CASE 1: SONG FO & COMPANY,plaintiff-appellee,vs. HAWAIIAN PHILIPPINE CO.,defendant-appellant

(1925, MALCOLM,J.)FACTS:

In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50, with legal interest, and costs.

In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the said contract.

The case was submitted for decision on a stipulation of facts. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs.

From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the following assignment of errors: "I. The lower court erred in finding that appellant had agreed to sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower court erred in denying appellant's motion for a new trial."

ISSUES:

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

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

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

HELD:

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

(2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to make the payments forthe deliveryof molasses as shown in the documents presented by the parties.

The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song Fo & Company. But actually, there is here present no outstanding fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine Co.

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co.vs. Inza [1922], 43 Phil., 505.)

The appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties.(3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater expense to which it was put in being compelled to secure molasses from other sources to which Supreme Court ruled that P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until payment.

The second cause of action was based onthe lostprofits on account of the breach of contract. Supreme Courtsaid thatSong Fo & Co. is not entitled to recover anything under the second cause of action because thetestimonyof Mr.Song Heng will follow the same line of thought as that of the trial court which iS unsustainable and there was no means for the court to find out what items make up the P14,000 of alleged lost profits. The facts examined and Song Fo & Co. allowed nothing for lost of profits on account of the breach of ontract because of failure of proof.

Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment.___________________________________________________________________________

CASE 2: Velarde vs. Court of Appeals (2001)

CONCEPT: A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.

FACTS:

David Raymundo (private respondent) is the absolute and registered owner of a parcel of land, along with the house and its improvements located thereon (1918 Kamias St., Dasmarinas Village, Makati TCT No. 142177). His father, George Raymundo negotiated with petitioners Avelina and Mariano Velarde for the sale of the property which was under lease.

On Aug. 8, 1986, a Deed of Sale with Assumption of Mortageg was executed by defendant David Raymundo (as vendor) in favor with the Avelina Velarde (as vendee) with certain conditions:

That for the consideration of P800,00, the vendor delivers to the vendee, her heirs, succcessors and assigns, the parcels of land together with the house and other improvements thereon.

That the aforesaid parcel of land, the house and other improvements were mortgaged by the vendor to the Bank of the Philippine Islands (BPI), Makati, Metro Manila, to secure the payment of a loan of P1,800,000. That as part of the consideration for the sale to the vendee, the vendee assumes to pay the mortgage obligations on the property in the amount of P1.,800,000 in favor of BPI and agrees to faithfully comply with the conditions appearing in the Real Estate Mortgage signed and executed by the vendor, including interests and charges for late payment

On the same day, as part of the above agreement, Avelina, with the consent of her husband, executed an undertaking, which included the following: Statement that she paid the P800,000 to the respondent and assumed the obligations regarding the P1,800,000.

That while the application for the assumption of mortgage property to BPI has not yet been approved by the Mortgage bank, she agreed to pay the obligations in the name of Mr. Raymundo.

That the petitioner, with the consent of her husband, obligates her hairs, successors, and assigns, to comply with certain terms and conditions, including:

a) to continue to pay the mortgage bank until such time as the assumption is approved by the bank,

b) that the violation of any of the conditions of the Deed of Real Estate Mortgage, the downpayment of P800,000 and all payments made with BPI shall be forfeited in favor of Mr. Raymundo (as and by way of liquidated damages), without necessity of notice or judicial declaration, and that Mr. Raymundo shall resume complete ownership and possession of the property by way of the Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further effect as if it had never been executed.

The payment for the P1.8M was to be from proceeds of a loan that petitioners were to secure from a bank with the defendants help, the latter having an approced credit card line with BPI. The parties agreed to avail of it subject to the banks approval of the assumption of mortgage by the petitioners. Pending approval, the petitioners paid BPI the monthly interest on the loan secured by the mortgage for three months (September to November 1986). Dec. 15, 1986, BPI did not approve the application for the Assumption of Mortgage.

On January 5, 1987, the defendants wrote the petitioners, saying that non-payment of the mortgage constituted non-performance of their obligation.

The petitioners responded with a letter stating that they were willing to pay the balance in cash not later than January 21, 1987, provided that actual possession of the property was delivered no later than January 15, 1987, that the defendants cause the release of title and mortgage from BPI and make the title free from liens and encumbrances. January 8, 1987, the defendants sent a notrial notice of cancellation of the intended sale of the property.

February 9, 1987, the petitioners filed a complaint with the RTC. Judge Consuelo Ynares-Santiago dimissed the complaint on November 14, 1990. The petitioners filed an MR. Judge Ynares-Santiago was promoted to the CA and was replaced with Judge Salvador S.A. Abad Santos, who ganted the MR on May 15, 1991 and directed the parties to proceed with the sale. Private private respondents appealed to the CA. a) The CA upheld the validity of the rescission made by the private private respondents, citing the assumption of the P1.8M mortgage payment as part of the consideration of the sale and consequently, an obligation of Velarde under the contract.b) The CA interpreted the contract by stating that in the case of approval of the assumption of mortgage, payment of the obligations will be in the name of velarde, but in the event of a disapproval, Velarde had to pay in full.

c) The CA also cited Velardes response letter indicating that she had the capacity to pay but insisted on new conditions not stipulated in their original agreement.d) In the stipulation regarding the automatic cancellation incase of nonfulfillment, the CA ruled that while there is automatic rescission, the vendee may still pay but only for so long as no demand for the rescission has been made judicially or by notarial contract (present in the form of the private respondents notarial notice). The nonfulfillment by one party in a reciprocal obligation entitles the other to rescind the contract. The petitioners have lost their right to the contracts enforcement and cannot avail of the action for specific performance ISSUES:

1. W/N the nonpayment of the mortgage obligation resulted in a breach of contract.

2. W/N the rescission of the contract by private respondents was justified.

RULING:1. Breach of Contract Petitioners allege that their obligation to psy the monthly amortizations ceased when the bank disapproved. The petitioners did not merely stop paying the mortgage but also failed to pay the balance of the purchase price. During litigation, the parties admitted that the agreement mandated the petitioners should pay the P.18M to the private respondents in case the request to assume the mortgage would be disapproved. Thus, when the bank disapproved, the petitioners should have paid the balance. Instead of doing so, they sent a letter offering to make the payment based on entirely new conditions.

In a contract of sale, the seller obligates himself to ownership and deliver the determinate thing, and the buyer to pay the price or its equivalent. The private respondents already performed their obligations through the exectuion of the Deed of Sale. The petitioners clearly failed to perform their obligation, in light of the stipulations of the agreement.

2. Validity of the Rescission. Art. 1191, NCC provides that the power to rescind obligations is implied in reciprocal obligations. This right I predicated on a breach of faith by the other party who violates the reciprocity. When the obligor cannot or does comply, the other party may seek rescission or fulfillment. The petitioners offer to pay based on new obligations does not constitute faithful compliance to their agreement. The private respondents validly exercised their right.

However, rescission also creates the obligation to retun the object of the contract. Mutual restitution is required to bring the parties to their situation prior to the contracts inception (Art. 1191, plus the provision of the agreement that failure to fulfill would lead to the invalidity of the contract, as if it never existed).

The decision of the CA is hereby affirmed with a modification that private respondents are ordered to return to the petitioners, which the latter paid as a consequence of the rescinded contract (with legal interest).Case 3: BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL., defendants-appellants. 1985-03-18 | G.R. No. L-42283

FACTS:

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees.

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

The trial court ruled in favor of the plaintiff-appellees, an appeal was made in the Court of Appeals but the latter court certified the case to Supreme Court since only pure questions of law have been raised for appellate review.

In the contract to sell entered by the parties which was drafted solely by the defendants-appellants (constitute a contract of adhesion), stipulates that in case of non-compliance of the payment scheme as well as the stipulations therein, the defendants-appellants have the right to rescind (cancel) the contract.

It is undisputable that the plaintiffs-appellees were in default and extra-judicial demand in writing was already given by the defendants-appellants.

ISSUE:

Whether or not the extrajudicial demand is subject to the scrutiny of the court since in contracts the contracting parties has the autonomy is making their stipulations provided it is not contrary to law, morals, good customs, public order, or public policy.

RULING:

Yes, the court ruled that the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.

Judicial action is necessary for the resolution of a reciprocal obligation, since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription."

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

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of

P671.67 without any interest thereon, the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are justified.

Case 4: Delta Motors Corp. vs. Genuino, G.R. No. 55665, February 8, 1989

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Case 6: Woodhouse vs. Halili [93 PHIL 527 # L-4811. July 31, 1953]Facts:ThePlaintiffentered into an agreement with thedefendantfor the establishment of a partnership for bottling and distribution of Missionsoft drinks. Beforethe partnershipwas actually established thedefendantrequiredtheplaintiffto secure an exclusivefranchisefor the said venture. In behalf of the said partnership and upon obtaining the said exclusivefranchisethedefendantstipulated to pay theplaintiff30% of the profits. Theplaintiffsought to obtain the said exclusivefranchisebut was only given a temporary one, subject only to 30 days. The parties then proceeded with the signing of the agreement.The partnershipwas still not initiated, only the agreement to work with each other, with theplaintiffas manager and thedefendantas financer, was established.

Together the two parties went to the US to formally sign the contract offranchisewith Mission Dry Corporation. Thedefendantthen found out about the temporaryfranchiseright given to theplaintiff, different from the exclusivefranchiserights they stipulated in their contract.

When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next month, the pay was decreased to P 1,000 and the car was withdrawn from him.

Theplaintiffdemanded the execution ofthe partnership, but thedefendantexcused himself, saying that there was no hurry to do so. The Court of First Instance ordered thedefendantto render an accounting of the profits and to pay theplaintiff15% of such amount. It also held that execution of thecontract of partnershipcannot be enforced upon thedefendantand that fraud as alleged by thedefendantwas also not proved. Hence the present action.

Issues:

(1) Whether the representation of theplaintiffin saying that he had exclusivefranchiserights rather than the actual temporary right he possessed invalidated the contract

(2) Whether the court may compel thedefendantto execute thecontract of partnershipbetween the parties

(3) What will be the amount of damages to be paid to theplaintiff?

Held:The Decision of the Court of First Instance is affirmed with modification.

Fraud was undoubtedly employed by theplaintiffto secure the consent of thedefendantto enter into the contract with him by representing himself as holder of exclusivefranchiserights when in fact he only holds a temporaryfranchiseright good for 30 days. The fraud employed was not such as to render the contract null and void but only such as to hold theplaintiffliable for damages. Such fraud is merely incidental (dolo incidental) and not the causal fraud (dolocausante) that is detrimental to a contract. It does not invalidate the contract since fraud was only employed to secure the 30% stipulated share fromthe partnership.

The parties cannot be compelled to enter into acontract of partnership. The law recognizes the liberty of an individual to do or not to do an act. The action falls within ActoPersonalisimo (a very personal act) which courts may not compel compliance.

The 15% that the Trial court ordered thedefendantto pay theplaintiffis deemed to be the appropriate and reasonable. Such amount was the spontaneous reaction of thedefendantupon knowledge of the misrepresentation of theplaintiffand amounts to the virtual modification of their contract.

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7. LYDIA L. GERALDEZ vs. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION

G.R. No. 108253

February 23, 1994

FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent Kenstar Travel Corp.

Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for $2,990.00 which she paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores. At the tour, petitioner claimed that what was alleged in the brochure was not what they experienced. There was no European tour manager as stated in the brochure, the hotels where they stayed in which were advertised as first class were not, the UGC leather factory which was specifically included as a highlight of the tour was not visited and The Filipino tour guide provided by Kenstar was a first timer thus inexperienced. The Quezon City RTC rendered a decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totalling P1,000,000 and P50,000 attorneys fees. On appeal, respondent Court of Appeals deleted the award for moral and exemplary damages and reduced the nominal damages and attorneys fees to P30,000 and P10,000 respectively.

ISSUES: (1) Whether or not Kenstar acted in bad faith or with gross negligence in discharging its obligations in the contract?

(2)Whether or not the Court of Appeals erred in removing the moral and exemplary damages

HELD: (1) Yes, Kenstar acted in bad faith and with gross negligence in discharging its obligation.

Kenstars choice of the tour guide is a manifest disregard of its specific assurances to the tour group, and which deliberate omission is contrary to the rules of good faith and fair play.

Providing the Volare 3 group with an inexperienced first timer as a tour guide, Kenstar manifested indifference to the satisfaction, convenience and peace of mind to its clients. The election of the tour guide was a deliberate and conscious choice on the part of Kenstar in order to afford her on-the job-training making the tour group her unknowing guinea pigs, furthermore the inability to visit the UGC leather factory is reflective of the ineptness and neglect of the tour guide. The failure of Kenstar to provide a European Tour Manager although it specifically advertised and promised to do so is also a contractual breach. Kenstar expressly stated in its advertisement that a European Tour Manager would be present. Kenstars contention that the European Tour Manager does not refer to a natural person but a juridical personality does not hold because a corporate entity could not possibly accompany the tour group. Lastly Kenstar committed grave misrepresentation when it assured in its tour package that the hotels provided would provide complete amenities and would be conveniently located along the way for the daily itineraries. Testimonies by petitioner and private respondent show that the hotels were unsanitary and sometimes did not even provide towels and soap. Further testimonies claim that the hotels were also located in locations far from the city making it difficult to go to. The fact that Kenstar could only book them in such hotels because of budget constraints is not the fault of the tour group. Kenstar should not have promised such accommodations if they couldnt afford it. Kenstar should have increased the price to ensure accommodations.

(2) Yes, the Court of Appeals erred in removing the moral and exemplary damages.

Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith. Kenstar can be faulted with fraud in the inducement which is employed by a party in securing the consent of the other. This fraud or dolo which is present or employed at the time of birth or perfection of the contract may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338 are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract, Dolo incidente, or incidental fraud which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have entered into the contract. In either case, whether Kenstar has committed dolo causante or dolo incidente, it is liable for damages both moral and exemplary.

(8) Case Title: NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants. G.R. No. 34840 September 23, 1931

FACTS:

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Pinas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the mother, together with several other members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical attendance for a considerable period of time, and which even at the date of the trial appears not to have healed properly.

Because of the foregoing facts the plaintiff-appellee filed a case against defendants-appellants for damages due to negligence for the amount of 10,000 but neither would accept responsibility, instead they blame each other for the accident. The trial court ruled in favor of the plaintiff-appellee, thus the appeal in this court filed by the defendants-apellants

ISSUE:

In the collision of the vehicles, the truck and the automobile, who should be charged with negligence and liable for the physical injuries suffered by the plaintiff-appellee?

RULING:

The Supreme Court ruled that both the owner and driver of the truck as well as the father who is the owner of the automobile are liable jointly and severally for the damages.

The guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor or the mother, would be liable for the damages caused by the minor. It is uniformly held that the head of a house, the owner of an automobile, who maintains it for the general use of his family is liable for its negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the relationship of master and servant.

The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint, not controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur. While these facts are not as clearly evidenced as are those which convict the other defendant, the court nevertheless hesitate to disregard the points emphasized by the trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident is liable for the damages incurred by the plaintiff-appellee.Case 9: VAZQUEZ VS. BORJA Antonio Vasquez, petitioner, vs. Francisco de Borja, respondentPonente: Ozaeta, J.Facts: The action was commenced by de Borja against Vasquez and Fernando Busuego to recover from themjointly and severally the total of PhP 4702.70 upon three alleged causes:

First, Vasquez and defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay, which they will deliver. Vasquez and Busuego, after receiving 8,400 pesos from de Borja, only delivered 5,224 pesos worth of cavans of palay. They refused to deliver the remaining cavans amounting to3,175.20 pesos.

Second, de Borja suffered damages as a result of the refusal to deliverThird, on account of the agreement mentioned, de Borja delivered 4000 empty sacks but only 2,490 were returned to the plaintiff. 1,510 sacks were refused to deliver. There are also damages for the non-delivery ofthe empty sacks. Vasquez denies that he entered into the contract mentioned in his own and personal capacity. He said that the agreement for the purchase of the cavans of palay and the payment of the price of 8,400 were made by de Borja not with him but with Natividad- Vasquez Sabani Development Co. Inc. (NVSDCI), a corporation organized and existing under the laws of the Philippines. Vasquez was the acting manager when the transaction took place. On account of the filing of this action against him, he filed a counterclaim of 1,000pesos for damages.Vasquez was ordered by the trial court to pay de Borja the sum of P3,175.20 plus P377.50. The said court absolved Busuego, the corporations treasurer, from paying the said sums. Said amount was reduced by the Court of Appeals. The case was then remanded to the court of origin for further proceedings upon Vasquezs motion for reconsideration. Vasquez filed a petition for certiorari for the review and reverse of the CA judgement.

De Borja also filed a cross-petition for certiorari to maintain the original CA judgement.The trial court found Vasquez guilty of negligence in the performance of the contract and held him personally liable on that account. Likewise, CA ruled that he was not only negligent but should also responsible forpaying the amount of the demand under Arts. 1102, 1103 and 1902 of the Civil Code.

Issues:

1. Whether the plaintiff entered into the contract with the defendant Antonio Vasquez in his personalcapacity or as manager of the Natividad-Vasquez Sabani Development Co., Inc.2. Whether the trial court and/or the Court of Appeals erred in its rulings.3. Whether Vasquez could claim damages against Borja.

Held/ Ratio:

1. Vasquez entered the contract in his capacity as acting president and manager of NVSDCI.The action being on a contact, with the NCSDCM being the party liable on the contract, the complaint should have been dismissed.A corporation is an artificial being invested by law with its own personality, which is distinct and separatefrom its stockholders or the people who run its affairs. Even if the agents are the one acting for thecorporation, it does not make the agent personally liable for entering a contract in behalf of the corporation.

The corporations personality, a legal fiction, may only be disregarded if the agent used the corporation to hide an unlawful or fraudulent purpose. There is no legal basis upon which to hold Vasquez liable on the contract either principally or subsidiarily. There are no allegations that Vasquez personally benefited through the contract that he entered for the corporation. It was also not contended that he entered into the contract for the corporation in bad faith and with intent to defraud the plaintiff.

2. Both the trial court and CA erred in their ruling that Vasquez is guilty of negligence and must be personally liable. Since it was the corporations contract, the corporation is the one liable and not the agent even if the non-fulfilment of the contract is due to negligence or fault or any other cause. Vasquez could be principally liable under article 1902 of the Civil Code if independent of the contract, he caused damage to the plaintiff by his fault or negligence. The basis of such separate liability should be on culpa aquiliana and not based on the contract. But since there was no such cause of action in this complaint,the trial court has no jurisdiction over that issue.3. No. As the acting president and manager of the corporation, he has a moral duty towards the part with whom he contracted in said capacity to see to it that the corporation he represents fulfilled the contract by delivering the palay it had sold. Since he was not able to fulfill that moral duty, he has no legitimate cause forhis claim of damages.

Dissenting Opinion (Paras, J.):

Vasquez should be made liable to de Borja. As acting president and manager of NCSDCM, Vasquez has full knowledge of the insolvent status of his company but still agreed to sell to de Borja 4000 cavans of palay. The failure and refusal to deliver the undelivered cavans resulted from his negligence

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Case 12: TOMASA SARMIENTO,petitioner, vs. Spouses LUIS & ROSE SUN-CABRIDO and MARIA LOURDES SUN,respondents

Facts:

Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find somebody to reset a pair of diamond earrings into two gold rings.[2]Accordingly, Sarmiento sent a certain Tita Payag with the pair of earrings to Dingdings Jewelry Shop, owned and managed by respondent spouses Luis and Rose Cabrido,[3]which accepted the job order forP400.[4]Sarmiento provided 12 grams of gold to be used in crafting the pair of ring settings.[5]After 3 days, Tita Payag delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier appraised as worth .33 carat and almost perfect in cut and clarity.[6]Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the process.[7]Petitioner required the respondents to replace the diamond with the same size and quality.When they refused, the petitioner was forced to buy a replacement in the amount ofP30,000.[8] June 28, 1994 - petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran. Decision was in favour of Sarmiento ordering defendants to pay jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos (P5,000.00) as attorneys fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6% per annum from the date of this decision and 12% per annum from the date when this decision becomes final until the amounts shall have been fully paid and to pay the costs. This case as against defendant Maria Lourdes Sun as well as defendants counterclaim are dismissed for lack of merit.

On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the MTCC, thus absolving the respondents of any responsibility arising from breach of contract. Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its Decision promulgated on November 26, 1999.[16]Unable to accept the decision, the petitioner filed the instant petition for review with the Supreme Court.

Issue:

1. Whether or not the scope of obligation of the defendant included the dismounting of the diamond.

2. Whether or not the defendants are liable for the damaged diamond.

Held:

Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents under the contract of service.Thus, they should be held liable for damages arising from its breakage.

Obligations arising from contracts have the force of law between the contracting parties.Corollarily, those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof, are liable for damages.The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.

In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting.It appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their original setting.However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the diamond.

At any rate, the contemporaneous and subsequent acts of the partiessupport the version of the petitioner.Thus, when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of diamond earrings, she brought with her the said pieces of jewelry so that the diamonds which were still mounted could be measured and the new ring settings crafted accordingly. On the said occasion, Marilou expressed no reservation regarding the dismounting of the diamonds which, after all, was an integral part of petitioners job order.

She should have instructed Payag to have them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but she did not.Instead, petitionerwas chargedP400 for the job order which was readily accepted.Thus, a perfected contract to reset the pair of diamond earrings arose between the petitioner, through Payag, and Dingdings Jewelry Shop, through Marilou.

We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the respondents spouses who admittedly owned and managed Dingdings Jewelry Shop.It was proven that petitioner replaced the damaged jewelry in the amount ofP30,000.[30]The facts of the case also justify the award of moral damages.As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code.[31]Moral damages may be awarded in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation.Santos was a goldsmith for more than 40 years.[33]Given his long experience in the trade, he should have known that using a pair of pliers instead of a miniature wire saw in dismounting a precious stone like a diamond would have entailed an unnecessary risk of breakage.He went on with it anyway.Hence, respondent spouses are liable forP10,000 as moral damages due to the gross negligence of their employee.

However, private respondents refusal to pay the value of the damaged jewelry emanated from an honest belief that they were not responsible therefor, hence, negating any basis for the award of attorneys fees.[34]WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated November 26, 1999 is hereby reversed and set aside.Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount ofP30,000 as actual damages andP10,000 as moral damages in favor of the petitioner.

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Case 14: CETUS DEVELOPMENT INC VS. COURT OF APPEALS

For full txt: http://www.lawphil.net/judjuris/juri1989/aug1989/gr_77648_1989.htmlArticle 1169 of the Civil CodeFACTS:

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

ISSUE:

Whether or not there was a delay of payment by the private respondents to the petitioner considering that upon receipt of the demand letter, they immediately tendered their payments.

HELD:

No. There was no failure yet on the part of the private respondents to pay rents for three consecutive months. It has been duly established that it has been customary for private respondents to pay their rentals through a collector sent by the lessor.

Article 1169 of the Civil Code provides that those obliged to deliver or to do something incur in delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation.

The moment the petitioner extrajudicially demand the payment of the rentals, private respondents immediately answered their obligation by paying their arrearages of rentals to the petitioner.

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Case 15: Aerospace Chemical Industries, Inc. vs CA

Facts

1. On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five hundred metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation.

2. Petitioner agreed to secure the means of transport to pick-up the sulfuric acid from private respondents' load ports in Basay, Negros Oriental and Sangi, Cebu.

3. On October 3, 1986, petitioner paid the purchased price of 500 MT of sulfuric acid. Then, it chartered M/T Sultan Kayumanggi to carry the agreed volumes of freight from designated loading areas.

4. But the vessel was able to withdraw a partial amount of sulfuric acid from Basay and Sangi because it tilted. And later, it sank with a total amount of 227.51 MT of sulfuric acid on board.

5. Petitioner sent a demand letter to private respondent for delivery of the 272.49 MT of sulfuric acid.

6. Petitioner then filed a complaint against private respondent for specific performance and/or damages before the Regional Trial Court of Pasig.

7. The private respondent filed an answer with counterclaim and alleged that it was the petitioner which was remiss in the performance of its obligation in arranging the shipping requirements of its purchases and, hence, should pay damages.

8. Petitioner prevailed in the trial court.

9. However, on appeal, the Court of Appeals reversed the decision of the trial court and instead found petitioner guilty of delay and therefore, liable for damages

Issue

1. Did the respondent court err in holding that the petitioner committed breach of contract, considering that:

a. The petitioner allegedly paid the full value of its purchases, yet received only a portion of said purchases?

b. Petitioner and private respondent allegedly had also agreed for the purchase and supply of an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?

2. Did the respondent court err in awarding damages to private respondent?

3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

Ruling

1. No, CA did not err in absolving the private respondent from liability. Petitioner, as the buyer, was obligated under the contract to undertake the shipping requirements of the cargo from the private respondent's load ports to the petitioner's designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another sea worthy vessel.

Where there has been breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them. Article 1170 of Civil Code provides: "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."

2. No, respondent court did not err in awarding damages to private respondent. Where there has been breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them. Article 1170 of Civil Code provides: "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." Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. Art. 1169 states: "Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." In order that the debtor may be in default, it is necessary that the following requisites be present:

(1) That the obligation be demandable and already liquidated;

(2) That the debtor delays performance; and

(3) That the creditor requires the performance judicially or extrajudicially.

Records reveal that a tanker ship had to pick up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically, the computation of damages arising from the shipping delay would then have to be from December 15, 1986, given said reasonable period after the December 12th letter. More important, private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and regular business expenses for which the petitioner should not be obliged to pay.

3. No, Article 1504 is not applicable. The general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has made or not except that: . . . (2)Where actual delivery had been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault.

As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated load ports. When petitioner failed to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is indubitably liable for proven damages.

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CASE 16: Santos Ventura Hocorma Foundation vs Santos, G.R. No. 153004, November 5 2004

Facts:

Ernesto V. Santos, herein respondent, and Soco Ventura Hocorma Foundation Inc. (SVHFI), herein petitioner, are the parties in several civil cases. On October 26, 1990, they executed a Compromise Agreement containing the following:

1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:

a. P1.5 Million immediately upon the execution of this agreement;

b. The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement; provided, however, that in the event that the Foundation does not pay the whole or any part of such balance, the same shall be paid with the corresponding portion of the land or real properties subject of the aforesaid cases and previously covered by the notices of lis pendens, under such terms and conditions as to area, valuation, and location mutually acceptable to both parties; but in no case shall the payment of such balance be later than two (2) years from the date of this agreement; otherwise, payment of any unpaid portion shall only be in the form of land aforesaid;

2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the real properties aforementioned (by signing herein attached corresponding documents, for such lifting); provided, however, that in the event that defendant Foundation shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the payment of the Foundations obligations under this agreement as may still be subsisting and payable at the time of any such sale or sales;

. . .

5.Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement. [Emphasis supplied]

Thereafter, petitioner paid P1.5 Million to the respondent leaving P13 Million as balance. As a result, herein respondent moved to dismiss the civil cases that were filed against the petitioner. On September 30, 1991, the agreement was approved by the RTC of Makati.

Subsequently, two of the real properties of the petitioner, which were recently subject of lis pendens, were sold to Development Exchange Livelihood Corporation. Upon knowing, the respondent sent a letter to the petitioner demanding for the payment of the balance however was ignored by the latter. On October 28, 1992, another letter was sent to the respondent but again was ignored by the latter. After the said failures, respondent then applied for a writ of execution to the RTC which was granted. The remaining properties of the petitioner located in Mabalacat, Pampanga and Bacolod City, respectively which was sold to one bidder, Riverland Inc. Certificates of Sale was issued provided for the right of redemption within one year from the date of registration of the said properties.

On June 2, 1995, petitioner filed for a Complaint for Declaratory Relief and Damages and praying for the payment of the legal interest on the obligation.

Respondent's Contention:

1. There was delay in paying the balance; and

2. Under the Compromise Agreement, the obligation became due on October 26, 1992, but payment of the remaining P12 million was effected only on November 22, 1994.Petitioner's Contention:

1. It had already paid its obligation to the petitioner;

2. The delay was due to its valid exercise of its right to protect its interest in accordance to the Rules;

3. There was no provision in the Compromise Agreement that they should pay legal interest in case there was delay; and4. the respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly approved compromise agreement.[12] Article 4 of the compromise agreement provides:

Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the defendant Foundation arising from and in connection with the aforesaid civil cases, and defendant Foundation, on the other hand, also waives and renounces any and all claims that it may have against plaintiff Santos in connection with such cases.

On October 4, 1996, RTC rendered a decision in favor of the petitioner, however, was reversed by the Court of Appeals.

Issues:

1. Whether or not there is delay.

2. Whether or not the petitioner is entitled for the legal interest.

Ruling:

The petition is dismissed.

SC ruled that the contention of the respondent is meritorious because The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred delay.

Default has three elements:

(1) that the obligation be demandable and already liquidated;

(2) that the debtor delays performance; and

(3) that the creditor requires the performance judicially or extrajudicially.

All of the said elements were present in this case. When the letter was sent to the petitioner on October 28, 1992, the obligation was already demandable. Further, the petitioner delayed the performance through applying for motions to hinder the execution.

When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. In the absence of agreement, the legal rate of interest shall prevail.

Case 17: VASQUEZ vs. AYALA CORPORATION

FACTS:DanielVasquez owns Conduit Development, Inc. In 1981, Vasquez enters into aMemorandumofAgreement(MOA) with Ayala Corporationwherein Ayalabought Conduit from Vasquez. Ayala committed to develop Conduits lands including 4 parcels of land adjacent to Vasquez retained land. Be it noted that these parcels of land were in the 3rdphase of Ayalas development plan. Paragraph 5.15 of the MOA provides:

5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four developed lots next to the Retained Area at the prevailing market price at the time of the purchase.The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits development plan, but Ayalas amended development plan which was still to be formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c.

Dr. Daniel Vazquez and Ma. Luisa Vazquezfiled this Petition for Review on Certioraridated October 11, 2001 assailing the Decisionof the Court of Appeals dated September 6, 2001 which reversed the Decision4of the Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.

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

ISSUE:

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

HELD:

No. The said paragraph is a mere right of first refusal. Although the paragraph has a definite object, i.e., the sale of the 4 lots, the period within which they will be offered for sale to Vasquez and, necessarily, the price for which the subject lots will be sold are not specified. The phrase at the prevailing market price at the time of the purchase connotes that there is no definite period within which Ayala is bound to reserve the subject lots for Vasquez to exercise his privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.

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

The Court has clearly distinguished between an option contract and a right of first refusal.

An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for the property when the offer was made on June 18, 1990.48Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter.49Ayala Corporation rejected petitioners counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and should be compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.

WHEREFORE, the instant petition isDENIED. No pronouncement as to costs.___________________________________________________________________________

CASE 21: CENTRAL BANK OF THE PHILIPPINES VS COURT OFAPPEALS

MAKASIAR; October 3, 1985

NATURE

This is a petition for certiorari to review the decision of the Court of Appeals.

FACTS

Island Savings Bank approved the loan application for P80K of SulpicioTolentinowho executed a real estate mortgage over his 100 hectare land.

The loan called for a lump sum of P80K, repayable in semi-annual installments for 3 years, w/ 12% annual interest. It was required that Tolentino shall use the loan solely as additional capital to develop his other property into a subdivision.

A mere P17K partial release of the loan was made by the bank and Tolentino and his wife signed a promissory note for the P17K at 12% annual interest payable w/in 3 yrs. An advance interest was deducted from the partial release but this pre-deducted interest was refunded to Tolentino after being informed that there was no fund yet for the release of the P63K balance. The bank VP and Treasurer promised release of the balance.

Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the bank from making new loans and investments. And after the bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank from doing business in the Philippines.

Island Savings Bank in view of the non-payment of the P17K filed an application for foreclosure of the real estate mortgage.

Tolentino filed petition for specific performance or rescission and damages w/ preliminary injunction, alleging that since the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the real estate mortgage.

Trial court found Tolentinos petition unmeritorious. CA affirmed dismissal of Tolentinos petition for specific performance, but it ruled that the bank can neither foreclose the real estate mortgage nor collect the P17K loan.

ISSUES

1. WON Tolentinos action for specific performance can prosper

2. WON Tolentino is liable to pay the P17K covered by the promissory note

3. If liable to pay P17K, WON Tolentinos real estate mortgage can be foreclosedHELD1. NO

The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the other party is not ready or willing, incurs in delay. When Tolentino executed real estate mortgage, he signified willingness to pay. That time, the banks obligation to furnish the P80K loan accrued. Now, the Central Bank resolution made it impossible for the bank to furnish the P63K balance.

The prohibition on the bank to make new loans is irrelevant because it did not prohibit the bank from releasing the balance of loans previously contracted.

Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a breach of contract.

The banks asking for advance interest for the loan is improper considering that the total loan hasnt been released. A person cant be charged interest for non-existing debt.

The alleged discovery by the bank of overvaluation of the loan collateral is not an issue. The bank officials should have been more responsible and the bank bears risk in case the collateral turned out to be overvalued. Furthermore, this was not raised in the pleadings so this issue cant be raised.

The bank was in default and Tolentino may choose bet specific performance or rescission w/ damages in either case. But considering that the bank is now prohibited from doing business, specific performance cannot be granted. Rescission is the only remedy left, but the rescission should only be for the P63K balance.

2. YES

The promissory note gave rise to this liability. His failure to pay made him party in default, hence, not entitled to rescission. This time, it is the bank which has right to rescind the promissory note.

Since both Tolentino and the bank are in default, both are liable for damages. Liability may be offset.

3. NO

Since the bank failed to furnish the balance, the real estate mortgage became unenforceable to such extent.

CASE 23: Telefast Communications/Philippine Wireless Inc., vs. Ignacio Castro Sr., et al.(1986)

FACTS

On November 2, 1956, Consolacion Bravo-Castro, wife of the respondent and mother of the other respondents, passed away in Lingayen, Pangasinan. On the same day, her daughter, Sophia Crouch, who was vacationing in the Philippines at the time, sent a telegram to Castro who was in Scottsburg, Indiana, announcing the death. The telegram was accepted by the petitioner at its Dagupan office for transmission after payment of fees.

The telegram never reached its addressee and the deceaseds husband and other children (all residing in the USA) never attended the funeral.

Upon returning to the USA, Sofia discovered the telegram was never received and she and her father and siblings brought action for damages related to breach of contract at the CFI in Pangasinan.

The contention of Telefast was it was unable to transmit the telegram due to technical and atmospheric factors beyond its control. No evidence was shown that the company made an effort to advice Sofia on why it could not transmit.

The CFI ruled in favor the defendants and ordered the petitioner to pay damages to each of them, with interest at 6% per annum (all receiving moral damages, with Sofia receiving compensatory damages).

The Intermediate Appellate Court affirmed the ruling but altered the distribution of damages among the defendants.

The petitioners allege that the awarding of moral damages should be eliminated as its negligent act was not motivated by fraud, malice or recklessness. It can only be held liable for the P31.92, the fee Sofia paid for the telegram that was never sent.

ISSUES

1. W/N the petitioner is liable for moral damages regarding the breach of contract?

RULING

The petitioners contention is without merit.

Art. 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Art. 2176 also provides tthat whoever by act or omission causes damages to another, there being fault or negligence, is obliged to pay for the damages done.

In the case at bar, Sofia Crouch and petitioner entered into a contract whereby, for a fee, petitioner undertook to send the message overseas. The petitioner did not do so despite performance of the private respondent of her obligation (paying the fees). The petitioner is guilty of contravenng its obligation and is thus liable to damages. This liability is not limited to actual or quantified damages. Such would be an inequitous position holding the petitioner liable only for a fee paid thirty years prior. Moral damages, according to Art. 2217, include physical suffering, anguish, wounded feelings, moral shock, etc. The Court agreed that the failure of the transmission of the message resulting in mental anguish on the part of the children, finding that their mother had not only passed, but had already been buried, providing them with no choice or opportunity to pay their last respects.

________________________________________________________________________________Case 24: PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee. 1964-01-31 | G.R. No. L-15645

FACTS:

On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately."

Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable

Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its general manager, took the first step to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter of Credit.

On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952."

In a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection, please be advised that our application for the opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to approximately $3,614,000.00 which we are not in a position to meet."

Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit. As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited.

The plaintiffs-appellees offered to deliver Thailand rice instead of what was agreed due to the circumstances stated in the preceding paragraphs to the defendant-appellant, but the latter denied the said offer which prompted the former to demand compensation for damages representing the unrealized profit. Nevertheless the latter rejected such demand which caused the plaintiffs-appellees to seek judicial action alleging that the defendant-appellant committed breach of contract because of the foregoing facts mentioned above.

ISSUE:

Whether or not the delay of the credit instrument applied for by the defendant-appellant in favor of the plaintiffs-appellees constitute a breach of contract and therefore the former is entitled for damages such as unrealized profit.

RULING:

Yes, the Supreme Court ruled that the defendant-appellants culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the presentation. The judgment is based upon the letter which accompanied the application filed by the appellant with the bank, in the said application, appellant admitted and owned that it did not have sufficient deposit with the bank with which to cover the amount required to be deposited as a condition for the opening of letters of credit.

Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have ascertained its ability and capacity to comply with the inevitable requirements in cash to pay for such importation. Having announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period, especially since it had imposed on the supplier the 90-day period within which the shipment of the rice must be brought into the Philippines. Having entered into the contract, it should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its issuance.

Under Article 1170 of the Civil Code, "Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable in damages."

__________________________________________________________________________________Case 25: VICTORINO D. MAGAT,petitioner,vs. HON. LEO D. MEDIALDEA AND SANTIAGO A. GUERRERO,respondents

(1983, Escolin,J.)Put to test in this petition for review oncertiorariis the sufficiency of the averments contained in the complaint for alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in Civil Case No. 17827 of the Court of First Instance of Rizal, presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, which complaint was dismissed for failure to state a cause of action.

FACTS:

The pertinent allegations in the complaint, subject of inquiry, are as follows:13. That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines;

4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on how best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay, Philippines. The said Isidro Q. Aligada approached the plaintiff herein in behalf of the defendant and proposed to import from Japan thru the plaintiff herein or thru plaintiff's Japanese business associates, all taximeters and radio transceivers needed by the defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;

5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with the assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. Navy Exchange, Subic Bay, Philippines.

6. That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein to the effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, wherein the plaintiff quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles therein offered for sale by the plaintiff to the defendant to be delivered sixty to ninety [60-90] days after receipt of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities;

7. That the plaintiff received notice of the fact that the defendant accepted plaintiff's offer to sell to the defendant the items, as well as the terms and conditions of said offer whereupon all that the plaintiff had to do in the meantime was to await advice from the defendant as to the radio frequency to be assigned by the proper authorities to the defendant;

8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his signed conformity as well as the letter dated October 4, 1972, and in order that plaintiff's promised delivery would not be delayed, the plaintiff herein took steps to advise the Japanese entity entrusted with the manufacture of the items to the effect that the contract between the defendant herein and the plaintiff has been perfected and that advice with regards to radio frequency would follow as soon as same is received by the plaintiff from the defendant;

9. That in his letter dated October 6, 1972, the defendant advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed with the plaintiff herein, which fact was duly communicated to the plaintiff by the defendant's aforementioned agent;

10. That by his letter dated October 7, 1972, addressed to the plaintiff by the defendant's agent, defendant's agent qualified defendant's instructions contained in his letter of October 6, 1972 in the sense that plaintiff herein should proceed to fulfill defendant's order only upon receipt by the plaintiff of the defendant's letter of credit;

11. That it being normal business practice in case of foreign importation that the buyer opens a letter of credit in favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of such a letter of credit by the defendant;

12. That the defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with his banker, but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods ordered by him;

13. That it has come to the knowledge of the plaintiff herein that the defendant has been operating his taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines, were pressing defendant for compliance with his commitments with respect to the installations of radio transceivers on his taxicabs, he impliedly laid the blame for the delay upon the plaintiff herein, thus destroying the reputation of the plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom plaintiff herein transacts business;

14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, to ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff herein or whether he desired to have the contract between them definitely cancelled, but defendant did not even have the courtesy to answer plaintiff's demand;

15. That the defendant herein entered into a contract with the plaintiff herein without the least intention of faithfully complying with his obligation is thereunder, but he did so only in order to obtain the concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the expense and prejudice of third parties such as the plaintiff herein;

16. That in view of the defendant's failure to fulfill his contractual obligations with the plaintiff herein, the plaintiff will suffer the following damages:

[a] As the radio transceivers ordered by the defendant are now in the hands of the plaintiff's Japanese representative, the plaintiff will have to pay for them, thus he will have to suffer as total loss to him the amount of P523,938.98 (converting the amount of $77,620.59 to pesos at the rate of P6.75 to the dollar) as said radio transceivers were purposely made or manufactured solely for the use of the defendant herein and cannot possibly be marketed by the plaintiff herein to the general public;

[b] The amount of P 52,393.89 or 10% of the purchase price by way of loss of expected profits from the transaction or contract between plaintiff and the defendant;

[c] Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business dealings with Japanese firms, thereby resulting also in loss of possible profits in the future which plaintiff assess at no less than P200,000.00;

[d] That in view of the defendant's bad faith in inducing plaintiff to enter into the contract with him as set forth hereinabove, defendant should be assessed by his Honorable Court in favor of the plaintiff the sum of P200,000.00 as moral and exemplary damages;

[e] That in view of the defendant's fault and to protect his interests, plaintiff herein is constrained to retain the services of counsel with whom he agreed to pay by way of attorney's fees the sum of P50,000.00".

ISSUES:

(1) Whether or not there is sufficiency of cause of action as determined on basis of facts alleged in the complaint.

(2) Whether or not the loss suffered by virtue of breach of contract becomes real, fixed and vested at the very moment of breach.(3) Whether or not the extent of damages recoverable depends on the presence or absence of bad faith attendant in the breach.(4) Whether or not the phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance.(5) Whether or not moral and exemplary damages are recoverable in cases of bad faith.HELD:

(1) Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency of the cause of action can only be determined on the basis of the facts alleged in the complaint; that the facts alleged are deemed hypothetically admitted, including those which are fairly deducible therefrom; and that, admitting the facts as alleged, whether or not the court can render a valid judgment against the defendant upon said facts in accordance with the prayer in the complaint. After a thorough examination of the complaint at bar, the Supreme Court finds the test of legal sufficiency of the cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his part of the bargain (paragraph 8 of the Complaint), private respondent failed to comply with his correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by him (paragraphs 11 & 12 of the Complainant), and that consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as well. From these allegations, the essential elements of a cause of action are present, to wit:(1) the existence of a legal right of the plaintiff; (2) a correlative duty of the defendant; and (3) an act or omission of the defendant in violation of the plaintiffs right, with consequent injury or damage to the latter for which he may maintain an action for recovery of damages or other appropriate relief. In fine, the Supreme Court holds that on the basis of the facts alleged in the complaint, the Court could render a valid judgment in accordance with the prayer thereof.

(2) Indisputably, the parties, both businessman, entered into the aforesaid contract with the evident intention of deriving some profits there from. Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested and therefore, recoverable under the law.

(3) Article 1170 of the Civil Code provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance.

(4) The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee (dao emergente) but also the profits which the latter failed to obtain (lucro cesante). If the obligor acted in good faith, he shall be liable for those damages 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; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the non- performance of the obligation.

(5) The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. The Supreme Court finds that the complaint sufficiently alleges bad faith on the part of the defendant.

Antonio Vazquez Vs Francisco de Borja

Antonio Vazquez, petitioner vs. Francisco de Borja, respondent GR 48930 2/23/44Francisco de Borja, petitioner vs. Antonio Vazquez, respondent GR 48931 2/23/44

Facts:

Borja instituted a claim to recover 4,702.7 from 3 alleged causes from Vazquez(co. acting president and manager) and Fernando Busuego (co. treasurer).

On Jan, 1932 Vazquez and Busuego obligated themselves to sell to Borja 4,000 cavans of palay at P2.10/cavan. And they were able to receive the full, paymkent of P8400 from Borja.

Vazquez and Busuego were only able to deliver 2,488 cavans, equivalent to P5,224.

Borja cited 3 causes of action from his losses.

1st: They then refused to deliver the balance of 1,512 cavans or P3,175.2 of the money, after repeated demands from Borja.

2nd:Borja suffered damages of P1,000 from their refusal.

3rd: Borja had an additional P150 damages when Vazquez and Busuego refused to return 1,510 of the unused sacks consigned to them for the 4,000 cavans since only 2,488 was delivered and used.

Vazquez denied the contract entered either with or without Busuego. He alleges that the agreement was between Natividad-Vazquez Sabani Devt (NVSD)Co. Inc. He was only an acting manager. He further claims his own damages of P1000.

RTC ruled that Vazquez should pay Borja (plaintiff) P3,175.2 plus sum of P377.5 and legal interest. Busuego was then absolved.

CA modified to reduce damages to come up with a total of P3,314.78 with legal interest and cost.

Then the defendant Vazquez filed for a motion for reconsideration.

CA ruled to set aside its decision and to remand the case.

Vazquez filed for certiorari to review and reverse the CA.

Borja filed for certiorari for CA to maintain decision.

SC denied Borjas filing for certiorari because the remanding was for his benefit, to allow him opportunity to refute Vazquezs contention. SC said this was an action on a contract. CA was wrong in the case analysis.

SC then found the CAs decision of remanding the case wrong. Since they had no justification for ordering a new trial. The parties themselves didnt demand it.

And the issue in the CA of WON the company had sufficient stock at the time the appellant sold1,500 cavans to another buyer (Kwong ah Poy) is irrelevant to the real issue.

Issue:

WON plaintiff. Borja entered into a contract with Vazquez in his personal capacity o