alleged carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not due to its fault. A police report of an alleged
crime, to which only privates respondent is privy, does not suffice to establish the carnapping. Neither
does it prove that there was no fault on the part of private respondent notwithstanding the parties’
agreement that the car was carnapped. Carnapping does nor foreclose the possibility of fault or
negligence on the part of private respondent.
CASE DIGEST #17:
G.R. No. 108129 (SEPTEMBER 23, 1999)
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,

vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.
FACTS:
ABPS3-A
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/S:
Whether or not the 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.
DECISION/S:
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.
CASE DIGEST #18:
G.R. No. 73867 (February 29, 1988)

ABPS3-A
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner, vs. IGNACIO CASTRO, SR., SOFIA

C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO
CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA
CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT, respondents.
FACTS:
Sofia, one of the plaintiffs, 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.
The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary
damages to each of the plaintiffs with 6% interest per annum 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 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/S:
Whether or not the award of the moral, compensatory and exemplary damages is proper.
DECIAION/S:
Yes, award of moral, compensatory and exemplary damages is proper.
Art. 1170 of the Civil Code provides that “those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.” Art. 2176 also provides that “whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done.”
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 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 her testimony. The award of exemplary damages by the trial court is likewise justified for each of
ABPS3-A
the private respondents, as a warning to all telegram companies to observe due diligence in transmitting
the messages of their customers.
CASE DIGEST #19:
G.R. No. 117190 (January 2, 1997)
JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL
MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE HERCE JR., respondents.
FACTS:
 In April 1987, Tanguilig of JMT Engineering and General Merchandising proposed to construct a
windmill system for Herce, Jr. They agreed on the construction of the windmill for P60,000.00
with a one-year guaranty from the date of completion and acceptance by Herce of the project.
 Herce paid PHP 30k as down payment and PHP 15k as installment, leaving a balance of PHP 15k.
 In March 1988, Tanguilig filed a complaint to collect PHP 15k due to Herce’s refusal and failure
to pay the balance.
 Herce contends that the PHP 15k was already paid to San Pedro General Merchandising Inc.
(SPGMI) which constructed a deep well to which the windmill system was to be connected. He
claimed that since the deep well formed part of the system, Tanguilig should credit the amount
to Herce’s account. Moreover, assuming that Herce owed Tanguilig, this should be offset by
defects in the windmill system which caused the structure to collapse after it was hit by strong
wind.
 Tanguilig replied that the deep well was not included in the agreement, for the P60k was solely
for the windmill assembly and its installation. He disowned any obligation to repair or
reconstruct the system, claiming that the windmill system was delivered in good and working
condition, and that Herce accepted it without protest. Besides, since the collapse was
attributable to a typhoon, a force majeure, he believed he is relieved from liability.
 The trial court ruled that the deep well was not part of the windmill project as evidenced by the
proposal letters of Tanguilig to Herce. It said that if such was the intention of the parties, it
should have been included. With respect to the repair of the windmill, there was no clear and
convincing proof that it fell down due to defect of construction.
 The CA reversed the trial court’s ruling, saying that the construction of the deep well was part of
the windmill system. Credence was given to the testimony of Guillermo Pili of SPGMI that
Tanguilig told him that the deep well construction cost would be deducted from the contract
price of P60k. It also rejected Tanguilig’s claim of force majeure. Thus, it ordered Tanguilig to
reconstruct the windmill in accordance with the stipulated one-year guaranty.
ISSUE/S:
Whether or not Tanguilig is under obligation to reconstruct the collapsed windmill.
DECISION/S:
ABPS3-A
YES. In order for a party to claim exemption from liability by reason of fortuitous event, the
event should be the sole and proximate cause of the loss or destruction of the object of the contract.
According to Nakpil vs. CA, four requisites must concur: 1) the cause of the breach must be
independent of the will of the debtor; 2) the event must be unforeseeable or unavoidable; 3) the event
must such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and 4) the
debtor must be free from any participation in or aggravation of the injury to the creditor.
Tanguilig failed to show that the collapse of the windmill was due solely to a fortuitous event.
The evidence does not disclose that there was actually a typhoon on the day the windmill collapsed.
Tanguilig merely stated that there was a "strong wind." But a strong wind in this case cannot be
fortuitous – unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places
where windmills are constructed; otherwise the windmills will not turn.
Tanguilig’s argument that Herce was already in default and hence should bear his own loss is
untenable. When the windmill failed to function properly it became incumbent upon Tanguilig to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus, Herce cannot
be said to have incurred delay. Instead, it is Tanguilig who should bear the expenses for the
reconstruction of the windmill. A1167 of the Civil Code is explicit that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
CASE DIGEST #20:
G.R. No. 107737 October 1, 1999
JUAN L. PEREZ, LUIS KEH, CHARLIE LEE and ROSENDO G. TANSINSIN, JR., petitioners,
vs.
COURT OF APPEALS, LUIS CRISOSTOMO and VICENTE ASUNCION, respondents.
FACTS:
Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and Vicente Asuncion,
petitioner Juan Perez is a usufructuary of a parcel of land popularly called the "Papaya Fishpond."
Covered by Transfer Certificate of Title No. 8498 of the Registry of Deeds for the Province of Bulacan,
the fishpond is located in Sto. Rosario, Hagonoy, Bulacan and has an area of around 110 hectares.
On June 5, 1975, the usufructuaries entered into a contract leasing the fishpond to Luis Keh for a period
of five (5) years and renewable for another five (5) years by agreement of the parties, under the
condition that for the first five-year period the annual rental would be P150,000.00 and for the next five
years, P175,000.00. Paragraph 5 of the lease contract states that the lessee "cannot sublease" the
fishpond "nor assign his rights to anyone."
Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman engaged
in the operation of fishponds. On September 20, 1977, while he was at his fishpond in Almazar,
Hermosa, Bataan, his bosom friend named Ming Cosim arrived with petitioner Charlie Lee. The two
ABPS3-A
persuaded private respondent to take over the operation of "Papaya Fishpond" as petitioner Lee and his
partner, petitioner Luis Keh, were allegedly losing money in its operation.
Private respondent having acceded to the proposal, sometime in December of that year, he and
petitioners Lee and Keh executed a written agreement denominated as "pakiao buwis" whereby private
respondent would take possession of the "Papaya Fishpond" from January 6, 1978 to June 6, 1978 in
consideration of the amount of P128,000.00 broken down as follows: P75,000.00 as rental, P50,000.00
for the value of milkfish in the fishpond and P3,000 for labor expenses. Private respondent paid the
P75,000.00 to petitioner Keh at the house of petitioner Lee in Sta. Cruz, Hagonoy, Bulacan in the
presence of Lee's wife, brother-in-law and other persons. He paid the balance to petitioner Lee
sometime in February or March 1978 because he was uncertain as to the right of petitioners Keh and
Lee to transfer possession over the fishpond to him. Private respondent made that payment only after
he had received a copy of a written agreement dated January 9, 1978 whereby petitioner Keh ceded,
conveyed and transferred all his "rights and interests" over the fishpond to petitioner Lee, "up to June
1985." From private respondent's point of view, that document assured him of continuous possession of
the property for as long as he paid the agreed rentals of P150,000.00 until 1980 and P.175,000.00 until
1985.
ISSUE/S:
Whether or not private respondent may be considered a sublessee or a transferee of the lease
entitled to possess the fishpond under the circumstances of the case.
DECISION/S:
In this case, the lifting of the restraining order paved the way for the possession of the fishpond
on the part of petitioners and/or their representatives pending the resolution of the main action for
injunction. In other words, the main issue of whether or not private respondent may be considered a
sublessee or a transferee of the lease entitled to possess the fishpond under the circumstances of the
case had yet to be resolved when the restraining order was lifted.
Art. 1168 of the Civil Code provides that when an obligation "consists in not doing and the
obligor does what has been forbidden him, it shall also be undone at his expense." The lease contract
prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into the agreement
for pakiao-buwis with private respondent, not to mention the apparent artifice that was his written
agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly what was prohibited of him
under the contract — to sublease the fishpond to a third party.
That the agreement for pakiao-buwis was actually a sublease is borne out by the fact that
private respondent paid petitioners Luis Keh and Juan Perez, through petitioner Tansinsin the amount of
annual rental agreed upon in the lease contract between the usufructuaries and petitioner Keh.
Petitioner Keh led private respondent to unwittingly incur expenses to improve the operation of the
fishpond. By operation of law, therefore, petitioner Keh shall be liable to private respondent for the
ABPS3-A
value of the improvements he had made in the fishpond or for P486,562.65 with interest of six percent
(6%) per annum from the rendition of the decision of the trial court on September 6, 1989.
CASE DIGEST #21:
G.R. NO. 18805 (AUGUST 14, 1967)
THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE

PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and
LEONOR MOLL, defendants-appellees.
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization on avowedly for the protection, preservation and development of the
coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5]
to grant that corporation the express power to buy and sell copra. The charter amendment was enacted
to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut
down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens. General
manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were
members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO,
after the passage of Republic Act 5, embarked on copra trading activities.
An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered
into. Nature supervened. Four devastating typhoons visited the Philippines in 1947. When it became
clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was
not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on
that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of
the impending heavy losses. No action was first taken on the contracts but not long thereafter, that is,
on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They
unanimously approved the contracts hereinbefore enumerated.
As was to be expected, NACOCO but partially performed the contracts. The buyers threatened
damage suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in
fact sue before the Court of First Instance of Manila. The cases culminated in an out-of- court amicable
settlement when the Kalaw management was already out.
With particular reference to the Dreyfus claims, NACOCO put up the defenses that:
(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do
business here;
ABPS3-A
(2) failure to deliver was due to force majeure, the typhoons. All the settlements sum up to
P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52
from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia
and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article
2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of
trust for having approved the contracts. By Executive Order 372, dated November 24, 1950, NACOCO,
together with other government-owned corporations, was abolished, and the Board of Liquidators was
entrusted with the function of settling and closing its affairs.
ISSUE/S:
1. Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit
since the three year period has elapsed, the Board of Liquidators may not now continue with,
and prosecute, the present case to its conclusion.
2. Whether the action is unenforceable against Kalaw.
3. Whether the case at bar is to be taken out of the general concept of the powers of a general
manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval
of NACOCO contracts.
DECISION/S:
1. No, the provision should be read not as an isolated provision but in conjunction with the whole.
So reading, it will be readily observed that no time limit has been tacked to the existence of the
Board of Liquidators and its function of closing the affairs of the various government owned
corporations, including NACOCO.
The President thought it best to do away with the boards of directors of the defunct corporations; at
the same time, however, the President had chosen to see to it that the Board of Liquidators step
into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the
Board of Liquidators.
3 methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "such disposition of its assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts of the corporation;
2. Corporate existence is terminated - "shall nevertheless be continued as a body corporate for

three years after the time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose
of and convey its property and to divide its capital stock, but not for the purpose of continuing the
business for which it was established;"
3. corporation, within the three year period just mentioned, "is authorized and empowered to
convey all of its property to trustees for the benefit of members, stockholders, creditors, and others
ABPS3-A
interested. Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a
corporation ends its existence so that there must be statutory authority for prolongation of its
life even for purposes of pending litigation Board of Liquidators escapes from the operation thereof
for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the
expiration of the period of three (3) years for the settlement of its affairs is what impelled the
President to create a Board of Liquidators, to continue the management of such matters as may
then be pending." The Board of Liquidators thus became the trustee on behalf of the government. It
was an express trust. The legal interest became vested in the trustee — the Board of Liquidators.
The beneficial interest remained with the sole stockholder — the government. At no time had the
government withdrawn the property, or the authority to continue the present suit, from the Board
of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from
prosecuting this case to its final conclusion. The provisions of Section 78 of the Corporation Law —
the third method of winding up corporate affairs — find application.
2. Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.
Claims that are barred if not filed in the estate settlement proceedings(Rule 87, sec. 5)
> actions that are abated by death are:
(1) claims for funeral expenses and those for the last sickness of the decedent;
(2) judgments for money; and
(3) "all claims for money against the decedent, arising from contract express or implied."
It is not enough that the claim against the deceased party be for money, but it must arise from "contract
express or implied"
Actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1)
> 1. actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the
death of the latter.
Actions that survive against a decedent's executors or administrators, and they are:
(1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon;
and
(3) actions to recover damages for an injury to person or property.
3. The movement of the market requires that sales agreements be entered into, even though the goods
are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the
practice of the trade. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts
then had to be executed on short notice — at times within twenty-four hours. To be appreciated then is
the difficulty of calling a formal meeting of the board. So pleased was NACOCO's board of directors that,
on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the
signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis
within a few months after assuming office, despite numerous handicaps and difficulties."
ABPS3-A
These previous contract it should be stressed, were signed by Kalaw without prior authority from the
board. Existence of such authority is established, by proof of the course of business, the usage and
practices of the company and by the knowledge which the board of directors has, or must
be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation.
If the by-laws were to be literally followed, the board should give its stamp of prior approval on all
corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the
by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid
corporate acts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru
some motive or interest or ill will; it partakes of the nature of fraud. Applying this precept to the given
facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious
doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of
the nature of fraud."
4. No. This is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There
cannot be an actionable wrong if either one or the other is wanting. Of course, Kalaw could not have
been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons.
And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off
losses. That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would
seem to be supported by the fact that even as the contracts were being questioned in Congress and in
the NACOCO board itself, President Roxas defended the actuations of Kalaw. It is a well known rule of
law that questions of policy of management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to substitute its judgment for the judgment
of the board of directors; the board is the business manager of the corporation, and so long as it acts in
good faith its orders are not reviewable by the courts."
CASE DIGEST #22:
G.R. NO. 141968 (FEBRUARY 1, 2001)
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.
FACTS:
The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989 Model.
The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7,
1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of
Replevin"1 before the Metropolitan Trial Court of Pasay City, Branch 45.2 On August 25, 1995, Dr.
Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a
meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President demanded payment of
the amount of P184,000.00 which represents the unpaid balance for the car loan. After some
ABPS3-A
negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the
non-payment of the reduced amount on that date, the car was detained inside the bank's compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support,
Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further
reduction of the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00 but the
car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the
Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering
that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is
standard operating procedure in their bank to effect a compromise and to preclude future filing of
claims, counterclaims or suits for damages.
After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch
33. The Metropolitan Trial Court dismissed the complaint for lack of merit.3
On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the
Metropolitan Trial Court was reversed.
ISSUE/S:
1. Whether or not the Court of Appeals erred in holding that there was no agreement with
respect to the execution of the joint motion to dismiss as a condition for the compromise
agreement.
2. Whether or not the Court of Appeals erred in granting moral and exemplary damages and
attorney’s fees in favor of the respondents.
3. Whether or not the court of appeals erred in holding that the petitioner return the subject
car to the respondents, without making any provision for the issuance of the new
manager's/cashier's check by the respondents in favor of the petitioner in lieu of the original
cashier's check that already became stale.
DECISION/S:
1. No. As to the first issue, we find for the respondents. The issue as to what constitutes the
terms of the oral compromise or any subsequent novation is a question of fact that was
resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is
well settled that the findings of fact of the lower court, especially when affirmed by the
Court of Appeals, are binding upon this Court. While there are exceptions to this rule, the
present case does not fall under anyone of them, the petitioner's claim to the contrary,
notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to
prove his claim that the oral compromise entered into by the parties on August 28, 1995
included the stipulation that the parties would jointly file a motion to dismiss. This petitioner
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failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the
petitioner and thereby dismissing the complaint, did not make a factual finding that the
compromise agreement included the condition of the signing of a joint motion to dismiss.
2. We disagree.
Fraud has been defined as the deliberate intention to cause damage or prejudice. It is
the voluntary execution of a wrongful act, or a willful omission, knowing and intending the
effects which naturally and necessarily arise from such act or omission; the fraud referred to
in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal
fulfillment of obligation.11 We fail to see how the act of the petitioner bank in requiring the
respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner
may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is
a standard operating procedure of petitioner bank. However, this can not in anyway have
prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as
the case filed by petitioner against it before the lower court would be dismissed with
prejudice. The whole point of the parties entering into the compromise agreement was in
order that Dr. Gueco would pay his outstanding account and in return petitioner would
return the car and drop the case for money and replevin before the Metropolitan Trial
Court. The joint motion to dismiss was but a natural consequence of the compromise
agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the
dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to
dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the
compromise agreement of the parties. It should, likewise, be noted that in cases of breach
of contract, moral damages may only be awarded when the breach was attended by fraud
or bad faith.12 The law presumes good faith. Dr. Gueco failed to present an iota of evidence
to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr.
Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to
settle the case. If respondent did suffer any damage, as a result of the withholding of his car
by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages
must faint. In no way, may the conduct of petitioner be characterized as "wanton,
fraudulent, reckless, oppressive or malevolent."
3. In the case at bar, however, the check involved is not an ordinary bill of exchange but a
manager's check. A manager's check is one drawn by the bank's manager upon the bank
itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check
of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by
the cashier of a bank upon the bank itself, and accepted in advance by the act of its
issuance. It is really the bank's own check and may be treated as a promissory note with the
bank as a maker. The check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance of it is considered
an acceptance thereof. If treated as promissory note, the drawer would be the maker and in
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which case the holder need not prove presentment for payment or present the bill to the
drawee for acceptance.
Even assuming that presentment is needed, failure to present for payment within a
reasonable time will result to the discharge of the drawer only to the extent of the loss caused
by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the
legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this
case, the Gueco spouses have not alleged, much less shown that they or the bank which issued
the manager's check has suffered damage or loss caused by the delay or non-presentment.
Definitely, the original obligation to pay certainly has not been erased.
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined. In the case at bar, there is no
doubt that the petitioner bank held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the Bank.
CASE DIGEST 23:
G.R. No. L-10605 (June 30, 1958)
PRECILLANO NECESITO, ETC., plaintiff-appellant,

vs.
NATIVIDAD PARAS, ET AL., defendants-appellees.
G.R. No. L-10606 (June 30, 1958)
GERMAN NECESITO, ET AL., plaintiffs-appellants,

vs.
NATIVIDAD PARAS, ET AL., defendants-appellees.
FACTS:
These cases involve ex contractu against the owners and operators of the common carrier
known as Philippine Rabbit Bus Lines, filed by one passenger, and the heirs of another, who injured as a
result of the fall into a river of the vehicle in which they were riding.
In the morning of January 28, 1964, Severina Garces and her one-year old son, Precillano
Necesito, carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus
Lines at Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its
regular run from Agno to Manila. After passing Mangatarem, Pangasinan truck No. 199 entered a
wooden bridge, but the front wheels swerved to the right; the driver lost control, and after wrecking the
bridge's wooden rails, the truck fell on its right side into a creek where water was breast deep. The
mother, Severina Garces, was drowned; the son, Precillano Necesito, was injured, suffering abrasions
and fracture of the left femur. He was brought to the Provincial Hospital at Dagupan, where the fracture
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was set but with fragments one centimeter out of line. The money, wrist watch and cargo of vegetables
were lost.
ISSUE/S:
1. Whether or not carrier is liable for damages caused by mechanical defect?

2. Whether or not the carrier has exercised the required extraordinary diligence in handling the
passengers.
DECISION/S:
1. Yes. A carrier is liable to its passengers caused by mechanical defects of the conveyance. The carrier,
while it is not an insurer of the safety of the passengers, should nevertheless be held to answer for the
flaws of its equipment if such flaws were at all discoverable. In this connection, the manufacturer will
not relieve the carrier from liability. The rationale of the carrier’s liability is the fact that the passenger
has no privity with the manufacturer of the defective equipment; hence, he has no remedy against him,
while the carrier usually has.
2. No. The liability of the carrier depends on its negligence, his failure to exercise the “utmost” degree of
diligence that the law requires, and by Art. 1756, in case of a passenger’s death or injury the carrier
bears the burden of satisfying the court that he has duly discharged the duty of prudence required. In
this case, the monthly visual inspection of the steering knuckle by the carrier did not measure up to the
required legal standard of “utmost diligence of very cautious person.
DOCTRINE: Mechanical defects are not force majeure if the same were discoverable by regular and
adequate inspections. The prevailing rule in this jurisdiction is that the carrier is liable to its passengers
for damages caused by mechanical defects of the conveyance. For the purposes of this doctrine, the
manufacturer is considered the agent of the carrier.
CASE DIGEST #24:
G.R. NO. 15645 (JANUARY 31, 1964)
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN
CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-
appellee.
FACTS:
May 19, 1952,plaintif participated in the public bidding called by the NARIC for the supply of
20,000 Metric tons of Burmese rice, as her bid of $203.00 per metric tons was the lowest, she was
awarded with the contract. On July 1, 1952, Paz P. Arrieta and the appellant corporation entered into a
contract of a sale of rice, under the terms which the former obligated to deliver to the latter 20,000
metric tons of Burmese Rice at $203.00 per metric tons. The defendants committed itself to pay for the
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imported rice by means of irrevocable, confirmed and assignable letter of credit in U.S. currency in
favor of plaintiff.
ISSUE/S:
1. Whether or not the appellant’s failure to open immediately the letter of credit dispute
amounted to a breach of contract.
DECISION/S:
The lower court decision dated Feb 20, 1958 is awarding to the plaintiff-appellees the amount of
$ 286,000 as damages for breach of contract and dismissing the counterclaim and third party complaint
of the defendant-appelant NARIC.
The court of appeals granted the award of the lower court to be fair and equitable and the
appealed decision is affirmed, with a sole modification that the award should be converted into
Philippine peso at the rate of exchange prevailing at the time of obligation was incurred when the
contract was executed. The appellee insurance company, in light of this judgment, is relieved of any
liability under this suit. No pronouncement as to cost.
CASE DIGEST #25:
G.R.NO. 118971 (SEPTEMBER 15, 1999)
RODOLFO R. VASQUEZ, petitioner, vs. COURT OF APPEALS, THE REGIONAL TRIAL COURT OF MANILA
BRANCH 40, and THE PEOPLE OF THE PHILIPPINES, respondents.
FACTS:
Petitioner Rodolfo R. Vasquez is a resident of the Tondo Foreshore Area. Sometime in April
1986, he and some 37 families from the area went to see then National Housing Authority (NHA)
General Manager Lito Atienza regarding their complaint against their Barangay Chairman, Jaime
Olmedo, a public official. After their meeting with Atienza and other NHA officials, petitioner and his
companions were met and interviewed by newspaper reporters at the NHA compound concerning their
complaint. The next day, April 22, 1986, the following exerpts of the news article appeared in the
newspaper Ang Tinig ng Masa. In the article, pulished were supposed allegations by Vasquez that (1)
“nakipagsabwatan umano si Chairman Jaime Olmedo upang makamkam ang may 14 na lote ng lupa”; (2)
ang mga lupa ay ilegal na patituluhan, nagawa ito ni Olmedo sa pakikipagsabwatan sa mga project
manager at legal officers ng NHA; (3) kasangkot din umano si Olmedo sa mga ilegal na pasugalan sa
naturang lugar at maging sa mga nakawan ng manok. x x x” Based on the newspaper article, Olmedo
filed a complaint for libel against petitioner alleging that the latter’s statements cast aspersions on him
and damaged his reputation.
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On May 28, 1992, the trial court rendered judgment finding petitioner guilty of libel and
sentencing him to pay a fine of P1,000.00. On appeal, the Court of Appeals affirmed in toto. Hence, this
petition for review.
ISSUE/S:
Whether or not the petitioner is guilty of libel.
DECISION/S:
The standard of actual malice in New York Times versus Sullivan is to be applied in criminal
prosecutions for libel.
For that matter, even if the defamatory statement is false, no liability can attach if it relates to
official conduct, unless the public official concerned proves that the statement was made with actual
malice — that is, with knowledge that it was false or with reckless disregard of whether it was false or
not.
In this case, the prosecution failed to prove not only that the charges made by petitioner were
false but also that petitioner made them with knowledge of their falsity or with reckless disregard of
whether they were false or not.
A rule placing on the accused the burden of showing the truth of allegations of official
misconduct and/or good motives and justifiable ends for making such allegations would not only be
contrary to Art. 361 of the Revised Penal Code. It would, above all, infringe on the constitutionally
guaranteed freedom of expression.
Libel was used as a form of harassment:
Instead of the claim that petitioner was politically motivated in making the charges against
complainant, it would appear that complainant filed this case to harass petitioner.
It is curious that the ones most obviously responsible for the publication of the allegedly
offensive news report, namely, the editorial staff and the periodical itself, were not at all impleaded. The
charge was leveled against the petitioner and, "curiouser" still, his clients who have nothing to do with
the editorial policies of the newspaper.
CASE DIGEST #26:
G.R. NO. L-47851 (OCTOBER 3, 1986)
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, vs. THE COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION, respondents.
G.R. NO. L-47863 (OCTOBER 3, 1986)

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THE UNITED CONSTRUCTION CO., INC., petitioner, vs. COURT OF APPEALS, ET AL., respondents.
G.R. NO. L-47896 (OCTOBER 3, 1986)
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, vs. COURT OF APPEALS, ET AL., respondents.
FACTS:
Private respondents – Philippine Bar Association (PBA) – a non-profit organization formed under
the corporation law decided to put up a building in Intramuros, Manila. Hired to plan the specifications
of the building were Juan Nakpil & Sons, while United Construction was hired to construct it. The
proposal was approved by the Board of Directors and signed by the President, Ramon Ozaeta. The
building was completed in 1966.
In 1968, there was an unusually strong earthquake which caused the building heavy damage,
which led the building to tilt forward, leading the tenants to vacate the premises. United Construction
took remedial measures to sustain the building.
PBA filed a suit for damages against United Construction, but United Construction subsequently
filed a suit against Nakpil and Sons, alleging defects in the plans and specifications.
Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner. PBA
moved for the demolition of the building, but was opposed. PBA eventually paid for the demolition after
the building suffered more damages in 1970 due to previous earthquakes. The Commissioner found that
there were deviations in the specifications and plans, as well as defects in the construction of the
building.
ISSUE/S:
Whether or not an act of God (fortuitous event) exempts from liability parties who would
otherwise be due to negligence.
DECISION/S:
No, they are not exempted from liability. There is no dispute that the earthquake is a fortuitous
event or an act of god. But, if upon the happening of a fortuitous event or an act of God, here concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the
obligation, which results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby HUMANIZED, as it were, and
removed from the rules applicable to the acts of God.
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United was found to have made substantial deviations from the plans and specifications and to
have failed to observe the requisite workmanship in the construction as well as to exercise the requisite
degree of supervision. And the Nakpins were found to have inadequacies or defects in the plans and
specifications prepared by them. The deviations made by United caused indirectly the damage sustained
and that those deviations not only added but also aggravated the damage caused by the defects made
by the Nakpins.
Thus, one who negligently creates a dangerous condition cannot escape liability for the natural
and probably consequences thereof, although the act of a third person, or an act of God for which he is
not responsible, intervenes to precipitate the loss. The destruction was not purely an act of God. Truth
to tell hundreds of ancient buildings in the vicinity was hardly affected by the earthquake. Only one
thing spells out the fatal difference; gross negligence and evident bad faith, without which the damage
would not have occurred.
CASE DIGEST #27:
G.R. NO. 29640 (JUNE 10, 1971)
GUILLERMO AUSTRIA, petitioner, vs. THE COURT OF APPEALS (Second Division), PACIFICO ABAD and
MARIA G. ABAD, respondents.
FACTS:
On January 30, 1961, Maria G. Abad acknowledged that she received from Guillermo Austria one
(1) pendant with diamonds to be sold on a commission basis or to be returned on demand. However, on
February 1, 1961, while walking home to her residence, Abad was said to have been accosted by two
men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash,
and ran away.
Since Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria
brought in the Court of First Instance of Manila an action against her and her husband for recovery of
the pendant or of its value, and damages. On their answer, the defendant spouses set up the defense
that the alleged robbery had extinguished their obligation.
The trial court rendered judgment in favor for the plaintiff which is Austria. It held that
defendant failed to prove the fact of robbery, or, if indeed it was committed, the defendant was guilty of
negligence. The defendants appealed to the Court of Appeals and secured a reversal of judgment. It
declared respondents not responsible for the loss of the jewelry on account of fortuitous event, and
relieved them from liability for damages to the owner. Hence, this case contending that for robbery to
fall under the category of fortuitous event and relieve the obligor form his obligation under a contract,
there ought to be prior judgment on the guilt of the persons responsible therefor.
ISSUE/S:
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Whether in a contract of agency (consignment of goods for sale) it is necessary that there be
prior conviction for robbery before the loss of the article shall exempt the consignee from liability for
such loss.
DECISION/S:
NO, the law provides that except in case expressly specified by law, or when it is otherwise
declared by stipulation, or when the nature of the obligation require the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
It must be noted that to avail of the exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be punished; it would only be sufficient to establish that
the enforceable event, the robbery in this case did take place without any concurrent fault on the
debtor`s part, and this can be done by preponderant evidence.
It must also be noted that a court finding that a robbery has happened would not necessarily
mean that those accused in the criminal action should be found guilty of the crime; nor would be a
ruling that those actually accused did not commit the robbery be inconsistent with a finding that a
robbery did take place. The evidence to establish these facts would not necessarily be the same.
CASE DIGEST #27:
G.R. NO. 25704. (APRIL 24, 1968)

ANGEL JOSE WAREHOUSING CO., INC., Plaintiff-Appellee, vs. CHELDA ENTERPRISES and DAVID
SYJUECO, Defendants-Appellants.
FACTS:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged
unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint, plus
attorney’s fees of P5,000.00. Alleging that post dated checks issued by defendants to pay said account
were dishonored, that defendants’ industrial partner, Chellaram I. Mohinani, had left the country, and
that defendants have removed or disposed of their property, or are about to do so, with intent to
defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount
of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged
and deducted from the loan usurious interest thereon, at rates of 2% and 2.5% per month, and,
consequently, plaintiff has no cause of action against defendants and should not be permitted to recover
under the law. A counterclaim for P2,000.00 attorney’s fees was interposed.
ISSUE/S:
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Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt.
DECISION/S:
Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies
only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in
Sec. 6, any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in
said law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid
in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest
thereon from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest
allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest
of 20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious
interest, not just that part thereof in excess of the interest allowed by law. It is in this case that the law
does not allow division. The whole stipulation as to interest is void, since payment of said interest is the
cause or object and said interest is illegal. The only change effected, therefore, by Article 1413, New Civil
Code, is not to provide for the recovery of the interest paid in excess of that allowed by law, which the
Usury law already provided for, but to add that the same can be recovered "with interest thereon from
the date of payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to
discourage stipulations on usurious interest, said stipulations are treated as wholly void, so that the loan
becomes one without stipulation as to payment of interest. It should not, however, be interpreted to
mean forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the
lender. Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to
usury.
CASE DIGEST #28:
G.R. No. 23559 (October 4, 1971)
AURELIO G. BRIONES, plaintiff-appellee, vs. PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants
FACTS:
Plaintiff filed an action against the defendants to recover from them the amount of P1, 500.00,
plus damages, attorney's fees and costs of suit. The defendants answered that a mortgage contract was
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executed for securing the payment of P1,500.00 for a period of one year, without interest, but the
plaintiff delivered to the defendant Primitivo only the sum of P1,200.00 and withheld the sum of
P300.00 which was intended as advance interest for one year; that on account of said loan of P1,200.00,
defendant Primitivo paid to the plaintiff the total sum of P330.00 which plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as an interest of the said loan for an
extension of another term of one year; and that said contract of loan entered into between plaintiff and
defendant Primitivo is a usurious contract. Briones denied the allegations of the counterclaim. The
Municipal Court rendered judgment sentencing the defendants to pay the plaintiff with interests
thereon plus attorney's fees. The Court of First Instance of Manila also ordered the defendants to pay
the plaintiff. Defendants claim that the trial court erred in sentencing them to pay the principal of the
loan notwithstanding its finding that the same was tainted with usury. It is not now disputed that the
contract of loan in question was tainted with usury.
ISSUE/S:
Whether or not the creditor is entitled to collect from the debtor the amount representing the
principal obligation in a contract of loan tainted with usury.
DECISION/S:
Yes. Under the Usury Law a usurious contract is void and the creditor had no right of action to
recover the interest in excess of the lawful rate but this did not mean that the debtor may keep the
principal received by him as loan — thus unjustly enriching himself to the damage of the creditor. The
Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower
the money actually loaned to and enjoyed by the latter. In simple loan with stipulation of usurious
interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract, is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable,
the latter only should be deemed void, since it is the only one that is illegal. The principal debt remaining
without stipulation for payment of interest can be recovered by judicial action. And in case of such
demand, and the debtor incurs in delay, the debt earns interest from the date of the demand. Such
interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the
general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to
pay interest by way of damages.
CASE DIGEST #29:
G.R. No. 9421 (July 24, 1915)
L.L. HILL, plaintiff-appellant, vs. MAXIMINA CH. VELOSO, ET AL., defendants-appellees.
FACTS:
Dec. 30, 1910: Maximina Veloso, with consent from her husband Manuel Tio Cuana and sonin-
law Domingo Franco executed and signed a document: For value of the goods we have received in La
Cooperativa Filipina we promise to pay jointly and severally to Michael & Co., S. en C., or its order, in the
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municipality of Cebu, the sum of 6,319.33, in the manner hereinafter set forth, with interest on such
part of said principal as may remain unpaid at the end of each month at the rate of one and a half per
cent per month until the principal shall have been completely paid. The said sum of six thousand three
hundred and nineteen pesos and thirty-three centavos (P6,319.33) shall be paid at the rate of five
hundred pesos (P500) monthly on or before the 15th day of each month, and the interest shall also be
paid monthly.
In case of default in the monthly payments, the unpaid principal shall be demandable, and in
case of suit, bound themselves jointly and severally to pay additional attorney’s fees. This promissory
note was endorsed to L.L. Hill by Michael, S. en C. P2000 was paid in four installments and then they
defaulted.
L.L. Hill brought the present suit to recover. Defendants alleged that Franco told them that
Levering, guardian of minor children of Potenciano Chiong Velos, suggested that they execute a
document in Levering’s behalf, saying that they will pay Levering the P8,000 they owe Damasa
Ricablanca, the former guardian. Franco apparently said that the paper would be filled out inside his
office and thus they signed the paper. But when Franco died, defendants learned that he did not deliver
to Levering the document and that the document they signed was filled out with a different obligation.
Defendants allege that they had no transaction with Michael & Co. nor with L.L. Hill.
However, it appeared that Levering sued the defendants in 1912 for the P8,000 they owed and
that Maximina answered the complaint, stating that her debt was owed to Ricablanca and not to her
capacity as guardian.
ISSUE/S:
Whether or not there was deceit.
DECISION/S:
No. There was insufficient proof to prove deceit. If Maximina believed and so stated in 1912 that
she had no obligation to Levering because she was obligated to Ricablanca, then she shouldn’t have
signed the blank document in 1910. On trial, she alleged that she could not remember the events.
Court held that even if it was proven that Franco acted in the manner alleged, the deceit or
error could not annul the consent of the contracting parties to the promissory note, nor exempt the
defendant from the obligation.
"There is deceit when by words or insidious machinations on the part of one of the contracting
parties, the other is induced to execute a contract which without them he would not have made." CC
1269 (NCC 1338).“
Franco is not one of the contracting parties who may have deceitfully induced the other
contracting party, Michael & Co., to execute the contract. The one and the other contracting parties, to
whom the law refers, are the active and the passive subjects of the obligation, the party of the first part
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and the part of the second part who execute the contract. The active subject and party of the first part
of the promissory note in question is Michael & Co., and the passive subject and the party of the second
part are Maximina Ch. Veloso and Domingo Franco; two, or be they more, who are one single subject,
one single party.”
It was also proven that La Cooperativa Filipina belonged to Maximina and that the goods came
from Michael & Co.
CASE DIGEST #30:
G.R. NO. L-1867 (APRIL 8, 1950)
CARMEN DE LA PAZ VDA. DE ONGSIAKO, PETITIONER, vs. TEODORICO GAMBOA and PANTALEON

GAMBOA ET AL., respondents.
FACTS:
At first blush, it would seem that the above query should be answered in the negative, on the
ground that, as contended by counsel for petitioner, the application of the provisions of Republic Act
No. 34 — which amended those of Act No. 4054 as amended by Commonwealth Act No. 178 — (a)
"clearly and palpably impair the obligation of contracts which is prohibited by the Constitution"; and (b)
give said Republic Act No. 34 a retroactive effect, which would also "be contrary to section 10 of Bill of
Rights of the Constitution."
It appears that during the period of June to July, 1946, pursuant to the provisions of section 8 of
Act No. 4054, as amended by Commonwealth Act No. 178, petitioner and respondents entered into
tenancy contracts, which, among other things, provided for a 50-50 division of the crop, under a
stipulation of the effect that the petitioner-land-owner would exclusively shoulder the planting expenses
which shall not be more than ten planters for every hectare, the wages for each planter to be
determined at the prevailing rate generally charged in the community, and that in return, the tenant
shall solely defray the harvesting expenses (Translation of Tenancy Contracts, Annex B).
A short time thereafter, that is, on September 30, 1946, Republic Act No. 34 was approved by
the Congress of the Philippines, and on November 12, 1946, by Proclamation No. 14, the President of
the Philippines made effective the provisions of said Act No. 4054, known as "The Philippine Rice Share
Tenancy Act," as amended by said Republic Act No. 34, "to be in full force and effect throughout the
Philippines."
During the liquidation of the palay crop for the agricultural year 1946-1947, the herein
respondents-tenants sought the application of the provisions of the new law on the crop division, by
filing the corresponding complaints with the Tenancy Law Enforcement Division, on the ground that in
the harvest of present agricultural year (1946-1947), they could not agree on: (a) the liquidation of the
crop; (b) the division thereof; (c) the apportionment of their expenses; and (d) the settlement of their
accounts.
ABPS3-A
The Tenancy Law Enforcement Division, after going over the facts and the question involved,
found that, although according to the contracts between respondents and petitioner, it was stipulated
that the division of the crop would be on the 50-50 basis, in the light of the provisions of section 7(a) of
Republic Act No. 34, such stipulations is against public policy, and therefore, the crop division should be
on the 55-45 basis in favor of the tenants, as provided in the amendatory law.
ISSUE/S:
Whether or not contracts of tenancy, entered into by petitioner and respondents prior to the
date when Republic Act No. 34 became effective, are governed by the provisions thereof and not by the
provisions of Act No. 4054 and Commonwealth Act No. 178, which were in force when those contracts
were signed.
DECISION/S:
Neither said Act impairs the obligation of contracts in violation of paragraph 10, section 1 of
Article III of the Constitution. Corpus Juris Secundum, summarizing the interpretations given by the
American courts, says that constitutional provisions against impairing the obligation of contracts do not
prevent the same from being subject to legislation enacted by the State in the proper exercise of its
police power. Thus, at pages 701, 702, Vol. 16, it says:
The prohibition contained in constitutional provisions against impairing the obligation of

contracts is not an absolute one and it is not to be read with literal exactness like a mathematical
formula. Such provision are restricted to contracts which respect property, or some object or value, and
confer rights which may be asserted in a court of justice, and have no application to statute relating to
public subjects within the domain of the general legislation powers of the State, and involving the public
rights and welfare of the entire community affected by it. They do not prevent a proper exercise by the
State of its police powers. By enacting regulations reasonably necessary to secure the health, safety,
morals, comfort, or general welfare of the community, even the contracts may thereby be affected; for
such matter can not be placed by contract beyond the power of the State to regulate and control them.
Furthermore, it is very manifest that when our lawmaking body was considering House Bill No.
582, it undoubtedly had in mind the circumstances and conditions surrounding the relations between
landlord and tenant. It therefore, could not have failed to take notice of the existence of contracts which
stipulated a division of the crop on the 50-50 basis, and had the Congress intended to except those
contracts from the operation of the new law (Republic Act No. 34), doubtless, it would have done so by
inserting therein the corresponding provision; but on the contrary, it expressly provided therein that a
stipulation whereby "the tenant shall receive less than 55 per cent of the net produce ...," is against
public policy, which is equivalent to a declaration by the Congress that a stipulation in a contract that
the division of the crop shall be on the 50-50 basis, is against public policy.
In People vs. Pomar (46 Phil. 440) and in Philippine National Bank vs. Vda. e Hijos de Angel
Jose (63 Phil., 814), this court, citing article 1255 of the Civil Code, says that the rule in this jurisdiction is
that the contracting parties may establish any agreements, terms, and conditions they deem advisable,
ABPS3-A
"provided they are not contrary to laws, morals or public policy"; and while we have searched in vain for
a concrete definition of the term "public policy," in its treatise on the law of contracts, in dealing with
agreements against public policy, American Jurisprudence gives a summary of the doctrines laid down
by the American courts on this matter. It says —
xxx xxx xxx
It is a general rule that agreements against public policy are illegal and void. Under the principles
relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not
recognize or uphold any transaction which, in its object, operation, or tendency, is calculated to be
prejudicial to the public welfare, to sound morality, or to civic honesty. The test is whether the parties
have stipulated for something inhibited by the law or inimical to, or inconsistent with, the public
welfare. An agreement is against public policy if it is injurious to the interests of the public, contravenes
some established interest of society, violates some public statute, is against good morals, tends to
interfere with the public welfare or safety, or, as it is sometimes put, if it is at war with the interests of
society and is in conflict with the morals of the time. An agreement either to do anything which, or not
to do anything the omission of which, is in any degree clearly injurious to the public and an agreement
of such nature that it cannot be carried into execution without reaching beyond the parties and
exercising an injurious influence over the community at large are against public policy. There are many
things which the law does not prohibit, in the sense of attaching penalties, but which are so mischievous
in their nature and tendency that on grounds of public policy they cannot be admitted as the subject of a
valid contract. The question whether a contract is against public policy depends upon its purpose and
tendency, and not upon the fact that no harm results from it. In other words, all agreements the
purpose of which is to create a situation which tends to operate to the detriment of the public interest
are against public policy and void, whether in the particular case the purpose of the agreement is or is
not effectuated. For a particular undertaking to be against public policy actual injury need not be shown;
it is enough if the potentialities for harm are present. Where the precise question as to whether or not a
particular agreement is against public policy has not been determined, analogous cases involving the
same general principle may be looked to by the courts in arriving at a satisfactory conclusion." (12 Am.
Jur., pp. 662-664.)
CASE DIGEST #31:
G.R. NO. L-25301 (OCTOBER 26, 1968)
GOLD STAR MINING CO., INC., petitioner, vs. MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA,
AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirs of the
deceased VICTOR JIMENA, and JOSE HIDALGO, respondents.
FACTS:
Victor Jimena and Ananias Isaac Lincallo agreed to purchase mining claims. Jimena provided the
money (P5,800), Lincallo made the purchases. Prior to the purchases, Lincallo bound himself in writing
to turn over 1/2 of whatever proceeds from the mining claims to be acquired.
ABPS3-A
Shortly, Lincallo assigned mining rights over part of the claims to Gold Star Mining Co.
Thereafter, Lincallo entered into contracts over the mining claims in his own name and for his
benefit. Sep 19 1951 - Lincallo and a certain Alejandro Marquez (also a mining claims holder) with Gold
Star for allotment to Lincallo of 45% of royalties due from Gold Star. Jan 1952 - Lincallo, Marquez and
Cong. Panfilo Manguerra, leased certain rights to a Jacob Cabarrus who transferred it to Marinduque
Iron Mines Agents, Inc (MIMAI). Feb 29 1952 - the lessors entered into a contract wherein 43% of
royalties due from MIMAI were to be paid to Lincallo.
Jimena was never remiss in asserting his rights: repeatedly apprised Gold Star and MIMAI of his
interests over the mining claims assigned and/or leased by Lincallo [Aug 1939 - Sep 1952], demanded
payment of his 1/2 share in royalties paid and to be paid to Lincallo
Lincallo promised Jimena (albeit on and off) that he (Lincallo) would settle his obligations; for
the last time Lincallo promised to do so before the 30th of July 1952. Lincallo failed to settle his
accounts. On Aug 16 1952, Lincallo transferred [allegedly for P10,000] 35 of his 45% share in the
royalties due from Gold Star, to a Gregorio Tolentino
ISSUE/S:
Whether or not Jimena has a cause of action against Gold Star.
DECISION/S:
Affirmative. It can be said that Lincallo, in transferring the mining claims to Gold Star (without
disclosing that Jimena was a coowner although Gold Star had knowledge of the fact as shown by the
proofs mentioned) acted as Jimena’s agent with respect to Jimena’s share of the claims.
Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883 of the
New Civil Code, which provides that the principal may sue the person with whom the agent dealt with in
his (agent’s) own name, when the transaction “involves things belonging to the principal.”
CASE DIGEST #32:
G.R. No. L-8437 (November 28, 1956)
ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant-Appellant.
FACTS:
Luzon Surety Co. filed a claim against the Estate based on 20 different indemnity agreements, or
counter bonds, each subscribed by a distinct principal and by the deceased K. H. Hemady, a surety
solidary guarantor.
Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the 20 bonds it
executed in consideration of the counterbonds, and asked for judgment for the unpaid premiums and
ABPS3-A
documentary stamps affixed to the bonds, with 12 % interest thereon. CFI dismissed the claims of Luzon
Surety Co., on failure to state the cause of action.
ISSUE/S:
1. Whether or not the obligations are transmissible upon the death of the decedent.
2. Whether or not there are contingent claims chargeable against the estate.
DECISION/S:
Under the present Civil Code (Art. 1311), “Contracts take effect only as between the parties,
their assigns and heirs, except in the case where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision of law.”
While in our successional system the responsibility of the heirs for the debts of their decedent
cannot exceed the value of the inheritance they receive from him, the principle remains intact that
these heirs succeed not only to the rights of the deceased but also to his obligations. Articles 774 &
776,NCC, provides, thereby confirming Art. 1311.
“ART. 774. — Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to another or
others either by his will or by operation of law.”
“ART. 776. — The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.”
The binding effect of contracts upon the heirs of the deceased party is not altered by the
provision in our Rules of Court that money debts of a deceased must be liquidated and paid from his
estate before the residue is distributed among said heirs (Rule 89). The reason is that whatever payment
is made from the estate is ultimately a payment by the heirs and distributees, since the amount of the
paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.
The general rule is that a party’s contractual rights and obligations are transmissible to the
successors. The rule is a consequence of the progressive “depersonalization” of patrimonial rights and
duties. Of the 3 exceptions fixed by Art 1311, the nature of obligation of the surety or guarantor does
not warrant the conclusion that his peculiar individual qualities are contemplated as a principal
inducement for the contract.
Creditor Luzon Surety Co. expects from Hemady when it accepted the latter as surety in the
counterbonds was the reimbursement of the moneys that the Luzon Surety Co. might have to disburse
on account of the obligations of the principal debtors. This reimbursement is a payment of a sum of
money, resulting from an obligation to give; and to the Luzon Surety Co., it was indifferent that the
reimbursement should be made by Hemady himself or by some one else in his behalf, so long as the
money was paid to it.
ABPS3-A
The 2nd exception of Art. 1311, is intransmissibility by stipulation of the parties. Being
exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but
must be expressly established, or at the very least, clearly inferable from the provisions of the contract
itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable. rd
The 3rd exception to the transmissibility of obligations under Art. 1311 exists when they are
“not transmissible by operation of law”. The provision makes reference to those cases where the law
expresses that the rights or obligations are extinguished by death: legal support, parental authority,
usufruct, contracts for a piece of work, partnership & agency. By contract, the articles of the Civil Code
that regulate guaranty or suretyship (Art 2047 to 2084) contain no provision that the guaranty is
extinguished upon the death of the guarantor or the surety.
The contracts of suretyship entered into by Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts
themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death
to his heirs. The contracts give rise to contingent claims provable against his estate under sec. 5, Rule 87.
“The most common example of the contigent claim is that which arises when a person is bound as
surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship
the surety has no claim whatever against his principal until he himself pays something by way of
satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of
the surety the right to compel the principal to exonerate the surety. But until the surety has contributed
something to the payment of the debt, or has performed the secured obligation in whole or in part, he
has no right of action against anybody — no claim that could be reduced to judgment.
Our conclusion is that the solidary guarantor’s liability is not extinguished by his death, and that
in such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. Wherefore, the order appealed from is reversed, and the records are ordered
remanded to the court of origin. Costs against the Administratrix- Appellee.

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