TANGUILIG V.

CA
FACTS OF THE CASE:
Herce contracted Tanguilig to construct
a windmill system for him, for consideration of
60,000.00. Pursuant to the agreement Herce
paid the downpayment of 30,000.00 and
installment of 15,000.00 leaving a 15,000.00
balance.
Herce refused to pay the balance
because he had already paid this amount to
SPGMI which constructed a deep well to which
the windmill system was to be connected
since the deepwell, and assuming that he
owed the 15,000.00 this should be offset by
the defects in the windmill system which
caused the structure to collapse after strong
winds hit their place. According to Tanguilig,
the 60,000.00 consideration is only for the
construction of the windmill and the
construction of the deepwell was not part of
it. The collapse of the windmill cannot be
attributed to him as well, since he delivered it
in good and working condition and Herce
accepted it without protest. Herce contested
that the collapse is attributable to a typhoon,
a force majeure that relieved him of liability.

- Tanguilig merely stated that there was a

strong wind, and a strong wind in this case is
not fortuitous, it was not unforeseeable nor
unavoidable, places with strong winds are the
perfect locations to put up a windmill, since it
needs strong winds for it to work.
HELD:
WHEREFORE, the appealed decision is
MODIFIED. Respondent VICENTE HERCE JR. is
directed to pay petitioner JACINTO M.
TANGUILIG the balance of P15,000.00 with
interest at the legal rate from the date of the
filing of the complaint. In return, petitioner is
ordered to "reconstruct subject defective
windmill system, in accordance with the oneyear guaranty" and to complete the same
within three (3) months from the finality of
this decision.
Obligations and Contracts Terms:
Fortuitous Events- Refers to an occurrence or
happening which could not be foreseen, or
even if foreseen, is inevitable. It is necessary
that the obligor is free from negligence.
Fortuitous events may be produced by two (2)
general causes: (1) by Nature, such as but not
limited to, earthquakes, storms, floods,
epidemics, fires, and (2) by the act of man,
such as but not limited to, armed invasion,
attack by bandits, governmental prohibitions,
robbery, provided that they have the force of
an imposition which the contractor or supplier
could not have resisted.

The RTC ruled in favor of Tanguilig, but this

decision was overturned by the Court of
Appeals which ruled in favor of Herce
ISSUES OF THE CASE:
Can the collapse of the windmill be attributed
to force majeure? Thus, extinguishing the
liability of Tanguilig?

H. E. HEACOCK COMPANY vs.

MACONDRAY & COMPANY, INC.

- Yes, in order for a party to claim exemption

from liability by reason of fortuitous event
under Art 1174 of the Civil Code the event
should be the sole and proximate cause of the
loss or destruction of the object of the
contract.
- In Nakpil vs. Court of Appeals, the S.C. held
that 4 requisites must concur that there must
be a (a) the cause of the breach of the
obligation must be independent of the will of
debtor (b) the event must be either
unforeseeable or unavoidable; (c) the event
be such to render it impossible for the debtor
to fulfill his obligation in a normal manner;
and (d) the debtor must be free from any
participation in or aggravation of the injury to
the creditor.

Facts: Plaintiff caused to be delivered on

board of steamshipBolton Castle, four cases of
merchandise one of which contained twelve
(12) 8-day Edmond clocks properly boxed and
marked for transportation to Manila, and paid
freight on said clocks from New York to Manila
in advance. The said steampship arrived in
the port of Manila on or about the 10th day of
September, 1919, consigned to defendant.
Neither the master of said vessel nor the
defendant herein, as its agent, delivered to
the plaintiff the aforesaid twelve 8-day
Edmond clocks, although demand was made
upon them for their delivery.

The invoice value of the said twelve 8-day

Edmond clocks in the city of New York was
P22 and the market value of the same in the
City of Manila at the time when they should
have been delivered to the plaintiff was P420.
The bill of lading issued and delivered to the
plaintiff by the master of the said steamship
Bolton Castle contained, among others, the
following clauses:
1. It is mutually agreed that the value of the
goods receipted for above does not exceed
$500 per freight ton, or, in proportion for any
part of a ton, unless the value be expressly
stated herein and ad valorem freight paid
thereon.
9. Also, that in the event of claims for short
delivery of, or damage to, cargo being made,
the carrier shall not be liable for more than
the net invoice price plus freight and
insurance less all charges saved, and any loss
or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis.
The case containing the aforesaid twelve 8day Edmond clocks measured 3 cubic feet,
and the freight ton value thereof was $1,480,
U. S. currency.No greater value than $500, U.
S. currency, per freight ton was declared by
the plaintiff on the aforesaid clocks, and no ad
valorem freight was paid thereon. The lower
court, in accordance with clause 9 of the bill
of lading above quoted, rendered judgment in
favor of the plaintiff against the defendant for
the sum of P226.02.
The plaintiff-appellant insists that it is
entitled to recover from the defendant the
market value of the clocks in question, to wit:
the sum of P420. The defendant-appellant, on
the other hand, contends that, in accordance
with clause 1 of the bill of lading, the plaintiff
is entitled to recover only the sum of P76.36,
the proportionate freight ton value of the said
clocks. The claim of the plaintiff is based upon
the argument that the two clause in the bill of
lading above quoted, limiting the liability of
the carrier, are contrary to public order and,
therefore, null and void. The defendant, on
the other hand, contends that both of said
clauses are valid, and the clause 1 should
have been applied by the lower court instead
of clause 9.

Held: Yes
Three kinds of stipulations have often
been made in a bill of lading. The first is one
exempting the carrier from any and all liability
for loss or damage occasioned by its own
negligence. The second is one providing for
an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting
the liability of the carrier to an agreed
valuation unless the shipper declares a higher
value and pays a higher rate of freight.
According to an almost uniform weight of
authority, the first and second kinds of
stipulations are invalid as being contrary to
public policy, but the third is valid and
enforceable.
A reading of clauses 1 and 9 of the bill
of lading here in question, however, clearly
shows that the present case falls within the
third stipulation, to wit: That a clause in a bill
of lading limiting the liability of the carrier to a
certain amount unless the shipper declares a
higher value and pays a higher rate of freight,
is valid and enforceable.
It seems clear from the foregoing
authorities that the clauses (1 and 9) of the
bill of lading here in question are not contrary
to public order. Article 1255 of the Civil Code
provides that "the contracting parties may
establish any agreements, terms and
conditions they may deem advisable,
provided they are not contrary to law, morals
or public order." Said clauses of the bill of
lading are, therefore, valid and binding upon
the parties thereto.
Other issue related to the case (as to
interpretation of BOL):
It will be noted, however, that whereas
clause 1 contains only an implied undertaking
to settle in case of loss on the basis of not
exceeding $500 per freight ton, clause 9
contains an express undertaking to settle on
the basis of the net invoice price plus freight
and insurance less all charges saved. "Any
loss or damage for which the carrier may be
liable shall be adjusted pro rata on the said
basis," clause 9 expressly provides. It seems
to us that there is an irreconcilable conflict
between the two clauses with regard to the
measure of defendant's liability. It is difficult
to reconcile them without doing violence to
the language used and reading exceptions
and conditions into the undertaking contained
in clause 9 that are not there. This being the

Issue: Whether or not a common carrier, by

stipulations inserted in the bill of lading, limit
its liability for the loss of or damage to the
cargo to an agreed valuation.

case, the bill of lading in question should be

interpreted against the defendant carrier,
which drew said contract. "A written contract
should, in case of doubt, be interpreted
against the party who has drawn the
contract." It is a well-known principle of
construction that ambiguity or uncertainty in
an agreement must be construed most
strongly against the party causing it.(6 R. C.
L., 855.) These rules as applicable to
contracts contained in bills of lading. "In
construing a bill of lading given by the carrier
for the safe transportation and delivery of
goods shipped by a consignor, the contract
will be construed most strongly against the
carrier, and favorably to the consignor, in
case of doubt in any matter of construction."

judgment shall be adjudged unto the said

necessary plaintiff.
Petitioners filed a MTD, which was denied. RTC
ordered Autocorp to pay ISAC and/or BOC the
face value of the subject bonds plus AF.
Autocorps MR was denied. CA affirmed the
trial courts decision. MR was denied. Hence
this Petition for Review on Certiorari
ISSUE: WON these bonds are now due and
demandable, as there is yet no actual
forfeiture of the bonds, but merely a
recommendation of forfeiture, for no writ of
execution has been issued against such
bonds, therefore the case was prematurely
filed by ISAC
HELD: PETITION IS WITHOUT MERIT

AUTOCORP and Rodriguez vs. ISAC and

BOC
G.R. No. 166662
June 27, 2008
FACTS: Autocorp Group, represented by its
President, Rodriguez, secured an ordinary reexport bond from private respondent Intra
Strata Assurance Corporation (ISAC) in favor
of public Bureau of Customs (BOC), to
guarantee the re-export of 2 units of car (at 2
different dates) and/or to pay the taxes and
duties thereon. Petitioners executed and
signed two Indemnity Agreements with
identical stipulations in favor of ISAC,
agreeing to act as surety of the subject bonds
In sum, ISAC issued the subject bonds to
guarantee compliance by petitioners with
their undertaking with the BOC to re-export
the imported vehicles within the given period
and pay the taxes and/or duties due thereon.
In turn, petitioners agreed, as surety, to
indemnify ISAC for the liability the latter may
incur on the said bonds
Autocorp failed to re-export the items
guaranteed by the bonds and/or liquidate the
entries or cancel the bonds, and pay the taxes
and duties pertaining to the said items,
despite repeated demands made by the BOC,
as well as by ISAC. By reason thereof, the BOC
considered the two bonds forfeited.
Failing to secure from petitioners the payment
of the face value of the two bonds, ISAC filed
with the RTC an action against petitioners to
recover a sum of money plus AF. ISAC
impleaded the BOC as a necessary party
plaintiff in order that the reward of money or

YES
The Indemnity Agreements give ISAC the right
to recover from petitioners the face value of
the subject bonds plus attorneys fees at the
time ISAC becomes liable on the said bonds to
the BOC, (specifically to re-export the
imported vehicles within the period of six
months from their date of entry) regardless of
whether the BOC had actually forfeited the
bonds, demanded payment thereof and/or
received such payment. It must be pointed
out that the Indemnity Agreements explicitly
provide that petitioners shall be liable to
indemnify ISAC whether or not payment has
actually been made by the [ISAC] and ISAC
may proceed against petitioners by court
action or otherwise even prior to making
payment to the [BOC] which may hereafter be
done by [ISAC].
Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before
having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal
debtor;
(3) When the debtor has bound himself to
relieve him from the guaranty within a
specified period, and this period has expired;
(4) When the debt has become
demandable, by reason of the expiration
of the period for payment;
(5) After the lapse of ten years, when the
principal obligation has no fixed period for its
maturity, unless it be of such nature that it

cannot be extinguished except within a period

longer than ten years;
(6) If there are reasonable grounds to fear
that the principal debtor intends to abscond;
(7) If the principal debtor is in imminent
danger of becoming insolvent.
In all these cases, the action of the guarantor
is to obtain release from the guaranty, or to
demand a security that shall protect him from
any proceedings by the creditor and from the
danger of insolvency of the debtor.
NOTES:
A demand is only necessary in order to put an
obligor in a due and demandable obligation in
delay, which in turn is for the purpose of
making the obligor liable for interests or
damages for the period of delay. Thus, unless
stipulated otherwise, an extrajudicial demand
is not required before a judicial demand, i.e.,
filing a civil case for collection, can be
resorted to

executed a Supplemental Agreement,

providing that private respondent would
additionally pay to petitioner corporation the
amounts of P55,364.68, or 21% interest on
the balance of down payment for the period
from 31 March to 30 June 1981, and of
P390,369.37 representing interest paid by
petitioner corporation to the Philippine
Savings Bank in updating the bank loan for
the period from 01 February to 31 March
1981.
Private respondent was only able to pay
petitioner corporation the sum of
P1,334,443.21. However, the parties
continued to negotiate for a possible
modification of their agreement, but nothing
conclusive happened. And on October 12,
1981, petitioners counsel sent private
respondent a Notice of Cancellation of
Contract because of the latters failure to pay
the agreed amount.

BRICKTOWN DEVELOPMENT CORP vs

MOR TIERRA DEVELOPMENT
CORPORATION Case Digest
BRICKTOWN DEVELOPMENT CORP. and
MARIANO Z. VERALDE VS. AMOR TIERRA
DEVELOPMENT CORPORATION and the
HON. COURT OF APPEALS
G.R. No. 112182
December 12, 1994
239 SCRA 127

Several months later, private respondents

counsel, demanded the refund of private
respondent's various payments to petitioner
corporation, allegedly "amounting to
P2,455,497.71," with interest within fifteen
days from receipt of said letter, or, in lieu of a
cash payment, to assign to private
respondent an equivalent number of
unencumbered lots at the same price fixed in
the contracts. When the demand was not
heeded, Amor Tierra filed an action with the
court a quo which rendered a decion in its
favor. The decision of the lower court was
affirmed in toto by the Court of Appeals.
Hence, this petition.

FACTS: Bricktown Development Corporation,

represented by its President and co-petitioner
Mariano Z. Velarde, executed two Contracts to
Sell in favor of Amor Tierra Development
Corporation, represented in these acts by its
Vice-President, Moises G. Petilla, covering a
total of 96 residential lots at the Multinational
Village Subdivision, La Huerta, Paraaque,
Metro Manila.

ISSUE:
1. Whether or not the contract was
properly rescinded.
2. Whether or not Bricktown properly
forfeited the payments of Amor Tierra.
RULING: The contract between Bricktown
and Amor Tierra was validly rescinded
because of the failure of the latter to pay the
agreed amounts stipulated in the contract on
the proper date even after the sixty-days
grace period. Furthermore, the records
showed that private respondent corporation
paid less than the amount agreed upon. The
Supreme Court also added that such
cancellation must be respected. It may also
be noteworthy to add that in a contract to

The total price of P21,639,875.00 was

stipulated to be paid by private respondent in
such amounts and maturity dates, as follows:
P2,200,000.00 on 31 March 1981;
P3,209,968.75 on 30 June 1981;
P4,729,906.25 on 31 December 1981; and the
balance of P11,500,000.00 to be paid by
means of an assumption by private
respondent of petitioner corporation's
mortgage liability to the Philippine Savings
Bank or, alternately, to be made payable in
cash. On date, March 31, 1981, the parties

sell, the non-payment of the purchase price

can prevent the obligation to convey title from
acquiring any obligatory force.

ISSUE:
WON the transaction was an absolute sale or
conditional sale? Conditional Sale
WON was there a proper cancellation of the
contract to sell? NO
WON petitioner was in delay? YES

On the second issue, the Supreme Court ruled

that since the private respondent did not
actually possessed the property under the
contract, the petitioner is then ordered to
return to private respondent the amount
remitted. However, to adjudge any interest
payment by petitioners on the amount to be
thus refunded, private respondent should not
be allowed to totally free itself from its own
breach.

HELD:
It was a conditional sale because the intention
of the parties was to reserve the ownership of
the land in the seller until the buyer has paid
the total purchase price.
Consideration: (a) Contract was subject to
condition. (b) What was transferred was the
possession & not ownership. (c) It was
covered by Torrens title. Act of Registration
was the operative act that could transfer
ownership.
What was transferred was the possession of
the property, not ownership.
In a contract to sell real property on
installments, the full payment of the purchase
price is a positive suspensive condition, the
failure of which is not considered a breach,
casual or serious, but simply an event that
prevented the obligation of the vendor to
convey title from acquiring any obligatory
force. The transfer of ownership and title
would occur after full payment of the price.
No proper cancellation as Leao was not
given the cash surrender value. She may still
reinstate the contract by updating the
account during grace period & before actual
cancellation.
Sec. 3 of RA 6552. If the contract is
cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on
the property equivalent to fifty percent of the
total payments made and, after five years of
installments, an additional five percent every
year but not to exceed ninety percent of the
total payment made: Provided, That the
actual cancellation of the contract shall take
place after thirty days from receipt by the
buyer of the notice of cancellation or the
demand for rescission of the contract by a
notarial act and upon full payment of the cash
surrender value to the buyer.
Leao was in delay because under Art. 1169,
provides that Reciprocal Obligation; Neither
party incurs in delay if the other does not
comply or is not ready to comply in a proper
manner with what is incumbent upon him.

LEANO vs. Court of Appeals

369 SCRA 295 (Art. 1169)
Facts:
Hermogenes Fernando, as vendor and
Carmelita Leao, as vendee executed a
contract to sell involving a piece of land.
In the contract, Leao bond herself to pay
Fernando the sum of P107,750 as the total
purchase price.
P10,775 shall be paid at the signing of the
contract;
P96,975 shall be paid within 10 yrs. at a
monthly amortization of P1,747.30 to begin
from Dec. 7, 1985 with interest of 18% per
annum;
18% per annum shall be charged if the month
of grace period expires w/out the
installments;
should the 90 days elapse from the expiration
of the grace period, Respondent was
authorized to declare the contract cancelled &
to dispose of the land.
Carmelita Leao made several payments in
lump sum. Thereafter she constructed a
house (P800K). Last payment she made was
on April 1989.
Trial Court rendered decision in an ejectment
case filed by Fernando.
Leao filed with the RTC for specific
performance with preliminary injunction and
assailing that for being violative of her right to
due process being contrary to R.A 6552
regarding protection to buyers of lots on
installments. According to Trial Court,
transaction was an absolute sale, making
Leao the owner upon actual & constructive
delivery thereof. Fernando divested of
ownership & cannot recover the same unless
rescinded under Art. 1592

From the moment one of the parties fulfills his

obligation, delay by the other begins.
Fernando performed his part by allowing
Leao to continue in possession & use of the
property. Clearly, when Leao did not pay the
monthly amortization, she was in delay and
liable for damages.

Facts:
On June 1, 1984, Bacus leased to private
respondent Faustino Duray a parcel of
agricultural land.
The lease was for 6 years ending May 31,
1990. The contract contained an option to buy
clause which had the exclusive & irrevocable
right to buy the property within 5 yrs after the
effectivity of contract.
Close to the expiration, Bacus died. Duray
informed the heir of Bacus that they are
willing & ready to purchase the property
under option to buy.
However, Petitioner Bacus refuse to sell the
property without first receiving the payment
of purchase price before the land would be
delivered to Duray which the latter filed a
complaint.

LORENZO SHIPPING VS. BJ MARTHEL

443 SCRA 163
November 19, 2004
FACTS: Petitioner Lorenzo Shipping is
engaged in coastwise shipping and owns the
cargo M/V Dadiangas Express. BJ Marthel is
engaged in trading, marketing an dselling
various industrial commodities. Lorenzo
Shipping ordered for the second time cylinder
lines from the respondent stating the term of
payment to be 25% upon delivery, the
balance payable in 5 bi-monthly equal
installments, no again stating the date of the
cylinders delivery. It was allegedly paid
through post dated checks but the same was
dishonored due to insufficiency of funds.
Despite due demands by the respondent,
petitioner falied contending that time was of
the essence in the delivery of the cylinders
and that there was a delay since the
respondent committed said items within two
months after receipt of fir order. RTC held
respondents bound to the quotation with
respect to the term of payment, which was
reversed by the Court of appeals ordering
appellee to pay appellant P954,000 plus
interest. There was no delay since there was
no demand.

Issue:
WON Duray opted to buy the property
covered by lease contract with option to buy,
were they already required to deliver the
money or consign it in court before petitioner
execute the deed of transfer? NO \
WON did Duray incur in delay when they did
not deliver the purchase price or consign it in
court on or before the expiration of the
contract? NO
Held:
The obligation under option to buy is a
reciprocal obligation. The performance of one
obligation is conditioned on the simultaneous
fulfillment of the other obligation. The
payment of the purchase price by the creditor
is contingent upon the execution and delivery
of a deed of sale by the debtor.
In this case, private respondent Duray opted
to buy the property, their obligation was to
advise petitioner of their decision & readiness
to pay the price. They were not obliged to
make actual payment. Only upon execution of
deed of sale were they required to pay.
Notice of the creditors decision to exercise
his option to buy need not be coupled with
actual payment of the price, so long as this is
delivered to the owner of the property upon
performance of his part of the agreement.
Consequently, since the obligation was not
yet due, consignation in court of the purchase
price was not yet required (Nietes vs CA, 46
SCRA 654).

ISSUE: Whether or not respondent incurred

delay in performing its obligation under the
contract of sale
RULING: By accepting the cylinders when
they were delivered to the warehouse,
petitioner waived the claimed delay in the
delivery of said items. Supreme Court geld
that time was not of the essence. There
having been no failure on the part of the
respondent to perform its obligations, the
power to rescind the contract is unavailing to
the petitioner.
HEIRS OF LUIS BACUS vs. Court of
Appeals
371 SCRA 295 (Art. 1169)

Consignation is the act of depositing the thing

due with the court or judicial authorities
whenever the creditor cannot accept or
refuses to accept payment and it generally
requires a prior tender of payment.
Consignation is not proper because the debt is
not due and owing.
Under Art. 1169, provides that reciprocal
obligation, neither party incurs in delay if the
other does not comply or is not ready to
comply in a proper manner with what is
incumbent upon him. Only from the moment
one of the parties fulfills his obligation, does
delay by the other begins.
In this case, private respondent Duray already
communicated their interest to buy before the
contact expires & it was the petitioner who
refused because they want the money first.
Thus, as there was no compliance yet with
what is incumbent upon the petitioner, PR had
not incurred delay when the cashiers check
was issued even after the contract expired.

ISSUES:
1. Whether or not by upgrading the seating
accommodations of the Vazquezes from
Business Class to First Class, Cathay Pacific
Airways breached its contract of carriage with
the Vazquezes.
2. Whether or not the Vazquezes are entitled
to damages.
HELD:
In previous cases, the breach of contract of
carriage consisted in either the bumping off of
a passenger with confirmed reservation or the
downgrading of a passengers seat
accommodation from one class to a lower
class. In this case, what happened was the
reverse. The Vazquezes knew that as
members of the Marco Polo Club, they had
priority for upgrading of their seat
accommodation at no extra cost when an
opportunity arises. But, just like other
privileges, such priority could be waived.
The Vazquezes should have been consulted
first whether they wanted to avail of the
privilege or consent to a change of seat
accommodation before their seat assignments
were given to other passengers. The
Vazquezes had every right to decline the
upgrade and insist on the Business Class
accommodation they had booked for. They
clearly waived their priority or preference
when they asked that other passengers be
given the upgrade. It should not have been
imposed on them over their vehement
objection. By insisting on the upgrade, Cathay
Pacific breached its contract of carriage with
the Vazquezes.
The Court, however, is not convinced that the
upgrading or the breach of contract was
attended by fraud or bad faith. Bad faith and
fraud are allegations of fact that demand
clear and convincing proof. The court is not
persuaded by the Vazquezes argument that
the overbooking of the Business Class Section
constituted bad faith on the part of Cathay
Pacific Airways. Section 3 of the Economic
Regulation No. 7 of The Civil Aeronautics
Board, as amended, provides that an
overbooking that does not exceed ten percent
(10%) is not considered deliberate and
therefore does not amount to bad faith.
The Court of Appeals awarded each of the
Vazquezes moral damages in the amount of
P250, 000. In this case, it was ruled that the
breach of contract of carriage was not

Cathay Pacific Airways VS. Vazquez

399 SCRA 207 (2003)
Facts of the Case:
Respondents-spouses Dr. Daniel Earnshaw
Vazquez and Maria Luisa Madrigal Vazquez
together with two friends went to Hong Kong
for business and pleasure. On their return
flight to Manila, they were booked on Cathay
Pacifics flight CX-905. Upon boarding, Dr.
Vazquez was informed by ground attendant
Clara Chiu that they were being upgraded to
first class from business class because
Business Class was fully booked. Dr. Vazquez
refused the upgrade, explaining that it would
not look good for them as hosts to travel in
First Class while their guests remained in the
Business Class Section. Moreover, they were
going to discuss business matters during the
flight. He also told Ms. Chiu that she could
have other passengers transferred to the First
Class Section instead of them. Ms. Chiu
informed them that since they were Marco
Polo Club members they had the priority to be
upgraded to First Class. Dr. Vazquez continued
to refuse, so Ms. Chiu told them that if they
would not avail of the privilege, they would
not be allowed to take the flight. Eventually,
Dr. Vazquez gave in and proceeded to the First
Class Cabin.

attended by fraud or bad faith. The Court Of

Appeals award of moral damages has,
therefore, no leg to stand on. The most that
can be adjudged in favour of the Vazquezes
for Cathays breach of contract is an award for
nominal damages Under Article 2221 of the
New Civil Code.

time a management committee or receiver is

appointed by the SEC. Petitioner RCBC
rightfully moved for the extrajudicial
foreclosure of its mortgage on October 26,
1984 because a management committee was
not appointed by the SEC until March 18,
1985.

Rizal Commercial Banking Corporation vs.

Intermediate Appellate Court and BF Homes
G.R. No. 74851 (December 9, 1999)

Reasoning:
No matter how practical and noble a reason
would be, in order to depart from the words of
the law stated in clear and unambiguous
manner, would be to encroach upon
legislative prerogative to define the wisdom of
the law. Such is plainly judicial legislation.

Facts:
Petitioner RCBC is a mortgagor-creditor of the
party respondent BF Homes. BF Homes, being
a distressed firm, filed before the Securities
and Exchange Commission a Petition for
Rehabilitation and for Declaration of
Suspension of Payments. Consequently, RCBC
requested the sheriff of Rizal to levy on
execution the properties of party respondent,
and consequently obtained favorable
judgment. RCBC being the highest bidder
during the public auction is now seeking for
the transfer certificate of titles from the
Register of Deeds issued in its name. It is
worthy to note that it was on October 26,
1984 that RCBC obtained favor over the
execution of the respondents properties, and
it was only on March 18, 1985 that a
Management Committee was organized by
the SEC for BF Homes.

Policy:
Paragraph C Section 6 of PD 209-A states that
upon appointment of a management
committee rehabilitation receiver, board or
body, pursuant to this Decree, all actions for
claims against corporations, partnerships or
associations under management or
receivership, pending before any court,
tribunal, board or body shall be suspended
accordingly.
Guanio v. Shangi La Hotel
A couple sought the services of a five-star
hotel for their wedding reception.
A week before their wedding reception, the
hotel scheduled a food tasting. Eventually, the
parties agreed to a package where the final
price was P1,150.00 per person.

Issue:
Whether or not the Court may depart from the
words of the law which clearly provides that a
creditor may levy execution on a firms
properties when such execution precedes
SECs organization of a Management
Committee to act as its receiver.

According to the complainants, when the

actual reception took place, the
respondents representatives did not show up
despite their assurance that they would; their
guests complained of the delay in the service
of the dinner; certain items listed in the
published menu were unavailable; the hotels
waiters were rude and unapologetic when
confronted about the delay; and despite
Alvarezs promise that there would be no
charge for the extension of the reception
beyond 12:00 midnight, they were billed and
paid P8,000 per hour for the three-hour
extension of the event up to 4:00 A.M. the
next day. They further claim that they brought
wine and liquor in accordance with their open
bar arrangement, but these were not served
to the guests who were forced to pay for their

Held:
PD 209-A states that suspension of claims
against a corporation under rehabilitation is
counted or figured up only upon the
appointment of a management committee or
a rehabilitation receiver. The holding that
suspension of actions for claims against a
corporation under rehabilitation takes effect
as soon as the application or a petition for
rehabilitation is filed with the SEC may, to
some, be more logical and wise but
unfortunately, such is incongruent with the
clear language of the law. Suspension of
actions for claims commences only from the

drinks. They sent a letter-complaint to hotel

and received an apologetic reply from the
hotels Executive Assistant Manager in charge
of Food and Beverage.
They nevertheless filed a complaint for breach
of contract and damages before the Regional
Trial Court (RTC) of Makati City.

minimum guaranteed attendance, the

ENGAGER shall also be billed at the actual
rate per cover in excess of the minimum
guaranteed attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at
least forty eight (48) hours before the
scheduled date and time of the Function of
any change in the minimum guaranteed
covers. In the absence of such notice,
paragraph 4.3 shall apply in the event of
under attendance. In case the actual number
of attendees exceed the minimum guaranteed
number
by ten percent (10%), the HOTEL shall not in
any way be held liable for any damage or
inconvenience which may be caused thereby.
The ENGAGER shall also undertake to advise
the guests of the situation and take positive
steps to remedy the same.

Answering, the hotel said that complainants

requested a combination of king prawns and
salmon, hence, the price was increased to
P1,200.00 per person, but discounted at
P1,150.00; that contrary to their claim, the
hotel representatives were present during the
event, albeit they were not permanently
stationed thereat as there were three other
hotel functions; that while there was a delay
in the service of the meals, the same was
occasioned by the sudden increase of guests
to 470 from the guaranteed expected
minimum number of guests of 350 to a
maximum of 380, as stated in the Banquet
Event Order (BEO);2 and the Banquet Service
Director in fact relayed the delay in the
service of the meals to complainants father.

In absolving the hotel from damages, the

Supreme Court noted that: The appellate
court, and even the trial court, observed that
petitioners were remiss in their obligation to
inform respondent of the change in the
expected number of guests. The observation
is reflected in the records of the case.
Petitioners failure to discharge such
obligation thus excused, as the above-quoted
paragraph 4.5 of the parties contract provide,
respondent from liability for any damage or
inconvenience occasioned thereby
Nevertheless, on grounds of equity, the High
Court awarded P50,000.00 in favour of the
complainants and justified it by saying:

The RTC, relying heavily on the letter of the

hotels Executive Assistant ruled in favour of
the complainants and awarded damages in
their favour.
The Court of Appeals reversed the decision,
noting that the proximate cause of the
complainants injury was the unexpected
increase in the number of their guests.
The Supreme Court reversed the Court of
Appeals decision, noting that in this case, the
obligation was based on a contract, hence,
the concept of proximate cause has no
application. In resolving the matter, the
Supreme Court relied on the terms and
conditions of the contract between the
parties, particularly the pertinent provisions of
the Banquet and Meeting Services Contract
between the parties which read:

The exculpatory clause notwithstanding, the

Court notes that respondent could have
managed the situation better, it being held
in high esteem in the hotel and service
industry. Given respondents vast experience,
it is safe to presume that this is not its first
encounter with booked events exceeding the
guaranteed cover. It is not audacious to
expect that certain measures have been
placed in case this predicament crops up.
That regardless of these measures,
respondent still received complaints as in the
present case, does not amuse.

4.3 The ENGAGER shall be billed in

accordance with the prescribed rate for the
minimum guaranteed number of persons
contracted for, regardless of under
attendance or non-appearance of the
expected number of guests, except where the
ENGAGER cancels the Function in accordance
with its Letter of Confirmation with the
HOTEL. Should the attendance exceed the

Respondent admitted that three hotel

functions coincided with petitioners

reception. To the Court, the delay in service

might have been avoided or minimized if
respondent exercised prescience in
scheduling events. No less than quality
service should be delivered especially in
events which possibility of repetition is close
to nil. Petitioners are not expected to get
married twice in their lifetimes.

he would fly on that flight and on that date.

When CAL did not allow respondents, who
were in possession of the confirmed tickets,
from boarding its airplane because their
names were not in the manifest, it ocnsituted
a breach of contract of carriage.
2. No. Bad faith should always be established
by clear and convincing evidence since the
law always presumes good faith.

(G.R. No. 190601, February 7, 2011, SPOUSES

LUIGI M. GUANIO and ANNA HERNANDEZGUANIO, Petitioners, vs.MAKATI SHANGRI-LA
HOTEL and RESORT, INC., also doing business
under the name of SHANGRI-LA HOTEL
MANILA, Respondent.)

In the case, there were three reasons why CAL

cancelled the reservations. First was Amexco's
unauthorized use of the record locator
number. Second was CAL's negligence in
confirming the reservations of Amexco. Third
was the absence of the correct contact
numbers of private respondents. There was
no concerted effort on the part of CAL to
cancel respondent's reservations in favor of
other passengers.

China Airlines v CA (G.R. No. 129988)

Facts:
Respondents, Antonio Salvador and Rolando
Lao planned to travel to Los Angeles,
California to pursue a cable business deal
involving the distribution of Filipino films.
Initially, Morelia Travel Agency booked their
flight with China Airlines (CAL).

3. Not entitled to moral damages because not

every case of mental anguish, fright or
anxiety calls for the award of moral damages.

Upon discovering that Morelia charged higher

rates than American Express Travel (Amexco),
they dropped the services of Morelia. Lao
called Amexco claiming that he and Salvador
had a confirmed booking with CAL. Lao then
gave to Amexco the record locator number
that CAL issued previously to Morelia. CAL
confirmed the booking.

Not entitled to exemplary damages because

CAL was not in bad faith and its employees
did not act in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
Not entitled to actual damages because
respondents did not shell out any money for
their CAL tickets. Respondents would have
been entitled to the price difference between
the tickets of CAL and Northwest had the
latter cost more than the former but this was
not the case. Evidence shows that Northwest
tickets ($625) cost less than CAL tickets
($629). The court cannot order
reimbursement of the Northwest tickets
because this would have enabled respondents
to fly for free. The cost of the tickets were a
necessary expense that private respondents
could not pass on to CAL.

When the respondents were at the airport,

CAL prevented them from boarding because
their names were not in the passenger's
manifest. CAL cancelled the reservations
when Morelia revoked the booking. But the
respondents were able to get a flight with
Northwest Airlines.
Issue/s:
1. Whether or not there was a breach in the
contract of carriage.
2. Whether or not there there was bad faith.
3. Whether or not there was sufficient claims
for damages.

Entitled to nominal damages of P5,000 when

the plaintiff suffers some species of injury not
enough to warrant an award of actual
damages.

Held:
1. Yes. When an airline issues a ticket to a
passenger confirmed for a particular flight on
a certain date, a contract of carriage arises.
The passenger has every right to expect that

International Corporate Bank vs. Gueco

351 SCRA 516

10

Facts:
Respondent Gueco spouses obtained a loan
from petitioner International Corporate Bank
(now Union Bank of Philippines) to purchase a
car Nissan Sentra 1989 model.
In consideration, spouses executed
promissory note which were payable in
monthly installment & chattel mortgage over
the car.
The spouses defaulted payment. Dr. Gueco
had a meeting & the unpaid installment of
P184k was reduced to P150k. However, the
car was detained by the bank.
When Dr. Gueco delivered the mangers check
of P150k, the car was not released because of
his refusal to sign the Joint Motion to Dismiss.
The bank insisted that the JMD is a standard
operating procedure to effect a compromise &
to preclude future filing of claims or suits for
damages.
Gueco spouses filed an action against the
bank for fraud, failing to inform them
regarding JMD during the meeting & for not
releasing the car if they do not sign the said
motion.

the Metropolitan Trial Court. The joint motion

to dismiss was but a natural consequence of
the compromise agreement and simply stated
that Dr. Gueco had fully settled his obligation,
hence, the dismissal of the case. Petitioners
act of requiring Dr. Gueco to sign the joint
motion to dismiss cannot be said to be a
deliberate attempt on the part of petitioner to
renege on the compromise agreement of the
parties.
The law presumes good faith. Dr. Gueco failed
to present an iota of evidence to overcome
this presumption. In fact, the act of petitioner
bank in lowering the debt of Dr. Gueco from
P184,000.00 to P150,000.00 is indicative of its
good faith and sincere desire to settle the
case. If respondent did suffer any damage, as
a result of the withholding of his car by
petitioner, he has only himself to blame.
Necessarily, the claim for exemplary damages
must fail. In no way, may the conduct of
petitioner be characterized as wanton,
fraudulent, reckless, oppressive or
malevolent.
THE CONSOLIDATED BANK and TRUST
CORPORATION vs. COURT OF APPEALS
and L.C. DIAZ and COMPANY, CPAs
G.R. No. 138569, Sep 11, 2003.
FACT:
Petitioner Solidbank is a domestic banking
corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz
and Company, CPAs, is a professional
partnership engaged in the practice of
accounting.
In March 1976, L.C. Diaz opened a savings
account with Solidbank. On 14 August 1991,
L.C. Diaz through its cashier, Mercedes
Macaraya, filled up a savings (cash) deposit
slip for P990 and a savings (checks) deposit
slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre, to
deposit the money with Solidbank. Macaraya
also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to
Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged the
receipt of the deposit by returning to Calapre
the duplicate copies of the two deposit slips.
Teller No. 6 stamped the deposit slips with the
words DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE. Since the
transaction took time and Calapre had to
make another deposit for L.C. Diaz with Allied

Issue:
WON the bank was guilty of fraud? NO

Held:
Fraud has been defined as the deliberate
intention to cause damage or prejudice. It is
the voluntary execution of a wrongful act, or a
willful omission, knowing and intending the
effects which naturally and necessarily arise
from such act or omission. the fraud referred
to in Article 1170 of the Civil Code is the
deliberate and intentional evasion of the
normal fulfillment of obligation.
We fail to see how the act of the petitioner
bank in requiring the respondent to sign the
joint motion to dismiss could constitute as
fraud.
The JMD cannot in any way have prejudiced
Dr. Gueco. The motion to dismiss was in fact
also for the benefit of Dr. Gueco, as the case
filed by petitioner against it before the lower
court would be dismissed with prejudice. The
whole point of the parties entering into the
compromise agreement was in order that Dr.
Gueco would pay his outstanding account and
in return petitioner would return the car and
drop the case for money and replevin before

11

Bank, he left the passbook with Solidbank.

Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that
somebody got the passbook. Calapre went
back to L.C. Diaz and reported the incident to
Macaraya.
Macaraya immediately prepared a deposit slip
in duplicate copies with a check of P200,000.
Macaraya and Calapre went to Solidbank and
presented to Teller No. 6 the deposit slip and
check. The teller stamped the words
DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE on the duplicate
copy of the deposit slip. When Macaraya
asked for the passbook, Teller No. 6 told
Macaraya that someone got the passbook but
she could not remember to whom she gave
the passbook. When Macaraya asked Teller
No. 6 if Calapre got the passbook, Teller No. 6
answered that someone shorter than Calapre
got the passbook. Calapre was then standing
beside Macaraya.
The following day L.C. Diaz learned of the
unauthorized withdrawal the day before (14
August 1991) of P300,000 from its
savings account. The withdrawal slip for the
P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely
Diaz and Rustico L. Murillo. The signatories,
however, denied signing the withdrawal slip. A
certain Noel Tamayo received the P300,000.
L.C. Diaz demanded from Solidbank the return
of its money. Solidbank refused. L.C. Diaz filed
a Complaint for Recovery of a Sum of Money
against Solidbank. The trial court absolved
Solidbank. L.C. Diaz appealed to the CA. CA
reversed the ecision of the trial court. CA
denied the motion for reconsideration of
Solidbank. But it modified its decision by
deleting the award of exemplary damages
and attorneys fees. Hence this petition.
ISSUE:
WON petitioner Solidbank is liable.
RULING:
Yes. Solidbank is liable for breach of contract
due to negligence, or culpa contractual.
The contract between the bank and its
depositor is governed by the provisions of the
Civil Code on simple loan. Article 1980 of the
Civil Code expressly provides that x x x
savings x x x deposits of money in banks and
similar institutions shall be governed by the
provisions concerning simple loan. There is a
debtor-creditor relationship between the bank

and its depositor. The bank is the debtor and

the depositor is the creditor. The depositor
lends the bank money and the bank agrees to
pay the depositor on demand. The savings
deposit agreement between the bank and the
depositor is the contract that determines the
rights and obligations of the parties.
The law imposes on banks high standards in
view of the fiduciary nature of banking. The
bank is under obligation to treat the accounts
of its depositors with meticulous care, always
having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the
banks obligation to observe high standards
of integrity and performance is deemed
written into every deposit agreement between
a bank and its depositor. The fiduciary nature
of banking requires banks to assume a degree
of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code
states that the degree of diligence required of
an obligor is that prescribed by law or
contract, and absent such stipulation then the
diligence of a good father of a family. Section
2 of RA 8791 prescribes the statutory
diligence required from banks that banks
must observe high standards of integrity and
performance in servicing their depositors.
However, the fiduciary nature of a bankdepositor relationship does not convert the
contract between the bank and its depositors
from a simple loan to a trust agreement,
whether express or implied. Failure by the
bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust. The law
simply imposes on the bank a higher standard
of integrity and performance in complying
with its obligations under the contract of
simple loan, beyond those required of nonbank debtors under a similar contract of
simple loan.
The fiduciary nature of banking does not
convert a simple loan into a trust agreement
because banks do not accept deposits to
enrich depositors but to earn money for
themselves.
Solidbanks Breach of its Contractual
Obligation
Article 1172 of the Civil Code provides that
responsibility arising from negligence in the
performance of every kind of obligation is
demandable. For breach of the savings
deposit agreement due to negligence, or

12

culpa contractual, the bank is liable to its

depositor.
Calapre left the passbook with Solidbank
because the transaction took time and he
had to go to Allied Bank for another
transaction. The passbook was still in the
hands of the employees of Solidbank for the
processing of the deposit when Calapre left
Solidbank. When the passbook is in the
possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank
and its tellers an even higher degree of
diligence in safeguarding the passbook.
Solidbanks tellers must exercise a high
degree of diligence in insuring that they
return the passbook only to the depositor or
his authorized representative. For failing to
return the passbook to Calapre, the
authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively
failed to observe such high degree of
diligence in safeguarding the passbook, and in
insuring its return to the party authorized to
receive the same.
In culpa contractual, once the plaintiff proves
a breach of contract, there is a presumption
that the defendant was at fault or negligent.
The burden is on the defendant to prove that
he was not at fault or negligent. In contrast, in
culpa aquiliana the plaintiff has the burden of
proving that the defendant was negligent. In
the present case, L.C. Diaz has established
that Solidbank breached its contractual
obligation to return the passbook only to the
authorized representative of L.C. Diaz. There
is thus a presumption that Solidbank was at
fault and its teller was negligent in not
returning the passbook to Calapre. The
burden was on Solidbank to prove that there
was no negligence on its part or its
employees. But Solidbank failed to discharge
its burden. Solidbank did not present to the
trial court Teller No. 6, the teller with whom
Calapre left the passbook and who was
supposed to return the passbook to him.
Solidbank also failed to adduce in evidence its
standard procedure in verifying the identity of
the person retrieving the passbook, if there is
such a procedure, and that Teller No. 6
implemented this procedure in the present
case.
Solidbank is bound by the negligence of its
employees under the principle of respondeat
superior or command responsibility. The
defense of exercising the required diligence in

the selection and supervision of employees is

not a complete defense in culpa contractual,
unlike in culpa aquiliana. The bank must not
only exercise high standards of integrity and
performance, it must also insure that its
employees do likewise because this is the
only way to insure that the bank will comply
with its fiduciary duty
Proximate Cause of the Unauthorized
Withdrawal
Proximate cause is that cause which, in
natural and continuous sequence, unbroken
by any efficient intervening cause, produces
the injury and without which the result would
not have occurred. Proximate cause is
determined by the facts of each case upon
mixed considerations of logic, common sense,
policy and precedent.
L.C. Diaz was not at fault that the passbook
landed in the hands of the impostor. Solidbank
was in possession of the passbook while it
was processing the deposit. After completion
of the transaction, Solidbank had the
contractual obligation to return the passbook
only to Calapre, the authorized representative
of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the
passbook to another person.
Had the passbook not fallen into the hands of
the impostor, the loss of P300,000 would not
have happened. Thus, the proximate cause of
the unauthorized withdrawal was Solidbanks
negligence in not returning the passbook to
Calapre.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that
where both parties are negligent but the
negligent act of one is appreciably later than
that of the other, or where it is impossible to
determine whose fault or negligence caused
the loss, the one who had the last clear
opportunity to avoid the loss but failed to do
so, is chargeable with the loss. The
antecedent negligence of the plaintiff does
not preclude him from recovering damages
caused by the supervening negligence of the
defendant, who had the last fair chance to
prevent the impending harm by the exercise
of due diligence.
We do not apply the doctrine of last clear
chance to the present case. This is a case of
culpa contractual, where neither the
contributory negligence of the plaintiff nor his
last clear chance to avoid the loss, would
exonerate the defendant from liability. Such

13

contributory negligence or last clear chance

by the plaintiff merely serves to reduce the
recovery of damages by the plaintiff but does
not exculpate the defendant from his breach
of contract
Mitigated Damages
Under Article 1172, liability (for culpa
contractual) may be regulated by the courts,
according to the circumstances. This means
that if the defendant exercised the proper
diligence in the selection and supervision of
its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may
reduce the award of damages. In this case,
L.C. Diaz was guilty of contributory negligence
in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of
an impostor. Thus, the liability of Solidbank
should be reduced.
In PBC v. CA where the Court held the
depositor guilty of contributory negligence,
we allocated the damages between the
depositor and the bank on a 40-60 ratio.
Applying the same ruling to this case, we hold
that L.C. Diaz must shoulder 40% of the
actual damages awarded by the appellate
court. Solidbank must pay the other 60% of
the actual damages.
WHEREFORE, the decision of the Court of
Appeals is AFFIRMED with MODIFICATION.

and cultivated by now deceased Julian dela

Cruz, husband of plaintiff Eufrocina dela Cruz.
Eufrocina alleged that her husbands death,
she succeeded him as bona fidetenant of the
subject lots; that Olympio, in conspiracy with
the other defendants, prevented her daughter
Violeta and her workers through force,
intimidation, strategy and stealth, from
entering and working on the subject premises;
and that until the filing of the instant case,
defendants had refused to vacate and
surrender the lots, thus violating her tenancy
rights. Plaintiff therefore prayed for judgment
for the recovery of possession and damages
with a writ of preliminary mandatory
injunction in the meantime.
Defendant barangay officials denied
interference in the tenancy relationship
existing between plaintiff and defendant
Mendoza, particularly in the cultivation of the
latters farm lots and asked for the dismissal
of the case, moral damages and attorneys
fees.
Mendoza raised abandonment, sublease and
mortgage of the farm lots without his consent
and approval, and non-payment of rentals,
irrigation fees and other taxes due the
government, as his defenses.
Petitioners now bring the present Petition for
Review on Certiorari.
Issue:
W/N the court erred in holding petitioners
liable
Held:
No. The evidence presented before the trial
court and CA served as basis in arriving at
their findings of fact. The Supreme Court will
not analyze such evidence all over again
because settled is the rule that only questions
of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of
Court absent the exceptions which do not
obtain in the instant case.
In agrarian cases, the quantum of evidence is
no more than substantial evidence.
Substantial evidence does not necessarily
import preponderant evidence, as is required
in an ordinarily civil case. It has been defined
to be such relevant evidence as a reasonable
mind might accept as adequate to support a
conclusion and its absence is not shown by
stressing that there is contrary evidence on
record, direct or circumstantial, for the

REYES V CA
7NOV
G.R. No. 96492 | November 26, 1992 | J.
Nocon
Facts:
Petitioners Romeo Reyes, Angel Parayao and
Emilio Mananghaya question the respondent
Courts decision, which affirmed with
modification the agrarian courts
decision, which ordered them and the other
defendants therein to, among others, restore
possession of the disputed landholding to
private respondent, Eufrocina Vda. dela Cruz.
Juan Mendoza, father of defendant Olympio, is
the owner of farm lots in Bahay Pare,
Candaba, Pampanga. Devoted to the
production of palay, the lots were tenanted

14

appellate court cannot substitute its own

judgment or criteria for that of the trial court
in determining wherein lies the weight of
evidence or what evidence is entitled to
belief.

the time SLDC registered the sale in its

favor on 30 June 1990, there was
already a notice of lis pendens
annotated on the titles of the property
made as early as 2 June 1989. Hence,
petitioners registration of the sale did
not confer upon it any right.
ISSUE:
Did the registration of the sale after the
annotation of the notice of lis pendens
obliterate the effects of delivery and
possession in good faith which admittedly had
occurred prior to SLDCs knowledge of the
transaction in favor of Babasanta?

SAN LORENZO DEVELOPMENT

CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S.
BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents
G.R. No. 124242

January 21, 2005

FACTS

HELD:NO
It must be stressed that as early as 11
February 1989, the Spouses Lu
executed the Option to Buy in favor of
SLDC upon receiving P316,160.00 as
option money from SLDC. After SLDC
had paid more than one half of the
agreed purchase price, the Spouses Lu
subsequently executed on 3 May 1989
a Deed of Absolute Sale in favor or
SLDC. At the time both deeds were
executed, SLDC had no knowledge
of the prior transaction of the
Spouses Lu with Babasanta. Simply
stated, from the time of execution
of the first deed up to the moment
of transfer and delivery of
possession of the lands to SLDC, it
had acted in good faith and the
subsequent annotation of lis
pendens has no effect at all on the
consummated sale between SLDC
and the Spouses Lu.
A purchaser in good faith is one who
buys property of another without
notice that some other person has a
right to, or interest in, such property
and pays a full and fair price for the
same at the time of such purchase, or
before he has notice of the claim or
interest of some other person in the
property.
We rule that SLDC qualifies as a buyer
in good faith since there is no evidence
extant in the records that it had
knowledge of the prior transaction in
favor of Babasanta. At the time of the
sale of the property to SLDC, the
vendors were still the registered

On 20 August 1986, the Spouses Lu

purportedly sold two parcels of land to
respondent Pablo Babasanta, for the
price of fifteen pesos (P15.00) per
square meter. Babasanta made a
downpayment of (P50,000.00) as
evidenced by a memorandum receipt
issued by Pacita Lu of the same date.
Babasanta wrote a letter to Pacita Lu
to demand the execution of a final
deed of sale in his favor so that he
could effect full payment of the
purchase price. In response, Pacita Lu
wrote a letter to Babasanta wherein
she reminded Babasanta that when
the balance of the purchase price
became due, he requested for a
reduction of the price and when she
refused, Babasanta backed out of the
sale
herein petitioner San Lorenzo
Development Corporation (SLDC) filed
a Motion for Intervention. SLDC alleged
that it had legal interest in the subject
matter under litigation because on 3
May 1989, the two parcels of land
involved had been sold to it in a Deed
of Absolute Sale with Mortgage. It
alleged that it was a buyer in good
faith and for value and therefore it had
a better right over the property in
litigation
Respondent Babasanta, however,
argued that SLDC could not have
acquired ownership of the property
because it failed to comply with the
requirement of registration of the sale
in good faith. He emphasized that at

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owners of the property and were in

fact in possession of the lands.
In assailing knowledge of the
transaction between him and the
Spouses Lu, Babasanta apparently
relies on the principle of constructive
notice incorporated in Section 52 of
the Property Registration Decree (P.D.
No. 1529) which reads, thus:
Sec. 52. Constructive notice upon
registration. Every conveyance, mortgage,
lease, lien, attachment, order, judgment,
instrument or entry affecting registered land
shall, if registered, filed, or entered in the
office of the Register of Deeds for the
province or city where the land to which it
relates lies, be constructive notice to all
persons from the time of such registering,
filing, or entering.
However, the constructive notice
operates as such by the express
wording of Section 52 from the time of
the registration of the notice of lis
pendens which in this case was
effected only on 2 June 1989, at which
time the sale in favor of SLDC had long
been consummated insofar as the
obligation of the Spouses Lu to transfer
ownership over the property to SLDC is
concerned.

they asked for a 60 day period to restructure

the loan.
UCPB accepted the P10 M payment but was
unsatisfied hence they filed for extrajudicial
foreclosure. Angeles filed for a TRO to forestall
the foreclosure. It was not granted because
they failed to show any irreparable damage
that may be caused them by reason of the
foreclosure. Upon Motion for Reconsideration,
Angeles petition was granted but was later
lifted. The foreclosure went on on some of the
properties in Antipolo. Angeles claimed they
were not given by UCPB any clear accounting
on these.
The case was re-raffled anew in another RTC
which later reinstated the injunction. UCPB
filed an appeal with the CA. The CA affirmed
the RTC. UCPB filed for reconsideration which
was eventually granted.
In the main, Angeles averred that they have a
clear right to injunction based on the fact that
UCPB never explained how the loan went up
to P132 M; that UCPB refused to give them a
detailed accounting of the partial foreclosure
and that they gave a P10 M payment which
prevented the determination of the maturity
of the obligation.

Selegna v UCPB

HELD: No. Angeles is clearly in default per

provisions laid down in their Credit Agreement
with UCPB which is the binding law between
the parties. In fact, the parties stipulated in
their credit agreements, mortgage contracts
and promissory notes that respondent was
authorized to foreclose on the mortgages, in
case of a default by petitioners. That this
authority was granted is not disputed.
There are three requisites necessary for a
finding of default. First, the obligation is
demandable and liquidated; second, the
debtor delays performance; third, the creditor
judicially or extrajudicially requires the
debtors performance. All three were present
in this case.
The 1st requisite is present notwithstanding a
detailed accounting of the partially foreclosed
properties. A debt is liquidated when the
amount is known or is determinable by
inspection of the terms and conditions of the
relevant promissory notes and related
documentation. Failure to furnish a debtor a

ISSUE: Whether or not Angeles has a right to

forestall the foreclosure.

Facts: On September 19, 1995, spouses

Edgardo and Zenaida Angeles and Selegna
Mgmt. acquired a P70 Million loan from UCPB.
As security for the loan, Angeles executed a
real estate mortgage of their properties in
Muntinlupa, Antipolo, Las Pias, Quezon and
some condo units in Makati. They also
executed a promissory note in favor of UCPB.
Later, Angeles increased the loan amount to
P103 Million with a 21% interest rate per
annum which was to mature on March 26,
1999.
UCPB and Angeles agreed in their Credit
Agreement that failure to pay any availment
of the accommodation or interest or any sum
due constitutes a default in payment which
would render the loan amount immediately
due in full (this is the Acceleration Clause).
Eventually, in 1999, Angeles went into default
and their loan ballooned to P132 M. UCPB sent
them demand letters. In response, Angeles
paid about P10 M in interest at the same time

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detailed statement of account does not ipso

facto result in an unliquidated obligation.
It is in fact clear from the agreement of the
parties that when the payment is accelerated
due to an event of default, the penalty charge
shall be based on the total principal amount
outstanding, to be computed from the date of
acceleration until the obligation is paid in
full. Their Credit Agreement even provides for
the application of payments. It appears from
the agreements that the amount of total
obligation is known or, at the very least,
determinable.
Further, in the Real Estate Mortgage
agreement between the parties (in the Event
of Default clause), Angeles granted UCPB the
right to extrajudicially foreclose the properties
mortgaged which secured the loan/obligation.

Held:
Yes. Gonzales was an accommodation party of
the loan. An accommodation party is one who
meets all the three requisites according to Sec
29 of NIL:
1. he must be a party to the instrument,
signing as a maker, drawer, acceptor, or
indorser
2. he must not receive value therefor
3. he must sign for the purpose of lending his
name or credit to some other person.
an accommodation party lends his name to
enable the accommodated partyy to obtain
credit or raise money. he receives no part but
assumed liability.
the relation between an accommodation party
is one of principal and surety, the AP being
the surety. As such, he is deemed an original
promisor and debtor from the beginning. he is
considered in law as the same party as the
debtor in relation to whatever is adjudged
toruching the obligation of the latter since
their liabilities are interwoven.
Lastly, the solidary nature of the loan was
expressly stated in the promissory notes
which state:
the undersigned JOINTLY AND SEVERALLY
promise
to pay xx.

Gonzales vs PCIB
Facts:
Gonzales was a client of PCIB. He was granted
a credit line by the bank through a Credit-OnHand-Loan Agreement (COHLA). He drew from
the credit line through a check and said credit
line was secured by a collateral in the form of
his accounts with PCIB which was a foreign
currency deposit worth USD 8000.
He obtained below loans from PCIB:
1. obtained with his wife P500K
2. obtained with spouses Panlilio P1M, P300K
the above loans (total: 1.8M) were covered by
3 promissory notes and were secured by a
real estage mortgage on a land co owned by
Gonzales and spouses Panlilio. the promissory
notes states the solidary liability of Gonzales
andspouses Panlilio. However, it was the
spouses Panlilio who received the proceeds of
1.8M. The monthly interest dues were paid by
the spouses Panlilio through auto debit from
their PCIB account. however, they defaulted in
the payment because their PCIB account had
insufficient deposits.
Gonzales issued a check to Rene Unson worth
250K drawn against his credit line but said
check was subsequently dishonored due to
termination of gonzales credit line because of
the unpaid period interest dues from the
loans. PCIB also froze the foreign currency
deposit account of Gonzales.

RCBC VS. CA
G.R. No. 133107 March 25, 1999
FACTS: Private respondent Atty. Felipe Lustre
purchased a Toyota Corolla from Toyota Shaw,
Inc. He made a down payment of
P164,620.00. He issued 24 postdated checks
amounting to P14,976.00 each in order to pay
the remaining balance of the purchase.
To secure the balance, private respondent
executed a promissory note and a contract of
chattel mortgage over the vehicle in favor of
Toyota Shaw, Inc. which provided for an
acceleration clause. It was stipulated that
should the mortgagor default in the payment
of any installment, the whole amount
remaining unpaid shall become due. In
addition, the mortgagor shall be liable for
25% of the principal due as liquidated
damages.
The checks were encashed and debited by
RCBC from private respondents account,
except for RCBC Check No. 279805
representing the payment for August 10,
1991, which was unsigned. Previously, the

Issue: W/N Gonzales is liable for the three

promissory notes covering PHP1.8M loan he
made with spouses Panlilio?

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amount represented by RCBC Check No.

279805 was debited from private
respondents account but was later recalled
and re-credited to him. Because of the recall,
the last two checks, dated February 10, 1993
and March 10, 1993, were no longer
presented for payment. This was purportedly
in conformity with petitioner banks procedure
that once a clients account was forwarded to
its account representative, all remaining
checks outstanding as of the date the account
was forwarded were no longer presented for
payment.
On the theory that respondent defaulted in his
payments, the check representing the
payment for August 10, 1991 being unsigned,
petitioner, in a letter dated January 21, 1993,
demanded from private respondent the
payment of the balance of the debt, including
liquidated damages. The latter refused.
Issue: Whether or not the private
respondents refusal to pay the balance of the
debt constitute delay on his part.
Ruling: No. Article 1170 of the Civil Code
states that those who in the performance of
their obligations are guilty of delay are liable
for damages. The delay in the performance of
the obligation, however, must be either
malicious or negligent. Thus, assuming that
private respondent was guilty of delay in the
payment of the value of the unsigned check,
private respondent cannot be held liable for
damages. There is no imputation, much less
evidence, that private respondent acted with
malice or negligence in failing to sign the
check. The omission was mere inadvertence
on the part of private respondent.

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