Liga versus Allegro

Provisions and Principles Tackled:(NCC 1159 and 1169 and legal interest on forbearance/loan as well as the principle of non inclusion of 3 rd party claims into a suit when not expressly averred)

Facts:On 10 October 1975, Ortigas & Company, Limited Partnership entered into a lease agreement with La Paz Investment & Realty Corporation wherein the former leased to the latter its parcel of land located in San Juan, Metro for a period from 1 January 1976 to 31 December 2000. La Paz constructed a building for the establishment of first class stores which would be subdivided into various stalls for subleasing to interested parties.

La Paz constructed the Greenhills Shopping Arcade (GSA) and divided it into several stalls and subleased them to other people. One of the sub-lessees was Edsel Liga.

As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills Shoppesville Unit Lessees' Association, Inc. (GSULAI), made several attempts to have their leasehold rights extended. Even prior to the expiration of their leaseholds, the sub-lessees made several overtures to Ortigas but these were all denied. These developments notwithstanding, Liga was allowed by Ortigas to remain in possession of her leased property.

On 3 September 2001, Ortigas and Allegro executed the corresponding Contract of Lease.6 On the same day, the same parties executed the Addendum to Agreement, Section 1 of which provides that "(t)he LESSEE (Allegro) shall take immediate possession and control of the leased premises upon the signing of the Contract of Lease." and "also assist in the collection of back rentals due to the LESSOR (Ortigas) in Shoppesville Arcade from 1 January 2001 up to the 31 August 2001, when it shall commence to pay rentals for its own account."

As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they entered into a lease agreement dubbed Rental Information in which Liga agreed to pay rental of P40,000.00 monthly starting 1 September 2001. She also agreed to pay the back rentals covering the months of January through August 2001 due Ortigas. Upon signing the agreement, Liga also gave P40,000.00 as one month advance rental and another P40,000.00 as one month security deposit as provided in the agreement.

Liga failed to comply. Despite repeated demands from Allegro, Liga had failed to pay her rentals for the subleased property, as well as the back rentals from January to August 2001 due Ortigas. Hence, Allegro filed a complaint for ejectment on 15 March 2002 with the Metropolitan Trial Court (MeTC) of San Juan, Metro Manila, Branch 57.10

The MeTC rendered a decision11 in favor of Allegro, ordering Liga to vacate the subleased stall and to pay back rentals for her continuous possession of the property. In compliance with the lease agreement with Allegro, Liga even paid the sum of P80,000.00 corresponding to one-month advance rental and one-month security deposit as evidenced by a provisional receipt issued by the former. METC thus ordered Liga to pay Allegro P210,000.00 representing back rentals from 1 October 2001 to February 2002 and P20,000.00 per month as reasonable compensation for the use of the premises from the filing of the ejectment suit until it is vacated.

On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made modifications with respect to its monetary awards.12 It extended the period of lease over the property for two years at a rental rate of P20,000.00 per month, and ordered Liga to pay P80,000.00 as back rentals for the period of September 2001 to February 2002 and P20,000.00 per month as rental from March 2002 until the property is vacated.

Allegro filed a petition for review under. The appellate court, in a Decision dated 25 January 2006, granted Allegro's petition and set aside the RTC's decision.It held that after the expiration of La Paz's lease with Ortigas on 31 December 2000, Liga occupied the property merely by tolerance of Ortigas and that it was incorrect for the RTC to extend the lease contract for two years since it would infringe on the parties right to contract and Liga herself had never raised as an issue the extension of the lease contract before the MeTC. It found that Liga signed the Rental Information with Allegro and agreed to a monthly rental of P40,000.00 starting 1 September 2001. The appellate court ordered Liga to pay Ortigas back rentals of P20,000.00 per month for the period of 1 January 2001 to 31 August 2001 and P40,000.00 per month as rentals to Allegro starting 1 September 2001 until the property is vacated. In a Resolution dated 22 November 2006, the Court of Appeals denied Liga's motion for reconsideration.15

Hence, the present petition for review before this Court.

Issue: W/N the CA erred in ordering LIGA to pay back rentals to ortigas?W/N the CA erred in ordering LIGA to pay back rentals amounting to 40k per month to Allegro?W/N the award of damages was proper?

Held:On the first issue, Liga is right. The CA erred in holding Liga liable to pay ortigas since the latter is not a party to the case. Despite the agreement between Ortigas and Allegro, Allegro failed to aver that it was acting as Ortigas’ legal representative in the case. Finally, Allegro made no allegation that it was here collect back rentals on behalf of Ortigas.

As to the second issue, the Court cannot countenance the obstinate refusal of Liga to pay P40,000.00 a month to Allegro since she had already acquiesced to pay such rental rate when she signed the Rental Information. It is fundamental that a contract is the law between the parties (NCCC Article 1159). Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Unless the stipulations in a contract are contrary to law, morals, good customs, public order or public policy, the same are binding as between the parties. It is a general principle of law that no one may be permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. Likewise, it is settled that if the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be controlling.

On the last issue regarding damages, Liga also fails. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal. Attorney's fees and costs of litigation are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." Having delivered possession over the leased property to Liga, Allegro had already performed its obligation under the lease agreement. Liga should have exercised fairness and good judgment in dealing with Allegro by religiously paying the agreed monthly rental of P40,000.00.

As per the guidelines set in Eastern Shipping Lines Inc vs CA, the interest of 12% per annum shall be imposed on the back rentals which in this case being equivalent to a loan or forbearance of money, from the time of extrajudicial demand on 15 December 2001. This is made subject to the provisions of Article 1169 of the Civil Code.

Jovellanos versus CA

Provisions and Legal Principles Tackled:(Art 118 (vesting of ownership on installment sales) and 256 of the FC (governing it retroactivity as long as it does not prejudice vested rights), nota bene Art 118 of FC exception to NCC 1187 (on retroactive effect of contracts); concept of contract to sell versus contract of sale; vested rights versus inchoate rights)

Facts:September 2, 1955, Daniel Jovellanos and Philippine American Life Insurance Company (Philamlife) entered into a contract denominated as a lease and conditional sale agreement over Lot 8, including a bungalow thereon. At that time, Daniel Jovellanos was married to Leonor Dizon, with whom he had three children, the petitioners herein. Leonor Dizon died on January 2, 1959. On May 30, 1967, Daniel married private respondent Annette H. Jovellanos with whom he begot two children, her herein co-respondents.

On December 18, 1971, petitioner (daughter 1st M) Mercy Jovellanos married Gil Martinez and, at the behest of Daniel Jovellanos, they built a house on the back portion of the premises. On January 8, 1975, with the lease amounts having been paid, Philamlife executed to Daniel Jovellanos a deed of absolute sale and, on the next day, the latter donated to herein petitioners all his rights, title and interests over the lot and bungalow thereon. On September 8, 1985, Daniel Jovellanos died and his death spawned the present controversy, resulting in the filing by private respondents of Civil Case.

Private respondent Annette H. Jovellanos claimed in the lower court that the aforestated property was acquired by her deceased husband while their marriage was still subsisting, by virtue of the deed of absolute sale dated January 8, 1975 executed by Philamlife in favor of her husband, Daniel Jovellanos. who was issued Transfer Certificate of Title No. 212286 of the Register of Deeds of Quezon City and which forms part of the conjugal partnership of the second marriage. Petitioners, on the other hand, contend that the property, specifically the lot and the bungalow erected thereon, as well as the beneficial and equitable title thereto, were acquired by their parents during the existence of the first marriage under their lease and conditional sale agreement with Philamlife of September 2, 1955.

On December 28, 1989, the court a quo rendered judgment by ordering the liquidation of the partnership, directing reimbursement of amount advanced by partnership and declaring share of ownership of the heirs. CA affirms the RTC with the modification that private respondents should also reimburse to petitioners their proportionate shares on the proven hospitalization and burial expenses of the late Daniel Jovellanos, applying Article 118 of the FC which provides:

Art. 118. Property bought on installment paid partly from exclusive funds of either or both spouses and partly from conjugal funds belongs to the buyer or buyers if full ownership was vested before the marriage and to the conjugal partnership if such ownership was vested during the marriage. In either case, any amount advanced by the partnership or by either or both spouses shall be reimbursed by the owner or owners upon liquidation of the partnership.

Petitioners were dissatisfied, hence the case

Issues:W/N lease and conditional sale agreement was a contract of sale or to sell?W/N the lower court erred in holding that the provisions of the Family Code are applicable in resolving the rights of the parties herein?

Held:The conditional sale agreement in said contract is, therefore, also in the nature of a contract to sell, as contrdistinguished from a contract of sale. In a contract to sell or a conditional sale, ownership is not transferred upon delivery of the property but upon full payment of the purchase price. 14 Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with the seller until full payment of the price is made, if there is stipulation to this effect. The stipulation is usually known as a pactum reservati dominii, or contractual reservation of title, and is common in sales on the installment plan. Compliance with the stipulated payments is a suspensive condition. 16 the failure of which prevents the obligation of the vendor to convey title from acquiring binding force.

Hornbook lore from civilists clearly lays down the distinctions between a contract of sale in which the title passes to the buyer upon delivery of the thing sold, and a contract to sell where, by agreement, the ownership is reserved in the seller and is not to pass until full payment of the purchase price: In the former, non-payment of the price is a negative resolutory condition; in the latter, full payment is a positive suspensive condition. In the former, the vendor loses and cannot recover the ownership of the thing sold until and unless the contract of sale is rescinded or set aside; in the latter, the title remains in the vendor if the vendee does not comply with the condition precedent of making full payment as specified in the contract.

Anent the second issue, it is petitioners' position that the Family Code should not be applied in determining the successional rights of the party litigants to the estate of Daniel Jovellanos. for to do so would be to impair their vested property rights over the property in litigation which they have acquired long before the Family Code took effect.

We find no legal impediment to the application in this case of the rule of retroactivity provided in the Family Code to the effect that —

Art. 256. This Code shall have retroactive effect insofar as it does not prejudice or impair vested or acquired nights in accordance with the Civil Code or other laws.

The right of Daniel Jovellanos to the property under the contract with Philamlife was merely an inchoate and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested right as an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy.

ACCORDINGLY, finding no reversible error in the judgment of respondent court, the same is hereby AFFIRMED.

Petition denied

Leano vs CAProvisions and Legal Principles Tackled:(Article 1169 and 1592 of the Civil Code, Republic Act No. 6552 (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 the 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 a notarial act. After the demand, the court may not grant him a new term.)

Facts:On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a piece of land.

In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of one hundred seven thousand and seven hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase price was as follows, 10775 as downpayment upon signing and the balance to be paid within 10 years thru monthly amortizations to begin from 12/7/85 with interest at 18%/annum based on balances and a grace period of one month within which to make payments. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments.

Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into. The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages.

After the execution of the contract, Carmelita Leaño made several payments in lump sum. Thereafter, she constructed a house on the lot valued at P800,000.00. The last payment that she made was on April 1, 1989.

On September 16, 1991, the trial court rendered a decision in an ejectment case earlier filed by respondent Fernando ordering petitioner Leaño to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit. On August 24, 1993, the trial court issued a writ of execution which was duly served on petitioner Leaño.

On September 27, 1993, petitioner Leaño filed with the Regional Trial Court of Malolos, Bulacan a complaint for specific performance with preliminary injunction. Petitioner Leaño assailed the validity of the judgment of the municipal trial court for being violative of her right to due process and for being contrary to the avowed intentions of Republic Act No. 6552 regarding protection to buyers of lots on installments. Petitioner Leaño deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to cover the balance.

On February 6, 1995, the trial court rendered a decision, the dispositive portion of which orders specific performance as well as imposing damages on defendant (hereine respondents)

On February 21, 1995, respondent Fernando filed a motion for reconsideration and the supplement thereto. The trial court increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leaño ordered to pay attorney's fees. Leano goes to CA but gets an adverse decision affirming the RTC. Hence the present petition.

Issue:W/N the transaction between the parties in an absolute sale or a conditional sale?(contract to sell)W/N there was a proper cancellation of the contract to sell?(no) W/N petitioner was in delay in the payment of the monthly amortizations? (yes)

HeldContrary to the findings of the trial court, the transaction between the parties was a conditional sale not an absolute sale. 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.

First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell.

Second, what was transferred was the possession of the property, not ownership. Finally, the ownership of the lot was not transferred to Carmelita Leaño. As the land is covered by a torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot. 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.

Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the case at bar. However, any attempt to cancel the contract to sell would have to comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer Protection Act."

R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.36 The law also provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that:

"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." The decision in the ejectment case operated as the notice of cancellation required by Sec. 3(b). As petitioner Leaño was not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract. Consequently, petitioner Leaño may still reinstate the contract by updating the account during the grace period and before actual cancellation.

Should petitioner Leaño wish to reinstate the contract, she would have to update her accounts with respondent Fernando in accordance with the statement of account39 which amount was P183,687.00.40

On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that while the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leaño cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed.

Article 1169 of the Civil Code provides that in reciprocal obligations, 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. From the moment one of the parties fulfills his obligation, delay by the other begins.

In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages. However, we agree with the trial court that the default committed by petitioner Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.43 Thus, as there is no ambiguity in the language of the contract, there is no room for construction, only compliance.

Petition denied CA affirmed in Toto)

Heirs of Luis Bacus vs CA

Provisions and Legal Concepts tackled:(NCC 1169, Nature of An option to Buy, Consignation)

Facts:On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter.

Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents.

On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661-A-3-B-2-A.3

Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis. At the hearing, Duray presented a certification from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus.5

Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a complaint for specific performance with damages against petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of sale over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages.

On the other hand, petitioners alleged that before Luis Bacus' death, private respondents conveyed to them the former's lack of interest to exercise their option because of insufficiency of funds, but they were surprised to learn of private respondents' demand. In turn, they requested private respondents to pay the purchase price in full but the latter refused. They further alleged that private respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be deemed legal tender.

On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier's check in the amount of P650,0006 payable to petitioners at anytime upon demand.

On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the dispositive portion of which reads:

Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the appeal on November 29, 1996, on the ground that the private respondents exercised their option to buy the leased property before the expiration of the contract of lease. It held:

. . . After a careful review of the entire records of this case, we are convinced that the plaintiffs-appellees validly and effectively exercised their option to buy the subject property. As opined by the lower court, "the readiness and preparedness of the plaintiff on his part, is manifested by his cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had no intention to purchase the property, he would not have bothered to write those letters to the defendant-appellants (which were all received by them) and neither would he be interested in having his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon Tagapamayapa to compel the defendants-appellants to recognize his right to purchase the property and for them to perform their corresponding obligation.8

Hence, this petition where petitioners aver that the Court of Appeals gravely erred and abused its discretion in:

Issues:When private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer?

Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

Ruling:On the first issue, petitioners contend that private respondents failed to comply with their obligation because there was neither actual delivery to them nor consignation in court or with the Municipal, City or Provincial Treasurer of the purchase price before the contract expired. Private respondents' bank certificate stating that arrangements were being made by the bank to release P700,000 as a loan to private respondents cannot be considered as legal tender that may substitute for delivery of payment to petitioners nor was it a consignation.

Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, 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, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners' actual execution and delivery of the deed of sale were they required to pay. As earlier stated, the latter was contingent upon the former. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required.

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. In instances, where no debt is due and owing, consignation is not proper. Therefore, petitioners' contention that private respondents failed to comply with their obligation under the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired and before they execute a deed, has no leg to stand on.

Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In reciprocal obligations, 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 begin. (NCC 1169)

In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to buy the property and they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand to private respondents to first deliver the money before they would execute the same which prompted private respondents to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its decision, private respondents issued a cashier's check in petitioners' favor purportedly to bolster their claim that they were ready to pay the purchase price. The trial court considered this in private respondents' favor and we believe that it rightly did so, because at the time the check was issued, petitioners had not yet executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashier's check was issued even after the contract expired.

Petition Denied. Cost against petitioners

Cortess versus CAProvision and Legal Principles: (NCC 1169, Compensatio Morae, Reciprocal obligations, Read into the actual intention of contracting parties)

Facts:

For the purchase price of P3,700,000.00, the Corporation as buyer, and Cortes as seller, entered into a contract of sale over the lots 

On various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in September 1983, the parties executed a deed of absolute sale containing the following terms:

1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the Vendee to the Vendor in connection with the sale 2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which shall be secured by an irrevocable standby letter of credit to be issued by any reputable local banking institution acceptable to the Vendor. 4. All expense for the registration of this document with the Register of Deeds concerned, including the transfer tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale.

Said Deed was retained by Cortes for notarization. On January 14, 1985, the Corporation filed the instant case for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents.

In his Answer  Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However, due to the Corporation's failure to pay in full the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down payment, with damages in either case.

On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the parties, the Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the contract. In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The motion was, however, denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance of the down payment.

On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation's payment of the balance of the purchase price of P2,487,000.00. It found that the parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance. Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated.

There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.

Article 1191 of the Civil Code, 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. As to when said failure or delay in performance arise, Article 1169 of the same Code provides that – ART. 1169 - In reciprocal obligations, 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.  From the moment one of the parties fulfills his obligation, delay by the other begins.

Issue: Whether there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale.

Held: By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the TCTs to the Corporation in order to effect said transfer. Hence, the phrase "execution of this instrument" 1as appearing in the Deed of Absolute Sale, and which event would give rise to the Corporation's obligation to pay in full the amount of P2,200,000.00, can not be construed as referring solely to the signing of the deed. The meaning of "execution" in the instant case is not limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the parties' agreement. With the transfer of titles as the corresponding reciprocal obligation of payment, Cortes' obligation is not only to affix his signature in the Deed, but to set into motion the process that would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs. The Court of Appeals found that Cortes never surrendered said documents to the Corporation. Cortes testified that he delivered the same to Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa Sanchez, delivered the same to the Corporation.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation. 20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default,21 such that it is as if no one is guilty of delay.22

We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsel's offer to surrender the original Deed and the TCTs, the Corporation should have consigned the balance of the down payment. This argument would have been correct if Cortes actually surrendered the Deed and the TCTs to the Corporation. With such delivery, the Corporation would have been placed in default if it chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically heeding to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in fact made, is enough reason for the Corporation to be more cautious in dealing with him.

The Court of Appeals was right. Since the Corporation did not question the Court of Appeal's decision and even prayed for its affirmance, its payment should rightfully consist not only of the amount of P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED CA affirmed.

TITAN-IKEDA CONST. vs. PRIMETOWN544 SCRA 466 (Art. 1169)Provisions and Legal Concepts Tackled: NCC 1169 and also Solutio Indebitii

Facts:

The parties entered into a contract for a piece of work when they executed the supplemental agreement. Respondent Primetown Property Group, Inc. awarded the contract for the structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation. Titan-Ikeda as contractor bound itself to execute the project for respondent, the owner/developer, in consideration of a price certain P130M. (The supplemental agreement was reciprocal in nature because the obligation of respondent to pay the entire contract price depended on the obligation of petitioner to complete the project.)

ITI estimated that petitioner should have accomplished 48.71% of the project as of the October 12, 1995 takeover date. Petitioner repudiated this figure but qualifiedly admitted that it did not finish the project. Records showed that respondent did not merely take over the supervision of the project but took full control thereof.

Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire contract price.

Issue:W/N there was delay on the part of petitioner Titan-Ikeda? NO

Held:Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay.

Construction Contact:If at any time during the effectivity of this contract, [PETITIONER] shall incur unreasonable delay or slippages of more (15%) of the scheduled work program, [RESPONDENT] should notify in writing to accelerate the work and reduce, if not erase, slippage. If after the lapse of sixty (60) days from receipt of such notice, [PETITIONER] fails to rectify the delay or slippage, [RESPONDENT] shall have the right to terminate this contract except in cases where the same was caused by force majeure.

Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction contract. Moreover, according to the October 12, 1995 letter-agreement, respondent took over the project for the sole reason that such move was part of its (respondent’s) long-term plan. Because petitioner did not consent to the change of the designated construction manager, ITI’s September 7, 1995 report could not bind it.

Petitioner did not incur delay in the performance of its obligation.

Pantaleon vs AmexPovisions and Legal Concepts: ncc 1169, mora solvendi v. mora accipiendi, patently unreasonable delay…and moral damages.

Facts:Petitioner Lawyer Polo Pantaleon with his wife is in a tour of western Europe, on October of 1991. On October 25, they arrive in the city of Amsterdam, and proceed to a jewelry store to buy a brilliant cut diamond worth roughly 13000 dollars. To pay for the purchase, Atty. Pantaleon uses his Amex card. This was at around 9:15 a.m The sales clerk took the card’s imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to respondent’s Amsterdam office at 9:20 a.m. At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the tour group was supposed to have left the store, Coster decided to release the items even without respondent’s approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were met by their tourmates with stony silence. The tour group’s visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London. Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his nerves.

The Approval Code was transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to respondent’s Amsterdam office. Upon his return to Manila, Mr. Pantaleon issued a letter demanding apology from herein respondent. The letter was answered with weasel words. Atty Pantaleon, displeased goes to court and sues the company for damages. RTC grants, CA reverses hence the present petition.

Issues:W/N Amex was in delay? If it was, was it Mora Solvendi or Mora Accipiendi? (Yes, mora solvendi)W/N Amex should be held liable for damages? (Yes)

Held:The credit card company failed to timely perform its duty of responding to petitioners credit request with timely dispatch. This failure to perform its obligation amounts to Mora Solvendi.

The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its part in complying with its obligation to act promptly on its customer’s purchase request, whether such action be favorable or unfavorable.

Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customer’s purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when "you’d know it when you’d see it," and one hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had respondent disapproved petitioner’s purchase "within seconds" or within a timely manner, this particular action would have never seen the light of day. Petitioner and his family would have returned to the bus without delay – internally humiliated perhaps over the rejection of his card – yet spared the shame of being held accountable by newly-made friends for making them miss the chance to tour the city of Amsterdam.

Petition granted.

PAL vs MianoProvisions and Legal Concepts: (BAD faith, when to award damages, and requisite of proving bad faith)

Facts:On August 31, 1988, Florante Miano flies to Frankfurt Germany via PAL Mabuhay class, checking in 1 brown suitcase in Ninoy Aquino Airport. Upon his arrival at Vienna, he discovered that his baggage was missing and promptly reported the same to Lufthansa authorities. After waiting for 3 hours, he proceeded to Czechoslovakia, where he stayed for the next eleven days til his luggage was finally delivered to him.

In November 1988, Miano wrote a letter to petitioner demanding 10,000 for the value of the nikkon camera allegedly lost and $200 dollars for the loan he incurred for the delivery of his luggage and 100,000 as damages. Subsequently, feeling that his demands had not been met, respondent goes to the RTC to seek redress. RTC rules in favor of respondent, hence the present petition.

Issues:Was their bad faith in this case meriting the award of damages?

Held:In breach of contract of carriage by air, moral damages are awarded only if the defendant acted fraudulently or in bad faith. 6 Bad faith means a breach of a known duty through same motive of interest or ill will. 7

The trial court erred in awarding moral damages to private respondent. The established facts evince that petitioner's late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated with its Central Baggage Services to trace private respondent's suitcase and succeeded in finding it. At the hearing, petitioner's Manager for Administration of Airport Services Department Miguel Ebio testified that their records disclosed that Manila, the originating station, did not receive any tracer telex. 8 A tracer telex, an airline lingo, is an action of any station that the airlines operate from whom a passenger may complain or have not received his baggage upon his arrival. 9 It was reasonable to presume that the handling of the baggage was normal and regular. Upon inquiry from their Frankfurt Station, it was however discovered that the interline tag of private respondent's baggage was accidentally taken off. According to Mr. Ebio, it was customary for destination stations to hold a tagless baggage until properly identified. The tracer telex, which contained information on the baggage, is matched with the tagless luggage for identification. Without the tracer telex, the color and the type of baggage are used as basis for the matching. Thus, the delay.

Worthy to stress, the trial court made an unequivocal conclusion that petitioner did not act in bad faith or with malice, viz.:

Bad faith under the law cannot be presumed; it must be established by clear and convincing evidence . Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to have acted fraudulently or in bad faith , liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could reasonably have foreseen . The damages, however, will not include liability for moral damages. We can neither sustain the award of exemplary damages. The prerequisite for the award of exemplary damages in cases of contract or quasi-contract is that the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. The undisputed facts do not so warrant the characterization of the action of petitioner.

The award of attorney's fees must also be disallowed for lack of legal leg to stand on. The fact that private respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify the award of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. Petitioner is willing to pay the just claim of $200.00 as a result of the delay in the transportation of the luggage in accord with the Warsaw Convention. Needless to say, the award of attorney's fees must be deleted where the award of moral and exemplary damages are eliminated.

IN VIEW WHEREOF, the assailed Decision of July 29, 1992 is MODIFIED deleting the award of moral and exemplary damages and attorney's fees. No costs.

SO ORDERED.

International Corporate Bank v GuecoProvisions and Legal Concepts: Art 1170 (bad faith and fraud), concept, stale checksFacts:Gueco Spouses obtain a car loan from ICB, in consideration thereof, said spouses executed promissory notes payable in monthly installments with a chattel mortgage over the car for added security. Spouses default and the bank files a case for collection of sum of money with a prayer for writ of replevin. Subsequently, the vehicle is impounded in favor of the bank by sheriffs and the spouses enter into negotiations with the bank. The banks representative agrees to lower the loan and release the vehicle upon payment of the lowered sum. On august 1995, Doctor gueco issues a 150k check to the bank to satisfy the loan, but refuses to sign a joint motion to dismiss with the bank. Consequently, the bank refused to release the vehicle or accept the payment, as the signing of the joint motion to dismiss was part of its SOP. This leads the Gueco spouses to file a civil case for damages against the bank. The RTC rules in favor of the spouses and orders the bank to return the vehicle as well as pay 100k worth of moral, exemplary damages and atty fees. CA affirms rtc in toto, hence the present case.

Issue:Was ICB guilty of fraud that would entitle Gueco to damages?Should ICB have to live with the fact that it allowed the managers check in its possession to go stale?

Held:Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both .the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared:

The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorney's fees.10

We disagree.

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation. We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith.

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 fait. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent."

Stale Check:

A check must be presented for payment within a reasonable time after its issue,22 and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.24 This is because the nature and theory behind the use of a check points to its immediate use and payability.

It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined.33 In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank.

Petition Granted. CA reversed. Petitioners ordered to pay ICB the loan and ICB ordered to return vehicle. Joint motion to dismiss must be signed.

PAL versus GacalProvisions and Legal Concepts: (NCC 1174 (requisites for valid claim of FE) and 1733 (Diligence required of a common carrier) 1734 (presumption of fault of common carrier) also force majeure)

Facts:Gacal spouses board a PAL airplane in Davao sometime in 1976, on a flight bound for Manila. On the same flight, a group of Moslem terrorists are onboard, seeking to hijack the plane and reroute it to Libya. The pilots manage to convince the same group that the plane does not have enough fuel for the flight, prompting them to decide to fly to Sabah. Before they could reach Sabah, the fuel was depleted to a level that made it necessary for them to land in Zamboanga airport. A few hours after the landing, a military operation was launched with the aim of rescuing passengers. True to form, the AFP ended up killing several passengers and a few of the terrorists on board. Unfortunately for PAL, among those hostages whom the military didn’t manage to kill was City Fiscal Franklin Gacal and some other equally litigious passengers who would proceed to sue PAL. The RTC dismisses the complaints, ruling that what happened was brought about by force majeure, thus absolving PAL of the liability. (NCC 1174)

In their motion for certiorari, Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to discover hidden weapons in the bodies of the six hijackers. They claimed that despite the prevalence of skyjacking, PAL did not use a metal detector which is the most effective means of discovering potential skyjackers among the passengers

Issue: Whether or not hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident.

Held:Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case (Article 1733). They are presumed at fault or to have acted negligently whenever a passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations Commission, 124 SCRA 583 [1983]) or for the loss, destruction or deterioration of goods in cases other than those enumerated in Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463 [1987]).

The source of a common carrier's 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. There is breach of this obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the utmost diligence of a very cautious person (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]).

It is the duty of a common carrier to overcome the presumption of negligence (Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed the required extraordinary diligence of a very cautious person as far as human care and foresight can provide or that the accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523 [1976]). Thus, as ruled by this Court, no person shall be responsible for those "events which could not be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same sense as "force majeure" (Words and Phrases Permanent Edition, Vol. 17, p. 362).

In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either unforeseeable 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 (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same (Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]).

Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the Moro National Liberation Front (MNLF), without any connection with private respondent, hence, independent of the will of either the PAL or of its passengers.

Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was a military take-over of airport security including the frisking of passengers and the inspection of their luggage preparatory to boarding domestic and international flights. In fact military take-over was specifically announced on October 20, 1973 by General Jose L. Rancudo, Commanding General of the Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil Aeronautics Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976 by Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72).

Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former.

Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence of force majeure has been established exempting respondent PAL from the payment of damages to its passengers who suffered death or injuries in their persons and for loss of their baggages.

PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the Court of First Instance of South Cotabato, Branch I is hereby AFFIRMED.

SO ORDERED.

Southeastern College vs CAProvisions and Legal Concepts: (Fortuitous Event, Burden of Proof in asserting negligence, validity of a mere ocular inspection)Facts:Respondents own a house along the same college road as where the Building of Southeastern college is found. On Oct 11, 1989, at about 6:30 am, typhoon saling strikes the place and rips out the roof of petitioner which then crashes into the house of private respondents.

After the typhoon had passed, an ocular inspection of the destroyed buildings was conducted by a team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latters Report[5] dated October 18, 1989 stated, as follows:chanroblesvirtualawlibrary

“5. One of the factors that may have led to this calamitous event is the formation of the buildings in the area and the general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the buildings becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the building, which remained intact after the storm.chanroblesvirtualawlibrary

6. Another factor and perhaps the most likely reason for the dislodging of the roofings structural trusses is the improper anchorage of the said trusses to the roof beams. The 1/2 diameter steel bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses, thus, those trusses are not anchored at all to the roof beams. chanroblesvirtualawlibrary

It then recommended that to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity, the fourth floor of subject school building be declared as a structural hazard”

The respondents file a complaint for damages against the petitioner for the damage caused to their residence. Petitioner counters by saying that subject school building had already withstood several typhoons, without any of its structure or roofing giving way, that the school was in tiptop condition from a structural perspective and that the typhoon was an act of God for which it could not be held liable. RTC favors the stance of respondents. CA affirms the RTC but reduces the award of damages.

Hence the present petition

Issue:W/N 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.

Held: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

After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule that factual findings by the trial court, especially when affirmed by the appellate court, are binding and conclusive upon this Court. After a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts misappreciated the evidence

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.[15] 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.[16] 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 justly demand,[17] 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.[18] From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to private respondents house could have been avoided.

At the outset, 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, 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. The relationship of cause and effect must be clearly shown.

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. Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of such building was basically flawed.

On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the original plans and design of petitioners school building were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building.

Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon Saling, the same city official gave the go-signal for such repairs without any deviation from the original design and subsequently, authorized the use of the entire fourth floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its U-shaped form was structurally defective. Having given his unqualified imprimatur, the city building official is presumed to have properly performed his duties[23] in connection therewith.chanroblesvirtualawlibrary

In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice presidents narration.chanroblesvirtualawlibrary

Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school buildings roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than Saling.chanroblesvirtualawlibrary

In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in question and that typhoon Saling was the proximate cause of the damage suffered by private respondents house.chanroblesvirtualawlibrary

With this disposition on the pivotal issue, private respondents claim for actual and moral damages as well as attorneys fees must fail.[24] Petitioner cannot be made to answer for a purely fortuitous event.[25] More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral damages.chanroblesvirtualawlibrary

Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred.[26] It is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are borne.[27] Private respondents merely submitted an estimated amount needed for the repair of the roof of their subject building. What is more,

whether the necessary repairs were caused ONLY by petitioners alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable. Petition Granted. CA reversed.

PAL V CAProvisions and Legal Concepts: (Contract of Carriage, Fortuitous Event, Damages in spite of fortuitous event (if obligor contributed to the injury as in the case at bar))

Facts:On August 2 1976, private respondent Zapatos flew on board a PAL plane bound for Ozamis from Cebu. Shortly before landing in Ozamis, inclement weather forced the plane to proceed to Cotabato City instead. Upon arriving at Cotabato city, the PAL agent informed the passengers of their options which included a flight back to Manila that would make a stopover at Cebu bu only had six seats available. Respondent tried to get a seat but was not granted one, him having booked as the 9th passenger and the allotment of the seats being done in order of booking. Respondent insisted but was not allowed to board. To assuage respondent, PAL issued him a free ticket to Iligan City. Private respondent was none to pleased and did not use the ticket, consequently he was left at the airport and could not even hitch a ride with the outgoing PAL personnel. The following day, private respondent bought a ticket to Iligan City and informed the PAL personnel that he would not be using the free ticket as he planned to sue PAL. From Iligan, respondent travelled by car and by launch to Ozamis City. On November 25, 1976, private respondent filed a case for damages against PAL. In its defense, PAL raised the issue of the fortuitous event that prevented it from landing in Ozamis, as well as the fact that respondents demands were not reasonable.

The RTC grants the damages prayed for by the petitioner, with the CA affirming thus: “While the failure of plaintiff in the first instance to reach his destination at Ozamis City in accordance with the contract of carriage was due to the closure of the airport on account of rain and inclement weather which was radioed to defendant 15 minutes before landing, it has not been disputed by defendant airline that Ozamis City has no all-weather airport and has to cancel its flight to Ozamis City or by-pass it in the event of inclement weather. Knowing this fact, it becomes the duty of defendant to provide all means of comfort and convenience to its passengers when they would have to be left in a strange place in case of such by-passing. The steps taken by defendant airline company towards this end has not been put in evidence, especially for those 7 others who were not accommodated in the return trip to Cebu, only 6 of the 21 having been so accommodated. It appears that plaintiff had to leave on the next flight 2 days later. If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755 CC., Art. 1733 C.C.) Since part of the failure to comply with the obligation of common carrier to deliver its passengers safely to their destination lay in the defendant's failure to provide comfort and convenience to its stranded passengers using extra-ordinary diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous event, but due to something which defendant airline could have prevented, defendant becomes liable to plaintiff.”

Issue: Whether PAL should be held liable for breach of contract despite the fortuitous event?

Held:The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. 20 In Air France v. Carrascoso, 21 we held that —

A contract to transport passengers is quite different in kind and degree from any other contractual relation. And this, because of the relation which an air carrier sustains with the public. Its business is mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty . . . . ( emphasis supplied).

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations as in the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and passenger continues until the latter has been landed at the port of destination and has left the carrier's premises. 22 Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. On this score, PAL grossly failed considering the then ongoing battle between government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger to the place.

Petition denied. CA is affirmed with modifications that the damages are to be lowered.

PHILCOMSAT vs. GLOBE TELECOMProvisions and Legal Concepts (NCC 1174, what constitutes fortuitous event, award of exemplary damages)

Facts:On May 7, 1991 Philcomsat & Globe entered into an agreement whereby Philcomsat obliged itself to establish, operate & provide an IBS standard B earth station for the exclusive use of US defense communications Agency (USDCA). The term was for 60 months or 5 yrs In turn, Globe promised to pay Philcomsat monthly rentals.

At the execution of the agreement, both parties knew that military Bases Agreement was to expire in 1991. Subsequently, Philcomsat installed the earth station & USDCA made use of the same.

The senate passed a resolution expressing its decision not to concur in the ratification of the treaty of friendship. So the RP-US Military bases Agreement terminate it on Dec. 31, 1992.

Globe notified Philcomsat its instruction to discontinue effective Nov. 8, 1992, in view of the withdrawal of US military personnel. Philcomsat sent a reply to pay the stipulated rentals even after Globe shall have discontinued the use of earth station after Nov. 8 1992.

After the US military force left Subic, Philcomsat sent a letter demanding payment. However, Globe refused to heed Philcomsat ‘s demand because the termination of the US military bases agreement constitute force majeure and said event exempted it from paying rentals.

Issue:1. WON the termination of the RP-US Military Bases Agreement constitutes force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat? YES2. WON Globe is liable to pay rentals under the Agreement for the month of December 1992? YES3. WON Philcomsat is entitled to attorney’s fees and exemplary damages? NO

Held:1. In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established:a. the event must be independent of the human will;b. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; andc. the obligor must be free of participation in, or aggravation of, the injury to the creditor.

Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate.Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.

Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable.

2. The US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time . Hence, Globe is liable for payment of rentals until December 1992.

3. Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment of rentals. Hence, there can be no award.

Sicam v JorgeProvisions and Legal Concepts: (1173 and 1174 NCC, Robbery not an FE per se, duty of a pawnshop owner, liability for contributory negligence)

Facts:On different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Parañaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above.

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Petitioner Lulu disbelieved the claim. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.5

The RTC ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals; and that the parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows:

The CA held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.Hence, the instant petition for review with the following assignment of errors:

Issues:W/N CA was right to hold petitioners liable for the loss of the pawned articles in their possession.

Held:Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. We are not persuaded. Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same.

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it . And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss.

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God.

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop.

Petition denied. CA affirmed.

Fil Estate vs GoProvisions and Legal Concepts Tackled: (1174, Asian Financial Crisis of 1997)

Facts:On December 29, 1995, petitioner Fil-Estate Properties, Inc. (Fil-Estate) entered into a contract to sell a condominium unit. The spouses paid a total of P3,439,000 of the full contract price set at P3,620,000.00.

Because petitioner failed to develop the condominium project, on August 4, 1999, the spouses demanded the refund of the amount they paid, plus interest. When petitioner did not refund the spouses, the latter filed a complaint against petitioner for reimbursement of P3,620,000 representing the lump sum price of the condominium unit, plus interest, P100,000 attorney’s fees, and expenses of litigation before the Housing and Land Use Regulatory Board (HLURB).

In answer, petitioner claimed that respondents had no cause of action since the delay in the construction of the condominium was caused by the financial crisis that hit the Asian region, a fortuitous event over which petitioner had no control.

On July 18, 2000, the HLURB Regional Director approved the decision of the Housing and Land Use Arbiter in favor of the spouses Go. The HLURB ratiocinated that the Asian financial crisis that resulted in the depreciation of the peso is not a fortuitous event as any fluctuation in the value of the peso is a daily occurrence which is foreseeable and its deleterious effects avoided by economic measures . The HLURB went on to say that when petitioner discontinued the development of its condominium project, it failed to fulfill its contractual obligations to the spouses. And following Article 1475 of the Civil Code, upon perfection of the contract, the parties, here the spouses Go, may demand performance. And under Article 1191 of the same code, should one of the parties, in this instance Fil-Estate, fail to comply with the obligation, the aggrieved party may choose between fulfillment or rescission of the obligation, with damages in either case. Inasmuch as Fil-Estate could no longer fulfill its obligation, the spouses Go may ask for rescission of the contract with damages.

The Board of Commissioners of the HLURB denied petitioner’s petition for review and consequent motion for reconsideration.[6] The Office of the President dismissed petitioner’s appeal and denied its motion for reconsideration.[7]

On appeal, asserting that both the HLURB and the Office of the President committed reversible errors, Fil-Estate asked the Court of Appeals to set aside the orders it is appealing. The Court of Appeals affirmed the actions. The appellate court also noted that there was yet no crisis in 1995 and 1996 when the project should have been started, and petitioner cannot blame the 1997 crisis for failure of the project, nor for even not starting it, because the project should have been completed by 1997. The appellate court denied petitioner’s motion for reconsideration.

Hence, this petition.

Issue: W/N Asian Financial Crisis is an FE contemplated by 1174?

Held:Petitioner, citing Article 1174[10] of the Civil Code, argues that the Asian financial crisis was a fortuitous event being unforeseen or inevitable. Petitioner likewise cites Servando v. Philippine Steam Navigation Co.,[11] to bolster its case. Petitioner explains that the extreme economic exigency and extraordinary currency fluctuations could not have been reasonably foreseen and were beyond the contemplation of both parties when they entered the contract. Petitioner further asserts that the resultant economic collapse of the real estate industry was unforeseen by the whole Asia and if it was indeed foreseeable, then all those engaged in the real estate business should have foreseen the impending fiasco. Petitioner adds that it had not committed any fraud; that it had all the required government permits; and that it had not abandoned the project but only suspended the work. It also admits its obligation to complete the project. It says that it had in fact asked the HLURB for extension to complete it.[12]In their Comment, respondents submit that the instant petition be rejected outright for the reason that petitioner has not raised any question of law in the instant petition. The questions of whether or not the Asian financial crisis is a fortuitous event, and whether or not attorney’s fees should be granted, are questions of facts which the Court of Appeals recognized as such.Respondent spouses reiterate that contrary to what petitioner avers, the delay in the construction of the building was not attributable to the Asian financial crisis which happened in 1997[13] because petitioner did not even start the project in 1995 when it should have done, so that it could have finished it in 1997, as stipulated in the contract.

Indeed, the question of whether or not an event is fortuitous is a question of fact. As a general rule, questions of fact may not be raised in a petition for review for as long as there is no variance between the findings of the lower court and the appellate court, as in this case where the HLURB, the Office of the President, and the Court of Appeals were agreed on the fact.Worthy of note, in a previous case, Asian Construction and Development Corporation v. Philippine Commercial International Bank,[14] the Court had said that the 1997 financial crisis that ensued in Asia did not constitute a valid justification to renege on obligations. We emphatically stressed the same view in Mondragon Leisure and Resorts Corporation v. Court of Appeals,[15] that the Asian financial crisis in 1997 is not among the fortuitous events contemplated under Article 1174 of the Civil Code.Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso fortuito.

WHEREFORE, the petition is DENIED for lack of merit. Petitioner is hereby ordered (1) to reimburse respondents P3,439,000.07 at 6% interest starting August 4, 1999 until full payment, and (2) to pay respondents P100,000.00 attorney’s fees. Costs against petitioner.

Saludaga v FEUProvisions and Legal Concepts: (1174, contractual obligation of schools with students, negligence in screening, 3rd party complaints)

Facts:Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads:

Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts, And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs.

Respondents appealed to the Court of Appeals which rendered the assailed Decision, and reverses the RTC by dismissing the claim of Saludaga.

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition.

Issue:W/N the shooting was an FEW/N the CA erred in holding that FEU not liable for its breach of contractual obligation to petitioner as their studentW/N the 3rd party complaint is valid

Held:When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus.[12]

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb . Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.[14]It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.[15] In the instant case, we find that, when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee;[16] and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail.

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.[18]

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical expenses.[19] While the trial court correctly imposed interest on said amount, however, the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint until the finality of this Decision.[20] After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts.[21] In the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner.

The third-party complaint is, therefore, a procedural device whereby a `third party' who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.[33]Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its employees but also in their supervision.For these acts of negligence and for having

supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner.

Petition Granted, CA decision set aside. Damages awarded to Saludaga. FEU’s 3rd party claim against Galaxy granted.

Mondragon Leisure v Court of AppealsProvisions and Legal Concepts Tackled: (1174, Asian Financial Crisis, Express stipulation exception to 1174, demand, 1201 and alternative remedies and the effect of choice) Facts:n February 28, 1994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of what is now known as the Mimosa Leisure Estate.

To finance the project, petitioner, on June 30, 1997, entered into an Omnibus Loan and Security Agreement with respondent banks for a syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, as amended on January 19, 1999, the proceeds of the loan were to be released through advances evidenced by promissory notes to be executed by petitioner in favor of each lender-bank, and to be paid within a six-year period from the date of initial advance inclusive of a one year and two quarters grace period.

To secure the repayment of the loan, petitioner pledged in favor of respondents US$20M worth of MIPI shares of stocks; assigned, transferred and delivered all rights, title to and interest in the pledged shares; and assigned by way of security its leasehold rights over the project and all the rights, title, interests and benefits in, to and under any and all agreements in connection with the project.

On July 3, 1997, petitioner fully availed of and received the full amount of the syndicated loan agreement. Petitioner stopped paying in October of 1998. On January 6 and February 5, 1999, written notices of default, acceleration of payment and demand letters were sent by the lenders to the petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner. Petitioner moved for the dismissal of the complaint on the following grounds alleging forum shopping on the part of plaintiffs as well as force majeure.

The trial court denied the motion and ruled the force majeure baseless. The same are not those provided for under Sec. 1, Article 41 of the loan agreement. As to the allegation of forum shopping, the herein parties Asian Bank Corporation and Far East Bank and Trust Company are not parties to this case in 9510 (sic). The subject matter of Civil Case No. 9527 is not the same with the subject matter in Civil Case No. 9510.

Petitioner moved for the reconsideration of the order and argued that the complaint is premature, since it had not been validly declared in default.6 The trial court denied the motion for reconsideration. Seasonably, petitioner filed a special civil action for certiorari with the Court of Appeals. Before the appellate court, petitioner reiterated its arguments in its motion to dismiss before the trial court, including the failure of the respondents to attach the board resolutions authorizing them to file the complaint.7

The Court of Appeals dismissed the petition and denied the subsequent motion for reconsideration. Hence, this appeal by certiorari.

Issue: (Relevant)w/n petitioner was in default in spite of the six year period available for the loanw/n petitioner was liable in spite of the FE of the Asian Financial Crisis?

Held:Petitioner contends the subject obligation of the instant case is not yet due and demandable because the Omnibus Agreement allows a full six-year term of payment. Even if it failed to pay some installments, petitioner insists it is not in default because respondents merely sent collection and demand letters, but failed to give the written notice of default required under their agreement.

Moreover, petitioner avers that the provisions on default in the Omnibus Agreement have been rendered inapplicable and unenforceable by fortuitous events, namely the Asian economic crisis and the closure of the Mimosa Regency Casino, which was petitioner’s primary source of revenues.1avvphi1.zw+

Respondents counter that the Omnibus Agreement defines, as an event of default, the failure of petitioner to pay when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. Since petitioner is also required to pay interest, respondents posit that non-payment thereof constituted a clear and unmistakable case of default. Respondents add that they had properly advised the petitioner that it had been declared in default, referring to the January 6 and February 5, 1999 letters as their compliance with the notice requirement.

On this issue, we are unable to agree with the petitioner.

Section 2.06 (a) of Part B of the Omnibus Agreement provides that the borrower shall pay interest on the advances outstanding from time to time on each interest payment date, while Section 6 of Part A reads

6.01 Events of Default

Each of the following events shall constitute an Event of Default under this Omnibus Agreement:

(a) Payment Default – The BORROWER defaults in the payment when due at stated maturity, by acceleration or otherwise, of any amount payable under the Loan Documents.14

. . .

Clearly, under the foregoing provisions of the Agreement, petitioner may be validly declared in default for failure to pay the interest. As a consequence of default, the unpaid amount shall earn default interest,15 and the respondent-banks have four alternative remedies without prejudice to the application of the provisions on collaterals and any other steps or action which may be adopted by the majority lender.16

The four remedies are alternative, with the right of choice given to the lenders, in this case the respondents. Under Article 1201 of the Civil Code, the choice shall produce no effect except from the time it has been communicated. This is the reason why a written notice is required under Section 6.02 of the Omnibus Agreement.

In the present case, we find that the letter clearly indicated the choice of remedy by the respondents, pursuant to the Omnibus Agreement. It should be noted that the agreement also provides that the choice of remedy is without prejudice to the action on the collaterals.

Petitioner’s claim, that the respondents could not be held in default because of a fortuitous event, is untenable. Said event, the Asian financial crisis of 1997, is not among the fortuitous events contemplated under Article 1174 of the Civil Code. To exempt the obligor from liability for a breach of an obligation by reason of a fortuitous event, the following requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable 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.20

As pointed out by the respondents, the loan agreement was entered into on June 30, 1997, or when the Asian economic crisis had already started. Petitioner, as a long established corporation, should have been well aware of the economic environment at that time, yet it still took the risk to expand operations. Likewise, the closure of the Mimosa Regency Casino was not an unforeseeable or unavoidable event, in the context of the contract of lease between petitioner and CDC. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business.

Worthy of note, risk is an exception to the general rule on fortuitous events. Under the law, these exceptions are: (1) when the law expressly so specifies; (2) when it is otherwise declared by the parties; and (3) when the nature of the obligation requires the assumption of risks.21 We find that in the Omnibus Agreement, the parties expressly agreed that any enactment, official action, act of war, act of nature or other force majeure or other similar circumstances shall in no way affect the obligation of the borrowers to make payments.22

In sum, the appellate court did not err in dismissing petitioner’s action for certiorari and in denying the motion for reconsideration. It committed no reversible error, much less any grave abuse of discretion amounting to lack or excess of jurisdiction, contrary to petitioner’s contentions.

Petition denied. CA affirmed.Asset Privatization Trust vs THEProvisions and Legal Concepts: (ncc 1169 (implied) 1170, 1174, as is where is, constructive delivery, waiver of warranty and inapplicability when no delivery has been effected)Facts:Petitioner Asset Privatization Trust was a government entity created to dispose assets of government institutions. Petitioner had acquired from the Development Bank of the Philippines (DBP) assets consisting of machinery and refrigeration equipment which were then stored at Golden City compound, Pasay City. The compound was then leased to and in the physical possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis.

On 7 November 1990, petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5. Respondent paid the full amount of P84,000.00 as evidenced by petitioner’s Receipt No. 12844. After two (2) days, respondent demanded the delivery of the machinery it had purchased. Sometime in March 1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out from the compound the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2, Creative Lines’ employees prevented respondent from completely hauling the remaining machinery and equipment.

Respondent filed a complaint for specific performance and damages against petitioner and Creative Lines. During the pendency of the case, respondent was able to pull out the remaining machinery and equipment. However, upon inspection it was discovered that the machinery and equipment were damaged and had missing parts.

Petitioner argued that upon the execution of the deed of sale it had complied with its obligation to deliver the object of the sale since there was no stipulation to the contrary. It further argued that being a sale on an as-is-where-is basis, it was the duty of respondent to take possession of the property. Petitioner claimed that there was already a constructive delivery of the machinery and equipment.

The RTC ruled that the execution of the deed of absolute sale did not result in constructive delivery of the machinery and equipment. It found that at the time of the sale, petitioner did not have control over the machinery and equipment and, thus, could not have transferred ownership by constructive delivery. The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages suffered by respondent.

On petitioner’s appeal, the Court of Appeals affirmed in toto the decision of the RTC.

Hence this petition.

Before this Court, petitioner raises issues by attributing the following errors to the Court of Appeals, to wit:

Issues:W/N petitioner had complied by constructively delivering the prestation (no)w/n as is where is basis serves protects petitioner from liability (no)w/n waiver of warranty accepted by respondent protects petitioner from liability(no)w/n petitioner could be held liable for the force majeure involving the acts of creative lines employees (yes)

Held:The first issue hinges on the determination of whether there was a constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale between petitioner and respondent. The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.

As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.

However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment. It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made. Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.

In this case, there was no constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not petitioner but Creative Lines which had actual possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property.

On the second issue, petitioner posits that the sale being in an as-is-where-is basis, respondent agreed to take possession of the things sold in the condition where they are found and from the place where they are located. The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation. It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery and equipment sold by petitioner to respondent. The depiction does not alter petitioner’s responsibility to deliver the property to respondent.

Anent the third issue, petitioner maintains that the presence of the disclaimer of warranty in the deed of absolute sale absolves it from all warranties, implied or otherwise. The position is untenable.

The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall perform each of their respective obligations under the deed of absolute in accordance with the terms thereof. As previously shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not performed its obligation to transfer ownership and possession of the things sold to respondent.

As to the last issue, petitioner claims that its failure to make actual delivery was beyond its control. It posits that the refusal of Creative Lines to allow the hauling of the machinery and equipment was unforeseen and constituted a fortuitous event.

The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.20

A fortuitous event, when the loss is found to be partly the result of a person’s participation–whether by active intervention, neglect or failure to act— the whole occurrence is humanized and removed from the rules applicable to a fortuitous event.

Assuming arguendo that Creative Lines’ refusal to allow the hauling of the machinery and equipment is a fortuitous event, petitioner will still be liable for damages. This Court agrees with the appellate court’s findings on the matter of damages, thus:

Article 1170 of the Civil Code states: "Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.24 The trial court correctly awarded actual damages as pleaded and proven during trial.

Petition Denied. CA affirmedMegaworld vs TansecoProvisions and Legal Concepts Tackled: (1169, 1174, 1191 and non applicability to contracts to sell, Asian Financial Crisis, Section 23 of Presidential Decree No. 95721 on the non forfeiture of installment payments to developers)Facts:On July 7, 1995, petitioner Megaworld and respondent Mila S. Tanseco entered into a Contract to Buy and Sell a 224 square-meter (more or less) condominium unit at a pre-selling project. The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:

4. CONSTRUCTION SCHEDULE – The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied)

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. Almost three years later, megaworld informed Tanseco that her unit was ready for inspection but by that time, Tanseco already wanted to rescind the contract and ask for a refund, seeing as how the delay had already exhausted the entire grace period.

Her demand having been unheeded, Tanseco filed on June 5, 2002 with HLURB against Megaworld for rescission of contract, refund of payment, and damages. Megaworld, in its defense claimed that the Asian Financial crisis prevented it from making timely delivery of the project.

HLURB rules against tanseco stating that Megaworld already effected delivery. On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003,8 sustained the HLURB Arbiter’s Decision on the ground of laches for failure to demand rescission when the right thereto accrued. A subsequent appeal to the CA grants Tanseco’s petition, allowing rescission and damages in her favor.

The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in the herein parties’ contract, states the date when the obligation should be performed; that time was of the essence because Tanseco relied on Megaworld’s promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the aggrieved party.

The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld in forcing her to accept its long-delayed delivery; and attorney’s fees, she having been compelled to sue to protect her rights. Its Motion for Reconsideration having been denied by Resolution of January 8, 2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco had not shown any basis for the award of damages and attorney’s fees.15

Tanseco, on the other hand, maintained her position too, and citing Megaworld’s bad faith which became evident when it insisted on making the delivery despite the long delay,16 insisted that she deserved the award of damages and attorney’s fees.

Issues:w/n laches apply to the case? (no)w/n Asian financial crisis justifies delay it being FE? (no…kulit na kayo ni ba)

In reciprocal obligations, 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. From the moment one of the parties fulfills his obligation, delay by the other begins. (NCC 1169)

The Contract to Buy and Sell of the parties contains reciprocal obligations , i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor.17

That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date.

The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito. Megaworld’s excuse for its delay does not thus lie.

As for Megaworld’s argument that Tanseco’s claim is considered barred by laches on account of her belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable considerations . It bears noting that Tanseco religiously paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.

Pursuant to Section 23 of Presidential Decree No. 95721 which reads:

Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied),

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld.

While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.22

The Court finds the appellate court’s award of P200,000 as exemplary damages excessive, however. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. The Court finds that P100,000 is reasonable in this case.

Finally, since Article 1191 of the Civil Code does not apply to a contract to buy and sell, the suspensive condition of full payment of the purchase price not having occurred to trigger the obligation to convey title, cancellation, not rescission, of the contract is thus the correct remedy in the premises.

Petition denied. CA affirmed.

Prudential Bank versus CAProvisions and Legal Concepts: (1172, exemplary damages, obligation of a bank to treat clients account with “meticulous care”)Facts:Leticia Valenzuela, private respondent, opened a savings account in the Valenzuela Branch of Prudential Bank with automatic transfer of funds from the savings account to the current account. On June 1, 1988, pvt respondent deposits a check worth roughly 35k into her account and subsequently issues a PDC against the same account in the amount of 11500, post dated to 6/20/1988.

Her check is dishonored, much to her surprise. The bank had credited her 35k deposit only on the 24 th, 23 days after her deposit. This prompts respondent to sue the bank for which she is later awarded roughly 200k by the CA. Prubank raises the issue to the SC.

Issue: w/n the damages awarded were proper in spite of banks good faith.

Held: A bank is under obligation to treat its clients accounts with meticulous care, whatever the amount. Even if no malice or bad faith was attendant, the fact remains that the bank committed a serious error…the law allows the grant of exemplary damages by way of example for the public good.

Petition denied. CA is affirmed.

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Gaisano Cagayan vs Insurance Company of AmericaProvisions and Legal Concepts: (1174 and 1263, nature of book insurance, 1504 and buyer’s risk, 2207 and subrogation of insurer to insured parties claim)Facts:Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy. Gaisano Cagayan was a customer of IMC and LSPI, and on 2/25/1991, a fire burned down its warehouse as well as the merchandise it purchased from IMC and LSPI. Subsequently ICA, after having paid IMC and LSPI, made demands upon Gaisano alleging it was already subrogated to the rights of the insured parties. Gaisano refused to pay, alleging that what occurred did not constitute a breach of contract that would make article 2207 applicable to the case, and that what happened was a purely fortuitous event that damaged merchandise that was still under the ownership of IMC and LSPI as per the stipulations on the invoice to that effect. ICA goes to the RTC, gets an unfavorable judgment which is later reversed in its favor by the CA which held Gaisano liable. The CA held that the sales invoices are proof of sale and that the stipulation was provided for in 1504 which expressly places the goods at the buyer’s risk despite the retention of ownership by the seller to secure performance, and that what was insured was not the goods themselves but rather the unpaid balance account and as such the obligation is not extinguished by the FE. Hence the present petition

Issues:w/n the CA erred in holding Gaisano liable despite the FE of fire? (no)

Held:

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

Petition denied. CA affirmed