POLIAND INDUSTRIAL LTD.

VS.

NDC

FACTS: Between 1979 and 1981, Asian Hardwood extended credit accommodations in favor of GALLEON. The advances were utilized to augment GALLEONS working capital depleted as a result of the purchase of five new vessels and two second-hand vessels in 1979 and competitiveness of shipping company. To obtain the acquisition of vessels, GALLEON obtained loans from Japanese lenders. In October 1979, GALLEON and DBP executed a Deed of Undertaking whereby DBP guaranteed the payment of GALLEONS borrowings from the Japanese lenders. To secure DBPs guarantee, GALLEON promised to secure first mortgage on the five new vessels and on the second-hand vessels. In January 1981, Pres. Marcos issued Letter of Instruction No. 1155, directing NDC to acquire the entire shareholdings of GALLEON to the government and DBP was to advance to GALLEON the principal amount and interest of GALLEONs maturing obligation. In August 1981, GALLEON and DBP forged a Memorandum Of Agreement, whereby NDC and GALLEON agreed to execute a share purchase agreement for the transfer of GALLEONs shareholdings. Then, NDC assumed the management and operations of GALLEON. Using NDCs funds, it paid Asian Hardwood a partial settlement of GALLEONs obligations.

In Feb. 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels for failure of GALLEON to pay its debt despite repeated demands from DBP. DBP subsequently sold the vessels to NDC. Asian Hardwood assigned its rights over the outstanding obligation of GALLEON to World Universal which in turn assigned the credit to petitioner POLIAND. In March 1988, Pres. Aquino issued Administrative Order No. 64, directing NDC and Phil. Export and Foreign Loan Guarantee Corporation to transfer some of their assets to the National Government, through the ASSET PRIVATIZATION TRUST (APT) for disposition. Among those transferred to the APT were the five GALLEON vessels sold at the foreclosure proceedings. In Sept. 1991, POLIAND made written demands on GALLEON, NDC and DBP for the satisfaction of the outstanding balance. POLIAND claimed that under LOI No. 1155 and the Memorandum Of Agreement between GALLEON and NDC, defendant GALLEON, NDC AND DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. DBPs contention: POLIAND has no cause of action against DBP because DBP did not sign any memorandum to act as guarantor for the alleged credit advances/loan accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155. NDCs contention: NDC denied having agreed to the assumption of GALLEONs liabilities because no purchase and sale agreement was executed and the delivery of

the required shares to stock of GALLEON did not take place. The court a quo decided in favor of POLIAND concluding that under LOI No. 1155, DBP and NDC are liable for those obligations. But the CA absolved DBP of any liability. The CA also discharged NDC of any liability arising from the credit advances/ loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely assumed control over its management and operations.

LOI No. 1155 was not connected, directly or remotely, to a grave emergency or threat to the peace and order situation of the nation in particular or to the public interest in general. LOI No. 1155 was in the nature of a mere administrative issuance directed to NDC, DBP and MARINA to undertake a policy measure to rehabilitate a private corporation.

ISSUE: WON NDC or DBP or both are liable to POLIAND on the loan accommodations and credit advances incurred by GALLEON RULING: NDC not liable under LOI No. 1155 As a general rule, LOIs are simply directives of the Pres. Of the Phils., issued in the exercise of his administrative power of control, to heads and departments and/or officers under the executive branch of the government for observance by the officials and/or employees thereof. LOIs do not have the force and effect of a law and cannot be valid source of obligation. LOI should be qualified as having the force and effect of law only when issued either when there existed a grave emergency or threat or imminence or when the legislative failed or was unable to act adequately on the matter.

NDC not liable under the corporation code The court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155, NDC acquired the interest in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation. In the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission, subject to its prior determination that the merger is not inconsistent with the code or existing laws. Upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties and liabilities shall transferred to and vested in the surviving corporation. The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans.

 Compliance with the statutory requirements is a condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities. DBP, not liable under LOI No. 1155 POLIAND does not have any cause of action against DBP under LOI No. 1155. Being administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create any privity of contract between DBP and POLIAND or its predecessor-in-interest. The directives in LOI No. 1155 was in the nature of a grant of authority by the President on DBP to enter into certain transactions for the satisfaction of GALLEONs obligations. There is nothing in the records that indicate that DBP has acted as surety or guarantor, or had otherwise accommodated GALLEONs obligation to POLIAND or its predecessors-in-interest. POLIAND INDUSTRIAL LTD. V NDC 467 SCRA 500 (AUGUST 22, 2005) FACTS: Between 1979 and 1981, Asian Hardwood (HK corp) loaned to Galleon, a domestic company engaged in maritime transport of goods, $3.3M. Said loan were to be used to augment Galleons working capital due to the purchase of new shipping vessels. As a result, Galleon incurred an obligation amounting to $3.39M in favor of Asian Hardwood. To finance its acquisitions of the vessels, Galleon obtained loans from several Japanese lenders. In October 1979, Galleon and DBP executed a deed of undertaking

where DBP guaranteed the prompt payment of Galleons loans with the Japanese lenders. In return, Galleon mortgaged five of its vessels in favor of DBP. Sometime in January 1981, Marcos issued LOI no. 1155 ordering NDC to acquire the entire shares of Galleon payable without interest within 5 years. Also, DBP was to advance to Galleon within 3 years from its effectivity the principal amount and interest of Galleons obligations. August 1981, Galleon and NDC executed a MOA for the share purchase agreement after which NDC is to assume management and operations of Galleon (although its president, Cuenca, is to remain in his post until May 1982). Using its own funds, NDC paid Asian Hardwood on January 1982 $1M as partial payment for Galleons obligations. In February 1982, LOI no. 1195 was issued directing the foreclosure of the mortgage of the said vessels due to Galleons failure to pay its debts; subsequently, said vessels were foreclosed and sold to NDC. Asian Hardwood assigned its rights over the outstanding obligation of Galleon ($2.31M) to World Universal Trading who in turn assigned it to petitioner Poliand sometime in July 1989. In 1991, Poliand demanded from Galleon, NDC and DBP the satisfaction of the outstanding balance. Petitioner claimed that under LOI no. 1155 and MOA between Galleon and NDC, Galleon, NDC and DBP are solidarily liable to Polian as assignee of the rights of the credit advances. DBP denied being a party to any of the alleged loan transactions; also alleged that Poliand had no cause of

action against DBP as it did not sign any memorandum to act as guarantor for the loans obtained by Galleon. NDC denied any participation in the execution of the loan accommodations, alleging that it was acting as only as a manager of Galleon. It cannot be liable for Galleons obligations since no purchase and sale agreement was executed and the delivery of required shares of stock of Galleon did not take place. RTC found that DBP and NDC are liable under LOI no. 1155 and NDC was liable based on the MOA executed where it agreed that it will prioritize repayments of Galleons liabilities. CA, however, rendered a modified judgment, absolving DBP of any liability in view of POLIANDs failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely assumed control over its management and operations. However, NDC was held liable to POLIAND for the payment of the preferred maritime lien based on LOI No. 1195 which directed NDC to discharge such maritime liens as may be necessary to allow the foreclosed vessels to engage on the international shipping business, as well as attorneys fees and costs of suit. ISSUE: Whether or not LOI no. 1155 has the force and effect of law, thus making NDC and/or DBP liable to Polian on the loan accommodations and credit advances incurred by Galleon

ownership of GALLEON. Furthermore, Poliand could not prove that it had any cause of action against DBP. 2. LOI No. 1155 does not have the force and effect of law and cannot be a valid source of obligation. Letters of instructions are simply directives of the President of the Philippines, issued in the exercise of his administrative power of control, to heads of departments and/or officers under the executive branch of the government for observance by the officials and/or employees thereof. Being administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid source of obligation. However, since Marcos, at the time of execution of said LOI had both legislative and executive powers, it must be determined if the LOI was executed in performance of his legislative powers. To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action.

HELD: 1. Since no such execution and consequent transfer of shareholdings took place, NDC did not acquire

3. POLIAND does not have any cause of action against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create

any privity of contract between DBP and POLIAND or its predecessors-in-interest.

(Build-Operate-Transfer) Law and its Implementing Rules and Regulations. ISSUE: Whether or not the concession agreement between the government and PIATCO is null and void for being contrary to the Constitution and BOT law HELD: SC declared the assailed agreement as void for being contrary to public policy. A close comparison of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at least two very important respects. While the Court concedes that a winning bidder is not precluded from modifying certain provisions of the contract bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms DOCTRINE: It is inherent in public biddings that there shall be fair competition among the bidders. Any contract that circumvents this concept shall be declared null as being contrary to public policy. AGAN JR. V PIATCO 402 SCRA 612 (MAY 5, 2003) FACTS: In August 1989 the DOTC had a study conducted to determine whether or not the present Ninoy Aquino International Airport (NAIA) can cope with traffic development up to the year 2010. A draft final report was submitted to the DOTC in December 1989. Four years later, in 1993, six Filipino-Chinese business leaders met with then President Fidel Ramos to explore the possibility of investing in the construction and operation of a new international airport terminal. The six later formed the Asias Emerging Dragon Corp (AEDC)

AGAN JR. V PIATCO 402 SCRA 612 (MAY 5, 2003) FACTS: Petitioner seek to prohibit the Manila International Airport Authority (MIAA) and the Dept of Transportation and Communications (DOTC) from implementing contracts and agreements executed by the Philippine Givernment through the DOTC and the MIAA and the Phil Intl Air Terminals Co., Inc (PIATCO). DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the Ninoy Aquino Intl Airport (NAIA) and determine whether the present airport can cope with the traffic development up to 2010. A group of business leaders formed Asias Emerging Dragon Corp (AEDC) to explore the possibility of investing in the construction and operation of a new airport terminal. AEDC submitted an unsolicited proposal to the Government through DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III). A committee called the Prequalification Bids and Awards Committee (PBAC) was constituted by the DOTC for the implementation of the NAIA IPT III project. A consortium headed by Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), among others, submitted their proposal to PBAC. PBAC found Paircargo as the most qualified to undertake the project. Sometime after this determination, Paircargo incorporated with PIATCO. AEDC, along with a slew of other petitioners, filed with the RTC Pasig a petition to declare the 1997 Concession Agreement between the Government and PIATCO null and void for being contrary to the Constitution, the BOT

which submitted an unsolicited proposal for the development of NAIA International Passenger Terminal III more than a year after the first meeting with Ramos, in October 1994. In March 1995, the DOTC endorsed the AEDC proposal to the National Economic and Development Authority (NEDA). In January 1996, NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project. In June 1996, the DOTC published an invitation for competitive bidding in two daily newspapers, as required by law (sec 4-A of RA6957). The alternative bidders had to submit three envelopes. The first contains the prequalification documents, the second the technical proposal, and the third the financial proposal of the proponent. The bidding was scheduled on September 20, 1996. The bid documents issued by the Prequalification Bids and Awards Committee said the proponent must have adequate capability to sustain the financing requirement for the engineering, design, construction, operation, and maintenance phases of the project. The proponent must have an equity that is at least 30% of the project cost, and be able to secure external financing for the project. Government was also guaranteed a five percent share in the gross revenue of the project for the first five years; 7.5% in the next 10 years, and 10% in the next 10 years. This would be in addition to a fixed annual guaranteed payment to the government. The basis for the prequalification shall be the proponents compliance with the minimum technical and financial requirements provided in the bid documents and the IRR of the BOT (build operate and transfer) Law. The bid documents allowed amendments to the draft

concession agreement, but said that these should cover only items that would not materially affect the preparation of the proponents proposal. In August 1996, during the second pre-bid conference, the PBAC made several clarifications, upon the request of Peoples Air Cargo & Warehousing Co. Inc (PAIRCARGO), which wanted to challenge the AEDC bid. The PBAC said the list of revenue sources mentioned in the bid documents were merely indicative. The project proponent may add other revenue sources, subject to approval by the DOTC/MIAA. Also, only fees and charges denominated as public utility fees would be subject to regulation, and these could still be revised, because the PBAC has a pending query with the justice department. In September 1996, PBAC issued a bid bulletin in which it said that since PAIRCARGO could not meet the required minimum equity prescribed in the bid documents, it would accept instead an audited financial statement of the financial capability of all member companies of the consortium. In September 1996, PAIRCARGO submitted their competitive proposal to the PBAC. The first envelope, containing the prequalification documents, was opened on September 23, 1996, and PBAC prequalified the PAIRCARGO consortium the following day. On September 26, AEDC filed with PBAC its reservations regarding PAIRCARGO, noting the lack of corporate approvals and financial capability of PAIRCARGO. For one, PAIRCARGO included in the computation of its financial capability the total net worth of Security Bank, when the Banking Law limits to 15% the total investment that a bank may make on one project. It also questioned the appointment of Lufthansa as facility operator, because Philippine laws limit to Filipinos the operation of a public utility.

The PBAC, however, said on October 2, 1996 that based on the documents submitted and the prequalification criteria, PAIRCARGO was prequalified. The DOTC secretary approved PBACs findings. The AEDC reiterated its objections two more times. On October 16, the third envelope containing the financial proposals were opened, and PAIRCARGO had offered to pay the government higher. Both PAIRCARGO and AEDC offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the government and to pay the government a 5% share in gross revenues for the first five years of operation; a 7.5% share in gross revenues for the next 10 years of operation; and a 10% share in gross revenues for the last 10 years of operation. In addition to this, AEDC offered to pay the government P135 million as guaranteed payment for 27 years. Paircargo Consortium offered a total of P17.75 billion for the same period. PBAC informed AEDC it had accepted Paircagos price proposal, and given AEDC 30 working days to match the bid. When AEDC failed to do so, the DOTC issued a notice on December 11 1996 regarding AEDCs failure to match the proposal. In February 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co Inc (PIATCO). AEDC protested the alleged undue preference given to PIATCO and reiterated its objections regarding the prequalification of PIATCO. In April 1997, it filed before the Pasig RTC a petition for declaration of nullity of the proceedings, mandamus and injunction against the DOTC secretary, the PBAC chair and its voting members, and the chair of the PBAC technical committee. On April 17, the NEDA ICC conducted an ad referendum to facilitate the approval of the BOT agreement between the DOTC and PIATCO. Because there were only four instead of the required six signatures, the NEDA merely noted the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO. The Concession Agreement was signed on July 12, 1997, granting PIATCO the franchise to operate and maintain the NAIA Passenger Terminal III for 25 years, with an option to renew for a period not exceeding 25 years. PIATCO was allowed to collect fees, rentals and other charges in accordance with the rates or schedules in the 1997 Concession Agreement. At the end of the concession period, PIATCO will transfer the airport to MIAA. In November 1998, the government and PIATCO signed an Amended and Restated Concession Agreement (ARCA). The ARCA amended provisions on the special obligations of the government, the exclusivity of the franchise given to PIATCO, the proceeds of the insurance, the taxes, duties and other charges that may be levied PIATCO, and the provisions on the termination of the contract. Three more supplements to the ARCA were signed afterwards: in August 1999, in September 2000, and in June 2001. The first redefined revenues, required government to construct an access road connecting NAIA II and III, and added to the special obligations of government. The second supplement required government to clear structures at the construction site and to pay PIATCO for these. The third provided for PIATCOs obligations regarding the construction of the surface road connecting Terminals II and III. In September 2002, workers of the international airline service providers filed before the Supreme Court a petition for prohibition enjoining the enforcement of the agreements. They said the transfer to NAIA III could cost them their jobs, since under the agreements, PIATCO is not required to honor MIAAs existing concession contracts with various service providers for international

airline airport services. In October 2002, the service providers filed a motion for intervention and a petition in intervention, joining the cause of the petitioning workers. Three congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar petition shortly after. In November 2002, several MIAA employees also filed a petition questioning the legality of the agreements. In December 2002, another group of congressmen Jacinto Paras, Rafael Nantes, Eduardo Zialcita, Willie Villarama, Prospero Nograles, Prospero Pichay Jr., Harlin Cast Abayon and Benasing Macarambon filed their comment in intervention defending the validity of the agreements and praying for the dismissal of the petitions. On December 10, 2002, the court heard the case on oral argument, the required the parties to file their respective memoranda, and to explore the possibility of arbitration as provided in the challenged contracts. In their consolidated memorandum, the Office of the Solicitor General and the Office of the Government Corporate Counsel prayed that the petitions be given due course and that the 1997 Concession Agreement, the ARCA and the supplements be declared void for being contrary to the Constitution, the BOT Law and its implementing rules and regulations. In March 2003, PIATCO commenced arbitration proceedings before the International Chamber of Commerce, International Court of Arbitration. ISSUE: W/N the PIATCO agreements the 1997 Concession Agreement, the ARCA, and the 3 supplemental agreements violate the Constitution and the BOT Law

HELD: YES. In the first place, PIATCO was not a qualified bidder. The minimum project cost was estimated to be P9.183 billion, which meant that Paircargo Consortium had to prove it could provide at least P2.755 billion. Paircargos audited financial statement for 1994 showed it had a net worth of P3.123 billion, but that was because it included in the computation the total net worth of Security Bank, which as of 1995 was at P3.523 billion. Since banks are allowed to invest only 15% of it entire net worth, Security Bank could only invest P528 million, which brings down Paircargos equity to P558.384 million, or only 6% of the project cost. Disregarding the investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction determines the true maximum amount which a bidder may invest in the projectIf the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be properly disqualifiedwe hold that Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo consortium is null and void. Other issues: 1. The signed agreement was different from the draft that was bidded on. Under the law, substantial changes require another bidding. The three principles in public bidding are: an offer to the public; opportunity for competition; and basis for the exact comparison of bids. Changing the parameters would change the agreement, which might have changed the technical and financial parameters of other bidders had they known that such terms were available.

The 1997 Concession Agreement signed between PIATCO and the government was substantially different from the draft concession agreement that was bidded on. While it was a draft and was expected to amended from time to time, the PBAC bid bulletin also said that the amendments should only cover items that would not materially affect the preparation of the proposal. The changes should not be substantial or material enough to alter the basic parameters of the contract, and constitute a denial to the other bidders of the opportunity to bid on the same terms. There were two main differences between the draft agreement and the one that was signed. These concerned the fees that may be imposed and collected by PIATCO, and the extent of control and regulation that MIAA has over the fees that PIATCO will charge. The draft agreement classified aircraft parking and tacking fees, groundhandling fees, rentals and airlines offices, check-in counter rentals and porterage fees under those that are regulated subject to periodic adjustment of once every two years and in accordance to a certain formula. The signed agreement said fees subject to MIAA approval are public utility fees and took out groundhandling and rentals and airlines offices from the list. There was also an obvious relaxation of the extent of control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO. The signed agreement also allowed PIATCO to charge in US dollars, while paying the government in pesos. When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant amendments that substantially distinguish the draft Concession Agreement from the 1997

Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement translate to direct and concrete financial advantages for PIATCO which were not available at the time the contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only Public Utility Revenues are subject to MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to Interim Adjustments not previously stipulated in the draft Concession Agreement. Finally, the change in the currency stipulated for Public Utility Revenues under the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the time of bidding. 2. Under the draft Concession Agreement, default by PIATCO of its obligations does not result in the assumption by government of these liabilities. Under the signed agreement, default by PIATCO of its loans used to finance the project eventually leads to government assumption of the liability for the loans. This is in violation of the BOT Law, which prohibits direct government guarantees. If a proposal can be denied by reason of the existence of direct government guarantee, then its inclusion in the contract executed after the said proposal has been accepted is likewise sufficient to invalidate the contract itselfTo declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government guarantee would not only make a mockery of what the BOT Law seeks to prevent which is to expose the government to the risk of incurring a monetary obligation resulting from a contract of loan

between the project proponent and its lenders and to which the Government is not a party to but would also render the BOT Law useless for what it seeks to achieve to make use of the resources of the private sector in the financing, operation and maintenance of infrastructure and development projects which are necessary for national growth and development but which the government, unfortunately, could ill-afford to finance at this point in time. 3. Sec. 5.10 of the 1997 Concession Agreement violates Article XII, Sec. 12 of the 1987 Constitution. The Constitutional provision allows for temporary takeover of public facilities in times of national emergency. Since the takeover is temporary and extends only to the operation of the business and not the ownership, government is not required to compensate the owner. Neither can the owner claim just compensation for the use of the business and its properties because the takeover is in exercise of the States police power and not of its power of eminent domain. The 1997 Concession Agreement, on the other hand, says that in the event of a takeover, Concessionaire shall be entitled to reasonable compensation for the duration of the temporary takeover PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government and obligate the government pay reasonable cost for the use of Terminal and/or Terminal Complex. Police power is the most essential, insistent, and illimitable of powers. Its exercise must not be unreasonably hampered nor its exercise be a source of obligation by the government in the absence of damage due to arbitrariness of its exercise.

4. The 1987 Constitution strictly regulates monopolies. Art XII, Sec. 19 says: The State shall regulate or prohibit monopolies when the public interest so requires. The 1997 Concession Agreement gave PIATCO the exclusive right to operate a commercial international passenger terminal within the island of Luzon, with the exception of already existing terminals such as those in the Subic Bay Freeport, Clark Special Economic Zone, and in Laoag City. This privilege, however, is subject to reasonable regulation and supervision and should not violate the rights of third parties. There are service providers at the NAIA I with existing contracts with the MIAA valid until 2010; since the 1997 Concession Agreement says PIATCO is not bound to honor existing contracts with MIAA, transferring operations from NAIA I to NAIA III would unduly prejudice them. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient claiming an exclusive right to operate, cannot require the Government to break its contractual obligations to the service providers. IN SUM, THIS COURT RULES THAT IN VIEW OF THE ABSENCE OF THE REQUISITE FINANCIAL CAPACITY OF THE PAIRCARGO CONSORTIUM, PREDECESSOR OF RESPONDENT PIATCO, THE AWARD BY THE PBAC OF THE CONTRACT FOR THE CONSTRUCTION, OPERATION AND MAINTENANCE OF THE NAIA IPT III IS NULL AND VOID. FURTHER, CONSIDERING THAT THE 1997 CONCESSION AGREEMENT CONTAINS MATERIAL AND SUBSTANTIAL AMENDMENTS, WHICH AMENDMENTS HAD THE EFFECT OF CONVERTING THE 1997 CONCESSION AGREEMENT INTO AN ENTIRELY DIFFERENT AGREEMENT FROM THE CONTRACT BIDDED UPON, THE 1997 CONCESSION AGREEMENT IS SIMILARLY NULL AND VOID FOR BEING CONTRARY TO PUBLIC POLICY. THE PROVISIONS UNDER SECTIONS 4.04(B) AND (C) IN RELATION TO SECTION 1.06

OF THE 1997 CONCESSION AGREEMENT AND SECTION 4.04 (C) IN RELATION TO SECTION 1.06 OF THE ARCA, WHICH CONSTITUTE A DIRECT GOVERNMENT GUARANTEE EXPRESSLY PROHIBITED BY, AMONG OTHERS, THE BOT LAW AND ITS IMPLEMENTING RULES AND REGULATIONS ARE ALSO NULL AND VOID. THE SUPPLEMENTS, BEING ACCESSORY CONTRACTS TO THE ARCA, ARE LIKEWISE NULL AND VOID. JUDGMENT: The 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements thereto are set aside for being null and void. ***VITUG: separate opinion court has no jurisdiction. Petition prays for nullification of contract and does not involve judicial, quasi-judicial or ministerial functions. The parties allege contentious evidentiary facts and it would be difficult to decide the jurisdictional issue on the basis of the contradictory factual submissions made by the parties. ***issues on standing: PIATCO tried to raise the issue of jurisdiction saying they had filed a case with the international chamber of commerce, international court of arbitration for arbitration. The court however pointed out that it includes multiple contracts and not all of the petitioners are parties to the contract. ANGELES V CALASANZ 135 SCRA 323 (MARCH 18, 1985) FACTS: On Dec.19, 1957, defendants-appellants, Ursula Torres Calasanz and Tomas Calasanz, and plaintiffappellees, Buenaventura Angeles and Teofila Juani, entered into a contract to sell a piece of land in Cainta, Rizal, for Php 3,920 plus 7% interest per annum. Angeles, etc made a down payment of Php 392 upon execution of the contract, and promised to pay the balance in monthly installments. They continued paying until July 1966 when

the aggregate payment amounted to Php 4,533.38. On numerous occasions, they gave delayed installment payments. On Dec. 6, 1966, Calasanz, etc. requested payment of past remittances. On Jan. 28, 1967, they cancelled said contract because Angeles failed to meet the payments. Angeles filed a civil case to compel Calasanz to execute a deed of sale. Calasanz alleged that they refused to pay the installments corresponding to the month of August 1966 for more than five months. The lower court rendered judgment in favor of Angeles, stating that the contract was not validly cancelled. ISSUE: W/N the contract to sell has been automatically and validly cancelled by the defendant appellees HELD: In Art.1191, either party has the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder, in reciprocal obligations. A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. It must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that it was not warranted, the responsible party shall be subject to damages. In other words, the party who deems the contract violated may consider it rescinded and proceed accordingly, without previous court action, but it proceeds at its own risk. The

right to rescind the contract for non-performance of its stipulations is not absolute. Rescission of a contract will only be permitted for substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The breach of contract (failing to pay the August installment despite demand, for more than four months) is so slight and casual when we consider that the plaintiff-appellees had already paid the monthly installments for almost 9 years, including the initial down payment, amounting to Php 4,553.38. When the defendants-appellants, instead of availing their alleged right to rescind, accepted and received delayed installment payments, though the plaintiff-appellees have been in arrears beyond the grace period, the defendantappellants waived and are estopped from exercising their alleged right to rescission. To sanction the rescission made by the defendants-appellants will work injustice against the plaintiff-appellees. Art. 1234 provides that if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. It also militates against the unilateral act of the defendants-appellants in cancelling the contract. The contract to sell has characteristics of a contract of adhesion. The defendants-appellants drafted the contract and the plaintiffs-appellees had no opportunity to change the terms. It was offered on a take it or leave it basis. Contracts of adhesion are contracts where almost all the provisions have been drafted by one party. The participation of the other is the signing of his signature or his adhesion thereto. Contracts of sale of lots on the installment plan fall under this category. This contract

must be construed against the party causing it. The decision appealed from is affirmed with the modification that plaintiff-appellees should pay the balance without any interests. DE DIOS V CA 212 SCRA 519 (1993) FACTS: The Philippine Veterans Bank, through Board Resolution no. 939B-82 on December 29, 1982, conveyed a piece of land to Averdi Marketing and Development Corp. Petitioner De Dios (general manager of Averdi) transferred the rights to private respondent Lopingco subject to the terms and conditions in their MOA and addendum concluded in February 1983. June 1984 Lopingco filed a complaint against De Dios and Philippine Veterans Bank for revocation of said board resolution and rescission of his contract with petitioner July 6, 1984 Philippine Veterans bank filed a motion to dismiss on the grounds of lack of cause of action and improper party July 13, 1984 Lopingco filed an amended complaint and at the same time, served a copy thereof to the petitioner by registered mail. On the same day, the counsel for petitioner filed its entry of appearance and motion for extension of time file responsive pleading. RTC granted the request but only for 10 days August 10, 1984 petitioner filed an omnibus motion asking that he be furnished a copy of the amended complaint. Lopingco opposed the motion as he claimed that he sent a copy of the amended complaint September 12, 1984 Lopingco moved for a declaration of default against petitioner for failure to file an answer within the reglamentary period. The court deferred resolution pending receipt of

proof that he had indeed received the copy of the amended complaint December 12, 1984 petitioner was declared in default; private respondent was able to present certification from Makati Postal Office that the petitioner received the amended complaint April 1985 -- RTC ruled in favor of Phil Veterans Bank and ordered Vergel de Dios to refund the downpayment of P725,000.00 Lopingco paid with legal interest thereon from February 18, 1983; pay damages amounting to P 140,000.00 yearly from February 18, 1983 until Lopingco has received a full refund of his investment, P20,000 as actual damages, P1,000 litigation expenses and 10% attorneys fees June 1985 petitioner filed a motion for new trial alleging error on the part of the RTC for declaring him in default. Motion denied August 1985 De Dios filed an appeal to CA alleging that RTC erred in declaring him in default without first ruling on his omnibus motion. CA affirmed RTC order

private respondent shall pay the P500,000 only upon the execution of the petitioner of the deed of assignment in favor of the private respondent. Otherwise, the private respondent would be paying P700,000 to the Philippine Veterans Bank and P500,000 to the petitioner without any document proving that the property rights acquired by De Dios under Board Resolution no. 939B-82 no longer belong to him but have already been transferred to Lopingco. Given this, the private respondent may validly rescind the MOA, Art. 1191 NCC states: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. In the case of Universal Food Corp v CA, it was stated that rescission will be ordered only where the breach

ISSUE: W/N the rescission was valid and W/N respondent was entitled to a refund HELD: The stipulation in the last paragraph of the MOA clearly states that upon the downpayment of P700,000 to the Philippine Veterans Bank by Lopingco, De Dios shall execute in favor of Lopingco, a deed of assignment over the property subject of the agreement. While the petitioner does not deny that he has not executed the deed he claims that it was the private respondent who violated the terms of the contract for failing and refusing to pay the amount of P500,000 to the petitioner upon his payment of the 20% downpayment to Philippine Veterans Bank. According to the MOA, the

complained of is so substantial as to defeat the object of the parties in entering into the agreement." In the case at bar, the non-performance by the petitioner of his obligation to execute the deed of assignment, which has not been denied, was a substantial breach that warranted rescission.

AREOLA V CA 236 SCRA 643 (1994) FACTS: Petitioner Areola bought a personal accident insurance policy covering one year from November 28, 1984 to November 28, 1985. Under the terms of SOA issued by respondent, petitioner was supposed to pay a total of P1,609.65 which included P1,470, P110.25 (documentary stamp) and 2% premium tax (P29.40) December 1984 insurance company issued collectors provisional receipt no. 9300 for the said amount and that petitioner will be receiving an official receipt within 7 days June 1985 seven months after the issuance of petitioner Areolas personal accident insurance policy no. PA-20015, respondent insurance company unilaterally the same since company records reveal that the petitioner failed to pay his premiums. Petitioner demanded for official receipt but did not receive any

July 1985 petitioner sent a letter demanding that he be insured under the terms and conditions of policy no. PA-BG-20015 August 1985 respondent insurance company offered to reinstate the policy and proposed to extend the same to December 17, 1985 upon finding that the cancellation was made in error and that the premiums were paid in full by the petitioner but were not remitted by the insurance companys branch manager Petitioner filed an action for damages against the respondent insurance company June 1987 RTC ruled in favor of petitioner ordering insurance company to pay actual damages, moral damages, exemplary damages, attorneys fees and costs of suit. The RTC found that the insurance company acted in bad faith having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured CA reversed the decision in favor of the insurance company citing that insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith is some motive of

self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly ISSUE: W/N the erroneous act of cancelling subject insurance policy entitle petitioner to pay damages; W/N the act of reinstating the wrongfully cancelled insurance policy obliterate whatever liability for damages it may have to bear HELD: The branch managers fraudulent act of misappropriating the premiums paid by petitionerinsured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. The facts are clear as to the relationship between private respondent insurance company and the branch manager. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. The branch managers failure to remit the premiums he received cannot constitute a defense for the insurance company; no exoneration from

liability could result from such. The fact that the insurance company was defrauded as well does not free it from its obligation to the petitioner. Its earlier act of reinstating the insurance policy cannot obliterate the injury inflicted on the petitioner. Art. 1191 states the injured party or the petitioner is given a choice between fulfillment or rescission of the obligation in case one of the obligors fails to comply with what is incumbent upon him. The said article entitles the injured party to payment of damages, whether he demands fulfillment or rescission of the obligation. As such, mere reinstatement of the insurance policy is not the remedy in this case

SANTOS VENTURA HOCORMA FOUNDATION SANTOS 441 SCRA 472 (NOVEMBER 5, 2004)

INC

V.

Art. 1169 CC. Those obliged to deliver or to do something incur in delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation. NATURE: Review on certiorari of the decision and resolution of the Court of Appeals FACTS: Santos had filed several civil cases against Santos Ventura Hocorma Foundation, Inc. (SVHFI). On October 26, 1990, they executed a Compromise Agreement which amicably ended all their pending litigations subject to the following: That SVHFI shall pay Santos Php14.5 M with Php1.5 M immediately upon the execution of the agreement and the balance of Php13 M whether in lump sum or in installments a period of not more than 2 years from the execution of the agreement; provided that in the event that SVHFI does not pay the whole or any part of the balance, it shall be paid with the land or real properties of SVHFI which were previously covered by lis pendens but in no case shall the payment of such balance be later than 2 years from the date of the agreement. That immediately upon the execution of the agreement and the receipt of the Php1.5 M, Santos shall cause the dismissal of Civil Cases and voluntarily withdraw the appeals from the other civil cases; provided that in the event that SVHFI shall sell or dispose any lands previously subject of lis pendens, the proceeds of such sale may be required and shall be partially devoted to the payment of the SVHFIs foundations. That if there is failure of compliance, the aggrieved party shall be entitled to a write of execution for the enforcement of the agreement. Santos moved for the dismissal of the civil cases and the lifting of the notices of lis pendens on the real properties involved. SVHFI also paid the Php1.5M. Subsequently, SVHFI sold two real properties which were previously subjects of lis pendens. Upon discovery of this, Santos sent a letter to SVHFI

demanding the payment of the Php13 M which was ignored by SVHFI. Meanwhile, on September 20, 1991, Agreement was judicially approved. the Compromise

Santos applied for the issuance of a writ of execution of the Compromise agreement which was granted. The sheriff levied on the real properties of the petitioner which were auctioned and awarded to Riverland Inc. Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging delay on the part of SVHFI in paying the balance and that under the Compromise Agreement, the obligation became due on October 26, 1992 but the payment of Php12 M was effected only on November 22, 1994. The suit covered claims for legal interest on the obligation, penalty, attorneys fees, costs of litigation and that the sales to Riverland Inc be declared final and not subject to redemption. RTC: decision for SVFHI CA: decision for Santos and Riverland Inc. Arguments of SVHFI: The compromise agreement does not provide for the payment of interest, thus the legal interest by way of penalty on account of fault or delay shall not be due and payable. Also, the said agreement did not provide for a period within which the obligation will become due and demandable, thus it is incumbent upon respondent to ask for judicial intervention to fix the period. It is only when a fixed period exists that the legal interests can be computed. Argument of Santos and Riverland Inc: Their right to damages is based on delay in the payment of the obligation provided in the compromise agreement which as stated is 2 years from its execution. This was approved by the trial court and became the law governing their contract. Thus, SVHFIs failure to comply entitles them to damages, by way of interest. ISSUE: W/N there was delay on the part of SVHFI so as to entitle Santos and Riverland Inc to legal interest HELD: Yes. In order for the debtor to be in delay or default (otherwise knows as mora which means the delay in the

fulfillment of obligations), the following requisites are to be present: 1. That the obligation be demandable and already liquidated: In the case, the obligation was already due and demandable after the lapse of the 2 year period from the execution of the contract (October 26, 1990) and not from the judicial approval of the compromise agreement (September 20, 1991). The 2 year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, the obligation was already due and demandable and the obligation is liquidated because SVFHI knows how must he is to pay and when he is to pay. 2. That the debtor delays performance: In the case, SVHFI delayed in the performance. It was only able to settle the entire balance on February 8, 1995, more than 2 years after the extrajudicial demand. It also filed several motions to delay the fulfillment of its obligation. 3. That the creditor requires the performance judicially or extra judicially: In the case, the demand letter was sent to SVHFI on October 28, 1992 which was in accordance with an extrajudicial demand contemplated by law. When the debtor knows the amount and period when he is to pay, interest as damages is allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. In the absence of agreement, the legal interest shall prevail which is 12% per annum to be computed from the extrajudicial demand.

RCPI v. CA 143 SCRA 657 (AUGUST 29, 1986) FACTS: A telegram sent through Radio Communications of the Philippines, Inc. was sent to Loreta Dionela. He alleged that it contained defamatory words causing him undue embarrassment and affected adversely his business. The corporation alleged that the additional words was a private joke between the sending and receiving operators, not meant for Dionela, not part of the telegram and not defamatory. The trial court ruled in favor of Dionela, stating that the defendant is sued directly. If they escape liability by the simple expedient of showing that it employees acted beyond the scope of their assigned tasks, it would open the door to frauds and allow the corporation to act with impunity. The appellate court confirmed their decision, stating that the proximate cause resulting in injury was the failure of the corporation to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident. The company had not imposed any safeguard against such eventualities and this void did not speak well of their concern for their clients interests. There is libel because a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see. ISSUES: W/N the CA erred in holding that the company should answer directly and primarily for the civil liability arising from the criminal acts of its employees; W/N the CA erred in holding that

the liability of the company is predicated on Arts. 19 and 20 HELD: The cause of action of Dionela was based on Arts. 19 and 20, as well as the respondents breach of conduct through the negligence of its employees. Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Every time a person transmits a message through the corporations facilities, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. Libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to Dionela. As a corporation, the petitioner can act only through its employees. Hence, the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for its employees acts in the pursuit of the corporations business is to deprive the general public availing of their services of an effective and adequate remedy.

FEBTC v. CA 241 SCRA 671 (FEBRUARY 23, 1995) FACTS: Luis A. Luna applied for a FarEastCard, along with a supplemental card to Clarita S. Luna. In Aug. 1988, Clarita lost her credit card and FEBTC was informed. She submitted an affidavit of loss to replace the lost card. On Oct. 6, 1988, Luis hosted a despedida lunch for a friend in the Intercon Hotel. He presented his card which was not honored. On Oct. 11, 1988, he demanded the payment of damages. Adrian V. Festejo, VP, expressed the banks apologies in a latter stating that the bank failed to inform him about its security policy and that an overzealous employee did not consider the possibility that his card had been hotlisted. Still feeling aggrieved, Luna filed a complaint for damages with the RTC. The trial court ruled in favor of Luna and ordered FEBTC to pay damages. The CA affirmed the trial courts decision. ISSUE: W/N FEBTC should pay damages

HELD: In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. Art. 2220: Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Bad faith includes gross, but not simple, negligence. The bank was remiss in neglecting to personally inform Luna of his own cards cancellation. However, there was no deliberate intent to cause harm and negligence in failing to give personal notice be considered as amounting to malice or bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. The Court finds that the award of moral damages to be inordinate and substantially devoid of legal basis. In quasi-delicts, exemplary or corrective damages are granted if the defendant is shown to have been so guilt of gross negligence as to approximate malice. In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Nevertheless, the banks failure to honor its credit card should entitle him to recover a measure of damages sanctioned under Art. 2221: Nominal damages are adjudicated in order that a right of plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the

plaintiff for any loss suffered by him. The appealed decision is modified by deleting the award for moral and exemplary damages.

BRICKTOWN DEVT. CORP. V. AMOR TIERRA 239 SCRA 126 (DECEMBER 12, 1994) FACTS: On Mar. 31, 1981, Bricktown Devt. Corp. executed 2 Contracts to Sell in favor of Amor Tierra Devt. Corp. covering a total of 96 residential lots in Multinational Village Subdivision in Paranaque with a total price of P21,639,875 to be paid as follows: P2,200,000 on Mar. 31, 1981, P3,209,968.75 on Jun. 30, 1981, P4,729,906.25 on Dec. 31, 1981 and the balance of P11,500,000 to be paid by means of an assumption of Amor Tierra of Bricktowns mortgage liability to Philippine Savings Bank or, alternatively, to be made payable in

cash. They executed a Supplemental Agreement, providing that Amor Tierra would additionally pay to Bricktown the amounts of P55,364.68 or 21% interest on the balance of downpayment for the period from Mar. 31 to Jun. 30, 1981, and P390,369.37 representing interest paid by Bricktown to the Philippine Savings Bank in updating the bank loan for Feb. 1 to Mar 31, 1981. Amor Tierra was only able to pay P1,334,443.21 but the parties continued to negotiate a possible modification for the agreement, though nothing conclusive arrived. On Oct. 12, 1981, Bricktown sent Amor Tierra a Notice of Cancellation of Contract on account of the failure to pay the installment due on Jun. 30, 1981 and the interest on the unpaid balance of the stipulated initial payment. Bricktown advised Amor Tierra that it still had the right to pay its arrearages within 30 days from receipt of notice before actual cancellation. On Sept. 26, 1983, Amor Tierra demanded the refund of various payments amounting to P2,455,497.91 with interest within 15 days from receipt of letter or to assign them an equivalent number of unencumbered lots at the same price. The demand was ignored and Amor Tierra filed an action. The trial court decided in favor of Amor Tierra, ordering the Contracts to Sell and Supplemental Agreement rescinded and the refund of P1,334,443.21 with interest at 12% per annum. The CA affirmed the trial courts decision. ISSUES: W/N the contracts to sell were validly rescinded or cancelled by petitioner corporation; W/N the amounts already remitted by Amor Tierra under said contracts were rightly forfeited by Bricktown

HELD: The terms of payment were not met by Amor Tierra, including the initial payment, and no additional payments were made. A notice of cancellation was made months after the lapse of the contracted grace period. A grace period is a right of the debtor. When unconditionally referred, the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right. The cancellation of the contracts to sell by Bricktown accords with the contractual covenants of the parties. In a contract to sell, the non-payment of the purchase price (which is normally the condition for the final sale) can prevent the obligation to convey title from acquiring any obligatory force. Though Bricktown still acted within its legal right to declare the contracts to sell rescinded or cancelled, it would be unconscionable to sanction the forfeiture of payments by Amor Tierra. Because of the negotiations between the parties and that Amor Tierra never took actual possession of the properties, they were led to believe that the parties might enter into another agreement in place of the contracts to sell. There was no malice or bad faith on their part in suspending payment. Bricktown had not only contributed but consented to the delay or suspension of payments. They did not give Amor Tierra a categorical answer that their counter-proposals would not materialize. It is not equitable to adjudge any interest payment by Bricktown on the amount to be refunded for they should not be totally free of its own breach. The appealed decision is affirmed as it declares the cancellation of the contracts but modified by ordering the refund of P1,334,443.21 with 12% interest per annum to commence only from the date of finality of the decision.

TAGUBA v. DE LEON 132 SCRA 722 (OCTOBER 23, 1984) FACTS: Berlin Taguba married to Sebastiana Domingo who is the owner of a residential lot in Isabela. Pedro Asuncion and Marita Lungab (also petitioners), and respondent, Maria Peralta Vda de De Leon were separately occupying portions of the lot as lessees. On Aug. 27, 1972, Taguba sold a portion of the lot to De Leon, comprising the area occupied by the Asuncions and De Leon, in a Deed of Conditional Sale which stated that it would be sold for P18,000 as follows: P3,500 upon signing the contract, the pay P1,000 monthly starting Sept. 1972, and that failure to pay the whole payment by Dec. 31, 1972, the vendee will be given a 6 month extension with interest after which the vendor may increase the price to P50 per sq. meter which the vendee agrees to pay. De Leon alleged that she had paid P12,500 and tendered payment of the balance of P5,500 but the latter refused to receive payment, and since negotiations for settlement failed, De Leon instituted a complaint for Specific Performance. Taguba claimed that De Leon failed to comply with her obligation despite several extensions granted her, by which Taguba was compelled with the consent of De Leon to negotiate the sale of a portion of the property to the Asuncions. Taguba alleged that they had agreed that De Leon and the Asuncions would buy only the portions they held as lessees. The trial court ordered Taguba to execute a Deed of Absolute Sale for the area she occupied and reimbursement of the ayment for the excess area. The CA reversed the decision ordering Taguba to execute a deed of absolute sale to De Leon, and declaring the deed of sale with the Asuncions

as null and void in view of the proper sale of the property, allowing with reimbursement to them. ISSUE: W/N the deed of conditional sale was validly rescinded HELD: The contract of sale between Taguba and De Leon was absolute in nature. Despite the Deed of Conditional Sale, nowhere in the contract can a stipulation or proviso be found that title of the property sold is reserved in the vendor until full payment of the purchase price. There is also no stipulation giving Taguba the right to unilaterally rescind the contract the moment De Leon fails to pay within the fixed period. The only right of Taguba as vendor was to collect interest at the legal rate if De Leon fails to pay the full purchase price and to increase the price after Dec. 31, 1972 for 6 mos. The applicable provision is Art. 1592:In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand the court may not grant him a new term. Taguba never notified De Leon by notarial act that he was rescinding the contract, and neither had he filed a suit in court to rescind the sale. Where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement. Considering that De Leon had already paid, equity and justice mandate that she be given additional period within which to complete payment. The deed of sale to the Asuncions cannot prevail over the previous sale. They cannot be considered buyers in good faith because they are aware of the earlier sale to De Leon.

inherit a part, had been adjudicated to Soledad PronidoElevencionado a sister of Mrs. Marin and a first cousin also of the Armadas. Soledad claimed to be the sole heir of Proceso. So, the Armadas and the other heirs had to sue Soledad. The protracted litigation ended in a compromise in 1976 when the Armadas were awarded Lots 906-A-2 and 906A-3, located in Barrio lagao, General Santos City; Marin never possessed these two lots. They ere supposed to be exchange for her pro indiviso share in her parents' estate in Janiuay. MARIN V ADIL 130 SCRA 408 (JULY 16, 1984) FACTS: Brothers Manuel & Ariston Armada and Aquiline Marin are first cousins. The Armadas in 1963 expected to inherit some lots in General Santos City from their uncle, Proceso Pacificar, who died in 1954. Marin, who resided in Cotabato, had hereditary rights in the estates of her parents, the deceased spouses, Francisco and Monica Provido, of Janiuay Iloilo, who died in 1938 and 1960, respectively. Manuel P. Armada resided in Janiuay. In a document entitled Deed of Exchange with Quitclaim, Marin assigned to the Armada brothers her hereditary share in the testate estate of her deceased mother, Monica Pacificar Vda. de Provido, in Iloilo, in exchange for the land of the Armadas located in Cotabato. The exchange would be rescindible when it is definitely ascertained that the parties have respectively no right to the properties sought to be exchanged. The exchange did not mean that the parties were definitely entitled to the properties being exchanged but it was executed "in anticipation of a declaration of said right". When the deed of exchange was executed, the estate of Proceso Pacificar, in which the Armadas expected to Five years after the deed was executed, Marin agreed to convey to her sister, Aurora Provido-Collado, her interest in 2 lots in January in payment of her obligation amounting to P1,700. Then, in the extra-judicial partition of her parents' estate, Marins share was formally adjudicated to Aurora. It was stated therein that Marin "has waived, renounced and quitclaimed her share" in favor of Aurora. As already stated, that share was supposed to be exchanged for the two lots in General Santos City which the Armadas received in 1976 after a pestiferous litigation. Hence, the Armadas filed the instant rescissory action against Mrs. Marin. ISSUE: W/N the deed of exchange and was valid and binding? HELD: NO. It is evident from the deed of exchange that the intention of the parties relative to the lots, which are the objects of the exchange, cannot be definitely ascertained. We hold that this circumstance renders the exchange void or inexistent (Art. 1378, 2nd par. and Art. 1409[6], Civil Code). It is provided in paragraph 7 that the deed should not be construed as an acknowledgment by the Armadas and

Mrs. Marin that they are entitled to the properties involved therein and that it was executed "in anticipation of a declaration of" their rights to the properties. Then, it is stipulated in paragraph 8 that the parties should take possession and make use of the properties involved in the deed. The two provisions are irreconcilable because paragraph contemplates that the properties are still to be awarded or adjudicated to the parties whereas paragraph 8 envisages a situation where the parties have already control and possession thereof. It should be noted that in Marin's answer with affirmative defense she avers therein that her 1968 agreement with her sister means that she would convey her properties to Aurora when the Armadas should be "adjudged to be without rights or interests to any properties in General Santos City." Such a qualifications is not found in her agreement with her sister. The instant rescissory action may be treated as an action to declare void the deed of exchange. The action to declare the inexistence of a contract does not prescribe (Art. 1410, Civil Code). The properties covered by the deed should have been specified and described. A perusal of the deed gives the impression that it involves many properties. In reality, it refers only to 8,124 square meters of land, which the Armadas would inherit from their uncle in General Santos City, and to the 9,000 square meters representing the proindiviso share of Mrs. Marin in her parents' estate. As we have seen, Mrs. Marin rendered impossible the performance of her obligation under the deed. Because of that impossibility, the Armadas could rescind extrajudicially the deed of exchange (Art. 1191 Civil Code). If Mrs. Marin should sue the Armadas, her action would be barred under the rule of exceptio non

adimpleti contractus (plaintiff is not entitled to sue because he has not performed his part of the agreement)

MCLAUGHLIN V CA 144 SCRA 693 (OCTOBER 10, 1986) FACTS: Petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered into a contract of conditional sale of real property. The deed of conditional sale fixed the total purchase price of P140k payable as follows: a) P26k upon the execution of the deed; and b) the balance of P113k to be paid not later than May 1977. The parties also agreed that the balance shall bear interest at the rate of 1% per month to commence from December 1976, until the full purchase price was paid. In 1979, petitioner filed a complaint for the rescission of the deed of conditional sale due to the failure of private respondent to pay the balance due on May 31, 1977.

Later, the parties submitted a Compromise Agreement on the basis of which the court rendered a decision. In said compromise agreement, private respondent acknowledged his indebtedness to petitioner under the deed of conditional sale in the amount of P119k, and the parties agreed that said amount would be payable as follows: a) P50k upon signing of the agreement; and b) the balance of P69k in two equal installments on June 1980 and December 1980. As agreed upon, private respondent paid P50k upon the signing of the agreement and in addition he also paid an "escalation cost" of P25k. Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay P1k monthly rental beginning December 1979 until the obligation is duly paid, for the use of the property subject matter of the deed of conditional sale. Paragraphs 6 and 7 of the Compromise Agreement further state: That the parties are agreed that in the event the defendant (private respondent) fails to comply with his obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality, defendant (private respondent) hereby waives his right to appeal to (from) the Order of Rescission and the Writ of Execution which the Court shall render in accordance with the stipulations herein provided for. Xxx That in the event of execution all payments made by defendant (private respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated damages. In October 1980, petitioner wrote to private respondent demanding that the latter pay the balance of P69k. This demand included not only the installment due on June 1980 but also the installment due on December 1980.

Private respondent then sent a letter to petitioner signifying his willingness and intention to pay the full balance of P69k, and at the same time demanding to see the certificate of title of the property and the tax payment receipts. Private respondent holds that on the first working day of said month, he tendered payment to petitioner but this was refused acceptance by petitioner. Petitioner filed a Motion for Writ of Execution alleging that private respondent failed to pay the installment due on June 1980 and that since June 1980 he had failed to pay the monthly rental of P1k. RTC granted the motion for writ of execution. It denied the motion for reconsideration in an order dated November 21, 1980 and issued the writ of execution on November 25, 1980. In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for clarification of the order of execution rescinding the deed of conditional sale of real property. ISSUE: W/N the CA erred in compromise agreement rescinded declaring the

HELD: NO. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are substantial and fundamental as to defeat the object of the parties in making the agreement. In the case at bar, despite Flores' failure to make the payment which was due on June 1980, McLaughlin waived whatever right she had under the compromise agreement to demand rescission. It is significant to note that on November 17, 1980, or just 17 days after October 31, 1980, the deadline set by McLaughlin, Flores tendered the certified manager's check. Considering that Flores had already paid P101,550.00 under the contract

to sell, excluding the monthly rentals paid, certainly it would be the height of inequity to have this amount forfeited in favor McLaughlin. Under the questioned orders, McLaughlin would get back the property and still keep P101,550.00. Moreover, section 4 of Republic Act No. 6552 (Maceda Law) provides as follows: In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of the cancellation or the demand for rescission of the contract by a notarial act. Section 7 of said law provides as follows: Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void. The spirit of these provisions further supports the decision of the appellate court. Assuming that under the terms of said agreement the December 31, 1980 installment was due and payable when on October 15, 1980, petitioner demanded payment of the balance of P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after thirty days from receipt by private respondent of the notice of cancellation. Considering petitioner's motion for execution filed on November 7, 1980 as a notice of cancellation, petitioner could cancel the contract of conditional sale after thirty days from receipt by private respondent of said motion. The tender made by private respondent of a certified bank manager's check payable to petitioner was a valid tender of payment. Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that: An offer in writing to pay a particular sum of money

or to deliver a written instrument or specific property is, if rejected, equivalent to the actual production and tender of the money, instrument, or property. However, although private respondent had made a valid tender of payment which preserved his rights as a vendee in the contract of conditional sale of real property, he did not follow it with a consignation or deposit of the sum due with the court. In one case, it was held: True that consignation of the redemption price is not necessary in order that the vendor may compel the vendee to allow the repurchase within the time provided by law or by contract. We have held that in such cases a mere tender of payment is enough, if made on time, as a basis for action against the vendee to compel him to resell. But that tender does not in itself relieve the vendor from his obligation to pay the price when redemption is allowed by the court. In other words, tender of payment is sufficient to compel redemption but is not in itself a payment that relieves the vendor from his liability to pay the redemption price." In compliance with a resolution issued by the lower court, both parties submitted their respective manifestations which confirm that the Manager's Check in question was subsequently withdrawn and replaced by cash, but the cash was not deposited with the court. According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated therein; Article 1257 provides that in order that the consignation of the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation; and Article 1258 provides that consignation shall be made by

depositing the thing (or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified thereof. Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. In the case at bar, although as above stated private respondent had preserved his rights as a vendee in the contract of conditional sale of real property by a timely valid tender of payment of the balance of his obligation which was not accepted by petitioner, he remains liable for the payment of his obligation because of his failure to deposit the amount due with the court.

CENTRAL BANK V CA 139 SCRA 46 (1985) FACTS: On April 1965, Island Savings Bank approved the loan of Sulpicio Tolentino for P80K payable in 3 years with 12% interest per annum and put his 100-hectare land as guaranty (mortgage). On May 1965, only P17K of the P80K was released by the bank and Sulpicio and his wife signed a promissory note for the same consideration. The bank promised repeatedly the release of P63K. On August 1965, the Monetary Board of the Central Bank, after finding Island Savings was suffering liquidity problems, issued a resolution prohibiting it from making new loans and investments (except investment in government securities) excluding granting extensions and renewals of already approved loans subject to review by the Superintendent of Banks. On June 1968, after finding that Island savings failed to put up the required capital to restore its solvency prohibited it from doing diong business and instructed the Acting Superintendent of Banks to take charge of the Banks assets. On August 1968, Island savings filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio.

On January 1979, Sulpicio filed a petition with the CFI for injunction, specific performance or rescission with damages with preliminary injunction alleging that Island Savings failed to deliver the P63K balance of the P80K loan. He prayed the delivery of P63K plus 12% legal interest and if the same is not fulfilled, then the real estate mortgage should be rescinded. Upon filing of a P5K bond, the CFI issued a TRO enjoining Island Savings from continuing with foreclosure of the mortgage. After the trial, the CFI dismissed the petition of Sulpicio ordered him to pay the P17K loan plus 12% legal interest and if he failed to pay the same the TRO be lifted and the foreclosure may proceed. Sulpicio appealed the decision to the CA which in turn affirmed the dismissal of his petition but ruled that Island Savings can neither foreclose the mortgage nor collect the P17K loan. Hence this appeal. ISSUES: (1) Whether or not Sulpicio entitled to the relief of specific performance? (2) Whether or not Sulpicio is liable to pay the P17K debt covered by the promissory note? (3) If Sulpicios liability to pay the P17K subsists, can his real estate mortgage be foreclosed to satisfy the said amount? HELD: When Island Savings and Sulpicio entered into an P80K loan agreement in 1965, they undertook reciprocal obligations. In reciprocal oblications, neither party incurs in delay when the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. So when Sulpicio furnished his land on April 1965 in consideration of P80K and when Island Savings failed to comply the fulfillment of the P80K, the latter

incurred in delay. Neither is it a valid defense when the monetary board prohibited it from extending new loans because it did not prevent it from releasing the balance of a loan agreement previously contracted. Sulpicio then has the right to demand specific performance but in view of the consideration that the monetary board prohibited it from doing any business, specific performance can no longer be granted. In the same line, the only remedy left is rescission of the contract but it can only apply to the balance of P63K because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Thus there is still the obligation of Sulpicio to pay Island Savings the P17k he loaned. However, Sulpicios land may not be foreclosed in whole because the 100-hectare land was in consideration of P80K. Since only P17K was given or constituting only 21.25 percent, the land that may only be foreclosed should correspond to the amount given. Thus his real estate covering 78.75 hectares was declared unenforceable.

ISSUE: W/N the Court committed GAD in failing to take cognizance of the fact that defendants failed to exercise utmost and/or extraordinary diligence required of common carriers contemplated under Art. 1755 HELD: There are specific acts of negligence on the part of the respondents. The passenger jeepney turned turtle and jumped into a ditch immediately after its rear tire exploded which shows that the jeepney was running at a very fast speed. It was also overloaded at the time of the accident. The sudden blow-up of the tire could have been caused by too much air pressure injected into the tire coupled by the fact that it was overloaded and speeding at the time of the accident. The accident was caused either through the negligence of the driver or because of the mechanical defects of the tire. The rationale of the carriers liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. The source of a common carriers legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all circumstances.

JUNTILLA V FONTANAR 136 SCRA 624 (1985) FACTS: Roberto Juntilla was a passenger of a jeepney driven by Berfol Camoro, which was registered under the franchise of Clemente Fontanar and owned by Fernando Banzon. The right rear tire exploded causing the vehicle to turn turtle. Juntilla was seatedin the front and he was thrown out of the vehicle and lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm, injuries on his left arm, right thigh and back, and his Omega wristwatch was lost. He filed a case with the City Court of Cebu where judgment was rendered in favor of Juntilla, ordering defendants to pay him damages and reimbursement. The CFI reversed the decision, finding the accident a fortuitous incident and pronouncing them without liability.

A caso fortuito: 1. The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will. 2. It must be impossible to foresee the event constituting the caso fortuito, or if it can be foreseen, it must be impossible to avoid. 3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. 4. The obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the creditor.

collapsed) which compelled the tenants to vacate the premises. PBA, sued UCCI and Nakpil. Since the case involves a high degree of technicality to ascertain the cause of action, the trial court appointed a Commissioner to report to him his findings. According to the Commissioner the damage is caused by: 1. Earthquake 2. defects in the plans and specifications prepared by the third-party defendants architects. 3. deviations from said plans and specifications by the defendant contractors 4. failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects 5. failure of the owners to exercise the requisite degree of supervision in the construction of subject building The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. The Court sees no legal or contractual basis for such conclusion. Defendants appealed the decision of the trial court to CA.

NAKPIL & SONS V CA 144 SCRA 596 (1986)

FACTS: Philippine Bar Association, an NGO, entered into a contract with UCCI on administration basis and Nakpil & Sons to construct a building; the latter will provide the design and specifications of the said building. Two years after the building is constructed and is being leased by PBA, an earthquake, unusually strong hit Metro Manila. As a result, the building is severely damaged (partially

CAs decision is to affirm the lower courts decision with the additional P200K damages. ISSUE: W/N an act of God-an unusually strong earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence HELD: No. ART 1723 NCC Liability of the engineer or architect is if the building should collapse within 15 years because of a defect in

the plans and specification OR due to the defects in the ground. The liability of the contractor lies if the building should collapse w/in 15 years because of (1) defects in the CONSTRUCTION (2) USE of materials of INFERIOR QUALITY furnished by contractor or (3) VIOLATION of the terms of the contract. If the construction was supervised by the engineer or architect, he shall be solidarily liable with the contractor. If the owner of the building accepts the building after it is constructed does not mean a WAIVER of any cause of action by reason of defects. The action should be brought within 10 years. On the other hand, 1174 of NCC: Except in cases expressly specified by law, or otherwise when it is declared in stipulation or when from the nature of the obligation requires the assumption of risk, no person shall be liable for those events which could not be foreseen, or which, though foreseen, were ineveitable. Elements of 1174, fortuitous event (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that while it is not possible to state with certainty that the building would not have collapsed were those defects not present,

the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected, cannot be ignored. One who negligently creates a dangerous condition cannot escape liability for the natural and probable 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. As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity were 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.

SOUTHEASTERN COLLEGE VS CA (1998) FACTS: Private respondents are owners of a house at 326 College Road, Pasay while petitioner owns a fourstorey school building along the same College Road. That on October 11, 1989, a powerful typhoon hit Metro Manila. Buffeted by very strong winds, the roof of the petitioners building was partly ripped off and blown away, landing on and destroying portions of the roofing of private respondents house. When the typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of engineers headed by the city building official. In their report, they imputed negligence to the petitioner for the structural defect of the building and improper anchorage of trusses to the roof beams to cause for the roof be ripped off the building, thereby causing damage to the property of respondent. Respondents filed an action before the RTC for recovery of damages based on culpa aquiliana. Petitioner interposed denial of negligence and claimed that the typhoon as an Act of God is the sole cause of the damage. RTC ruled in their favor relying on the testimony of the City Engineer and the report made after the ocular inspection. Petitioners appeal before the CA which affirmed the decision of the RTC. Hence this present appeal. ISSUES: (1)Whether the damage on the roof of the building of private respondents resulting from the impact of the falling portions of the school buildings roof ripped off by the strong winds of typhoon Saling, was,

within legal contemplation, due to fortuitous event? (2)Whether or not an ocular inspection is sufficient evidence to prove negligence? HELD: On the first issue, Yes, petitioner should be exonerated from liability arising from the damage caused by the typhoon. Under Article 1174 of the Civil Code, Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned. 12 An act of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a persons negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is found to be partly the result of the participation of man whether it be from active intervention, or neglect, or failure to act the whole occurrence is hereby humanized, and removed from the rules applicable to acts of God. In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school buildings roofing had no sufficient anchorage to hold it in position especially when battered by strong winds. Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable

for damages to private respondents. There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care. In order to be exempt from liability arising from any adverse consequence engendered thereby, there should have been no human participation amounting to a negligent act. In other words; the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which the circumstances justify demand, or the omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human affairs, would do. On the second issue, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively established by competent evidence, 19 not merely by presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of petitioner, merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioners school building after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or viewing. What is visual to the eye through, is not always reflective of the real cause behind. In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioners school building. LIAM LAW V. OLYMPIC SAWMILL 129 SCRA 439 (MAY 28, 1984) FACTS: Plaintiff loaned P10k, without interest, to Olympic Sawmill and defendant Elino Lee Chi, as the managing partner. The loan became ultimately due, but was not paid, with the debtors asking for an extension of three months. Parties then executed another loan document. Payment of the P10k was extended to April 30, 1960, but the obligation was increased by P6k, to form part of the principal obligation to answer for attorney's fees, legal interest, and other cost incident thereto to be paid unto the creditor and his successors in interest upon the termination of this agreement. Defendants again failed to pay their obligation and plaintiff instituted this collection case. Defendants admitted the P10k principal obligation, but claimed that the additional P6k constituted usurious interest.

RTC rendered decision ordering defendants to pay plaintiff the amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages with legal rate of interest on both amounts from April 30, 1960." It is from this judgment that defendants have appealed. ISSUE: W/N the defendant may evade payment of the P6k obligation on the claim that such interest was usurious? HELD: NO. The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00 constituted usurious interest. They insist the claim of usury should have been deemed admitted by plaintiff as it was "not denied specifically and under oath". Section 9 of the Usury Law (Act 2655) provided: SEC.9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed against said person or corporation before a competent court to recover the money or other personal or real property, seeds or agricultural products, charged or received in violation of the provisions of this Act. The lack of taking an oath to an answer to a complaint will mean the admission of the facts contained in the latter. The foregoing provision envisages a complaint filed against an entity which has committed usury, for the recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer under oath denying the allegation of usury, the defendant shall be deemed to have admitted the usury. The provision does not apply to a case, as in the present, where it is the defendant, not the plaintiff, who is alleging usury. Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as lender and borrower may agree upon. The Rules of

Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.