207135483 oblicon-case-digestsxavier

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Ang Yu vs Court of Appeals G.R. No. 109125 December 2, 1994
Facts:
Herein plaintiff-petitioners (the buyers) are tenants or lessees of the residential and commercial properties
owned by respondents Co Unjieng (vendors). On several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the
same. Respondents offered to sell the property for P6M, and plaintiffs counter-offered to buy for P5M.
Plaintiffs asked the respondents to put the offer in writing, in which the respondents acceded (to express
approval or give consent : give in to a request or demand). Upon receipt of the offer, plaintiffs asked the
respondents specify the terms and conditions of the offer to sell. Since no response was made by the
respondents, plaintiffs were compelled to file the complaint against respondents compelling them to sell
the property.
The lower court decided in favor or the respondents reasoning that since parties did not agree upon the
terms and conditions of the proposed sale, hence there was not contract of sale at all. Further, it ruled
that if the respondents decide to sell the proper for P11M or lower, then plaintiffs have the right of first
refusal. Aggrieved by the decision, plaintiffs appealed to CA.
The Court of Appeals affirmed the decision of the lower court with modification: In resume, there was no
meeting of the minds between the parties concerning the sale of the property. Absent such requirement,
the claim for specific performance will not lie. Appellants’ demand for actual, moral and exemplary

damages will likewise fail as there exists no justifiable ground for its award.” CA however granted the
plaintiffs the right of first refusal regardless if the offer price exceeds P11M.
Plaintiffs appealed with the Supreme court but was denied for insufficiency in form and substance.
While plaintiff asked the SC for reconsideration, respondents transferred the properties in question to
respondent Buen Realty and Development Corporation in consideration of P15M.
Buen Realty after the properties came into its possession after the titles had been issued under its name,
plaintiffs were asked to vacate the premises. Plaintiffs brought the matter to the trial court to enforce the
decision rendered by the CA that plaintiffs has the right of first refusal. The lower court ordered
respondents to sell the property to plaintiffs for P15M. Respondents appealed to CA.
The CA reversed the judgment of the lower court declaring that it has no force and effect.
Hence this appeal for certiorari.
Issue:
May a buyer (in this case Buen Realty) be bound by the writ of execution by virtue of the notice of lis
pendens (while pending lawsuit), carried over on TCT No. 195816 issued in the name of Buen Realty, at
the time of the latter’s purchase of the property on 15 November 1991 (time when the decision of CA was
still pending execution) from the Cu Unjiengs, given that Buen realty is not a party to the suit when the
decision was rendered?
Held:
No. What the petitioners have been granted of in the first place is just a mere ‘right of first refusal’. In the
law on sales, the so-called “right of first refusal” is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right
of first refusal, understood in its normal concept, per se be brought within the purview of an option under
the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9
of the same
Code. An option or an offer would require, among other things, 10
a clear certainty on both the object and
the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the grantor’s
eventual intention to enter into a binding juridical relation with another but also on terms, including the
price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other
laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. 11
It is not to say, however, that
the right of first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 12
of the Civil Code, can
warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a “right of first
refusal” in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser
of the property, has acted in good faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first being
duly afforded its day in court.

Sagrado Orden v. Nacoco 91 Phil 503
Facts:
On Jan 4, 1942, during the Japanese occupation, Taiwan Tekkosho (Japanese corporation) acquired
the plaintiff’s property (land with warehouse in Pandacan, Manila) for Php140K
• On April 4, 1946, after the liberation, the US took control and custody of the aforementioned enemy’s
land under Sect 12 of the Trading with the Enemy Act
• In the same year, the Copra Export Management Company occupied the property under
custodianship agreement with the United States Alien Property Custodian
• In August 1946, when the Copra Export Management Co. vacated the property, the National Coconut
Corporation (NACOCO), the defendant, occupied it next

• Sagrada Orden (plaintiff) files claims on the property with the Court of First Instance of Manila and
against the Philippine Alien Property Administrator
• Plaintiff petitions that the sale of the property to Taiwan Tekkosho should be declared null and void as
it was executed under duress, that the interest of the Alien Property Custodian be cancelled, and that
NACOCO be given until February 28, 1949 to recover its equipment form the property and vacate the
premise
• The Republic of the Philippines is allowed to intervene
• CFI: the defendant (Philippine Alien Property Administrator) and the intervenor (RP) are released
from any liability but the plaintiff may reserve the right to recover from NACOCO reasonable rentals
for the use and occupation of the premises
• The sale of the property to the Taiwan Takkesho was declared void and the plaintiff was given the
right to recover Php3,000/month as reasonable rental from August 1946 (date when NACOCO
occupied property) to the date NACOCO vacates the premises
• The judgment is appealed to the SC
Issue:
1. Whether or not the defendant is liable to pay rent for occupying the property in question
Held:
1. The CFI’s decision that the defendant should pay rent from August 1946 to February 28, 1949 was
reversed, costs against the plaintiff.
Rationale:
Obligations can only arise from four sources: law, contracts or quasi-contracts, crime, or negligence (Art
1089, Spanish Civil Code).
There were no laws or an express agreement between the defendant or the Alien Property Custodian with
the plaintiff regarding payment of rent. The property was acquired by the Alien Property Administrator
through law (Trading with the Enemy Act) on the seizure of alien property and not as a successor to the
interests of the latter. There was no contract of rental b/w them and Taiwan Takkesho. NACOCO entered
possession of the property from the Alien Property Custodian without any expectation of liability for its
use. NACOCO did not commit any negligence or offense, and there was no contract, implied or
otherwise, entered into, that can be used as basis for claiming rent on the property before the plaintiff
obtained the judgment annulling the sale to Taiwan Takkesho. The plaintiff has no right to claim rent from
NACOCO.
Important Notes
Article 1157 of the New Civil Code states that there are 5 sources of obligations: laws, contracts, quasi-
contracts, felonies (acts or omissions punished by law), and quasi-delicts..
PEOPLE’S CAR INC., vs Commando Security L-36840 May 22, 1973

Facts:
Plaintiff, a car dealer, entered into a contract with defendant, a security agency, its duty is to guard the
former’s premises from theft, robbery, vandalism and other unlawful acts. On a certain night, the
security guard deployed by the defendant, without authority neither from the plaintiff nor from
defendant, drove a car, which was entrusted to the plaintiff by a customer for service and
maintenance, outside of the plaintiff’s compound and around the city which after the security guard
lost control of, fell into a ditch, causing it severe damage. Plaintiff complained against the security
guard for qualified theft. While the car is undergoing repair, plaintiff rented a car for its customer for
47 days until the car is fixed, and took pain to repair the damaged car.
Then plaintiff instituted a claim against the defendant for recovery of the actual damages it incurred due
to the unlawful act of the latter’s personnel, citing inter alia the Par. 5 of the contract that defendant
accepts “sole responsibility for the acts done during their watch hours”. Defendant on the other hand,
interposed, that it may be liable but its liability is limited under Par. 4 of said contract providing: “that its
liability “shall not exceed one thousand (P1,000.00) pesos per guard post”. To quote the contract:
‘Par. 4. — Party of the Second Part (defendant) through the negligence of its guards, after an
investigation has been conducted by the Party of the First Part (plaintiff) wherein the Party of the Second
Part has been duly represented shall assume full responsibilities for any loss or damages that may occur
to any property of the Party of the First Part for which it is accountable, during the watch hours of the
Party of the Second Part, provided the same is reported to the Party of the Second Part within twenty-four
(24) hours of the occurrence, except where such loss or damage is due to force majeure, provided
however that after the proper investigation to be made thereof that the guard on post is found negligent
and that the amount of the loss shall not exceed ONE THOUSAND (P1,000.00) PESOS per guard post.’
‘Par. 5 — The party of the Second Part assumes the responsibility for the proper performance by the
guards employed, of their duties and (shall) be solely responsible for the acts done during their watch
hours, the Party of the First Part being specifically released from any and all liabilities to the former’s
employee or to the third parties arising from the acts or omissions done by the guard during their tour of
duty.’ ... 8
The trial court rendered judgment in favor of the defendant limiting its liability to P1,000.00 under par. 4
and said that under paragraph 5, it is the customer who should bring the suit before the court.
Issue:
Whether or not the plaintiff is entitled to recover its expenses from the defendant on account of the latter’s
employee’s unlawful act, despite the provision under paragraph 5 it is the 3rd
party who should institute
the claim which held the plaintiff harmless from any and all liabilities of the defendant’s employees?
Held:
Yes. 3rd
parties, the customer in the case at bar, are not bound by the contract between the defendant
and plaintiff. But the plaintiff is in law liable for the damages caused the customer’s car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and relying
in turn on defendant to honor its contract and indemnify it for such undisputed damages, which had been
caused directly by the unlawful and wrongful acts of defendant’s security guard in breach of their contract.
As ordained in Article 1159, Civil Code, “obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.”
Plaintiff in law could not tell its customer, as per the trial court’s view, that “under the Guard Service
Contract it was not liable for the damage but the defendant” — since the customer could not hold
defendant to account for the damages as he had no privity of contract with defendant. Such an approach
of telling the adverse party to go to court, notwithstanding his plainly valid claim, aside from its ethical
deficiency among others, could hardly create any goodwill for plaintiff’s business, in the same way that
defendant’s baseless attempt to evade fully discharging its contractual liability to plaintiff cannot be
expected to have brought it more business.
Cangco vs. Manila Railroad (GR 12191, 14 October 1918)

Facts:
Petitioner Cangco is employed by defendant Manila Railroad Co. in Manila, and by virtue of his
employment, he is entitled free ride from his house in San Mateo to Manila and vice-versa. On a fateful
night around 8:00 PM at the station of San Mateo where it was dimly lighted , petitioner while alighting the
train (though it was still moving very slowly to the point of stop), not knowing that there are sacks of melon
piled at the edge of the platform stepped on the objects, causing him to slip off balance. Plaintiff was
drawn under the car in an unconscious condition and as a result seriously injured him. His arm was
amputated and he was prevented from working. He spent approx P800 pesos for his medical expenses.
Thereupon, he sued Manila Railroad to recover damages on the ground of negligence of the servants
and employees of the defendant. The CFI ruled that although there is an apparent negligence on the part
of the defendant through its employees but nevertheless, the plaintiff cannot recover because he had
failed to use due caution in alighting from the coach. Hence this appeal.
Issue:
Whether or not Manila Railroad Company is liable to the plaintiff for the negligent acts of its employees,
notwithstanding that plaintiff was also negligent?
Held:
Yes! While the plaintiff may have been negligent, the defendant is also negligent. The case falls under the
category that of (1) culpa contractual, that is, contract of carriage by providing the passengers safe travel
beginning from the time he
It is important to note that the foundation of the legal liability of the defendant is the contract of carriage,
and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the
breach of that contract by reason of the failure of defendant to exercise due care in its performance. That
is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive
responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code, which can be
rebutted by proof of the exercise of due care in their selection and supervision. Article 1903 of the Civil
Code is not applicable to obligations arising ex contractu, but only to extra-contractual obligations — or to
use the technical form of expression, that article relates only to culpa aquiliana and not to culpa
contractual.
respondeat superior - One who places a powerful automobile in the hands of a servant whom he knows to
be ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which
makes him liable for all the consequences of his imprudence.
Culpa Aquiliana or extra-contractual culpa
The liability arising from extra-contractual culpa is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused damage to another. From this
article two things are apparent: (1) That when an injury is caused by the negligence of a servant or
employee there instantly arises a presumption of law that there was negligence on the part of the master
or employer either in selection of the servant or employee, or in supervision over him after the selection,
or both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the presumption is
overcome and he is relieved from liability.
Distinction between non-contractual and contractual Obligation
The fundamental distinction between obligations of this character and those which arise from contract,
rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris, whereas in contractual relations the vinculum juris exists
independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.
The mere fact that a person is bound to another by contract does not relieve him from extra-contractual
liability to such person.
Comparative negligence - if the accident was caused by plaintiff’s own negligence, no liability is imposed
upon defendant’s negligence and plaintiff’s negligence merely contributed to his injury, the damages
should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

Test on Contributory negligence.
Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence that to get off the train under the conditions
then existing was dangerous?
Gutierrez vs Gutierrez (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 Piñas. The
diver of the car is an 18 y/o boy, son of the car’s owners. It was found by the trial court that both the boy
and the driver of the autobus were negligent by which neither of them were willing to slow up and give the
right of way to the other. Plaintiff is the passenger of the bus who as a result of the incident fractured his

right leg to his damage and prejudice. Thus, plaintiff sued the boy, his parents as owners of the car, the
bus driver and its owner for damages. The trial court ruled in favor of plaintiff.
Hence, this appeal.
Issue:
How should civil liability be imposed upon parties in the case at bar?
Held:
The case is dealing with the civil liability of parties for obligations which arise from fault or negligence.
For the boy, it is his father who is liable (based on culpa aquiliana) to the plaintiff because of the following
conditions; first, the car was of general use of the family, second, the boy was authorized or designated
by his father to run the car, third, at the time of the collision the car is used for the purpose not of the
child’s pleasure but that of the other members of the car owner’s family members. 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.
For the chauffer and the bus owner (based on culpa contractual), their liability rests upon the contract (the
safety that is assured by the operator upon the passenger) whereas that degree of care expected from
the chauffer is lacking.
Araneta v. De Joya
Facts:
Respondent De Joya, general manager, proposed to the board of Ace Advsertising Corp., to send
Ricardo Taylor to the US to take up special studies in television. The Board did not act upon the proposal.
Nevertheless, sent Taylor to the US. Respondent assured Antonio Araneta, a compny director, that
expenses will be handled by other parties which later was confirmed through a memorandum.

While abroad, Taylor continued to receive his salaries. The items corresponding to his salaries appeared
in vouchers prepared upon orders of, and approved by, the respondent. Petitioner Luis Araneta, signed
three of the vouchers, others signed by either respondent or Vicente Araneta, the company treasurer. All
told, Ace Advertising disbursed P5,043.20 on account of Taylor’s travel and studies.
Then a year after, Ace Advertising filed a complaint before the CFI against respondent for the recovery of
the total sum disbursed to Taylor alleging that the trip was made without its knowledge, authority or
ratification.
The respondent in his answer denied the charge and claimed that the trip was nonetheless ratified by the
company’s board and at any event he had the discretion as general manager to authorize the trip which
was for the company’s benefit.
A third party complaint was file by respondent against, Vicente and Luis and Taylor. Respondent proved
that some of the checks to cover the expenses of Taylor were signed by Vicente and Luis.
In their defense, Luis and Vicente claimed that they signed the checks in good faith as they were
approved by respondent.
The CFI rendered judgement ordering the respondent to pay Ace for the amount disbursed with interest at
a legal rate until full payment and dismissed the third party complaint.
Respondent appealed to CA. CA affirmed the decision of trial court with regard to its decision in favor of
Ace but reversed the dismissal of the 3rd
party complaint. CA found as a factthat Taylor’s trip had neither
been authorized nor ratified by Ace. It held that Luis and Vicente were also privy to the authorized
disbursement of corporate monies with the respondent. That when they approved signed the checks, they
have given their stamp of approval. As it is established that corporate funds were disbursed unauthorized,
the case is of a simple quasi-delict committed by them against the corporation.
Hence, this appeal.
Issue:
Whether or not petitioner is guilty of quasi-delict, notwithstanding that he was occupying a contractual
position at Ace? Otherwise stated, whether or not quasi-delict (tort) may be committed a party in a
contract?
Held:
Yes. The existence of a contract between the parties constitutes no bar to the commission of a tort by one
against the other and the consequent recovery of damages. His guilt is manifest on account of, in spite of
his being a vice-president and director of Ace, petitioner remained passive, through out the period of
Taylor’s trip and to the payment of the latter’s salary. As such he neglected to perform his duties properly
to the damage of the firm of which he was an officer.
Barredo vs. Garcia and Almario 1942
Facts:
A head-on collision between a taxicab owned by Barredo and a carretela occurred. The carretela was
overturned and one of its passengers, a 16-year old boy, the son of Garcia and Almario, died as a result
of the injuries which he received. The driver of the taxicab, a employee of Barredo, was prosecuted for
the crime and was convicted. When the criminal case was instituted, Garcia and Almario reserved their

right to institute a separate civil action for damages. Subsequently, Garcia and Almario instituted a civil
action for damages against Barredo, the employer of the taxicab driver.
It was found that Fontanilla has been found to have been previously violating traffic rules.
Barredo set up his defense claiming that being only subsidiarily liable under the RPC and the accused not
being imputed nor adjudged to pay damages in a civil action, then it is a bar for an action against him.
The CFI ruled in favor of the plaintiff awarding them P2,000.00 against the Barredo.
Issues:
Whether or not an employer (Barredo) should be held principally and directly liable for the negligent act of
his employee (or for the criminal act or omission of the employee)?
Apropos the employee is acquitted in the criminal case and the employer is exonerated as subsidiary
liable, will it bar the civil action based on quasi-delict a.k.a culpa extra-contractual or culpa aquiliana?
Whether or not the law is restrictive on the liability of the employer as subsidiary to that of the accused
(confining itself within the provision of the penal code)?
Held:
(1) Yes. An employer (Barredo) is principally liable for the negligent acts (or even criminal acts) of his
employee in the performance of his duties) because it is presumed by law that the employer (as
well as the father, guardian , etc.) committed an act of negligence in not preventing or avoiding
the damage. It is this fault that is condemned by law.
(2) No. The reason for this is that the civil liability of the employer (in the criminal case) is grounded
upon the crime committed by its employee, while the liability of the employer (in quasi-delict) is
completely attributable to itself independent of the criminal act of the employee that is by not
carefully selecting and supervising its employees. Thus:
Cuasi-delitos, include all acts in which “any king of fault or negligence intervenes” which means even if
such act or omission has nothing to do with the actual resulting damage, like, for example, then the owner
of a taxi company hires a driver who is known to him (or should have been known to him) that the latter is
guilty of violating traffic rules. In case the driver causes damage as a result of his performance as a driver,
then the owner is liable for the damage, not for the act of omission of the driver (because it is covered by
the penal code which makes the criminal or felon primarily liable for his injury cause) but for its negligence
in employing the driver.
(3) Articles 20 and 21 of the Penal Code, after distributing in their own way the civil responsibilities
among those who, for different reasons, are guilty of felony or misdemeanor, make such civil
responsibilities applicable to enterprises and establishments for which the guilty parties render
service, but with subsidiary character, that is to say, according to the wording of the Penal Code,
in default of those who are criminally responsible. In this regard, the Civil Code does not coincide
because article 1903 says: “The obligation imposed by the next preceding article is demandable,
not only for personal acts and omissions, but also for those of persons for whom another is
responsible.” (N.B. cause of liability is the bond or tie between the one who caused the injury and
his employer, father, guardian, etc.) Among the persons enumerated are the subordinates and
employees of establishments or enterprises, either for acts during their service or on the occasion
of their functions. It is for this reason that it happens, and it is so observed in judicial decisions,
that the companies or enterprises, after taking part in the criminal cases because of their
subsidiary civil responsibility by reason of the crime, are sued and sentenced directly and
separately with regard to the obligation, before the civil courts.
Workmen and employees should be carefully chosen and supervised in order to avoid injury to the public.
It is the masters or employers who principally reap the profits resulting from the services of these servants
and employees. It is but right that they should guarantee the latter’s careful conduct for the personnel and
patrimonial safety of others.
We will not use the literal meaning of the law to smother and render almost lifeless a principle of such
ancient origin and such full-grown development as culpa aquiliana or cuasi-delito, which is conserved and
made enduring in articles 1902 to 1910 of the Spanish Civil Code.
N.B. It is that Bond ( in the performance of the subordinate of the act) which will determine whether or not
the superior (employer, parents may be held liable.

El Cano vs Hill
Facts:
Defendant Reginald Hill, a minor, married at the time of the occurrence, killed Agapito. He was
apprehended and charged appropriately before CFI. He acquitted on the ground that his act was not
criminal, because of “lack of intent to kill, coupled with mistake.”

Thereupon, the parents of Agapito, filed a complaint for recovery of damages against the defendant and
his father, the defendant Marvin Hill, with whom he was living and getting subsistence, for the killing by
Reginald of the son of the plaintiffs.
Defendants filed a motion to dismiss on the grounds that: first, the civil action is barred by the acquittal of
Reginald, and; second, the father cannot be held liable for the act of his son because the latter is already
married at the time of the commission, thus, is already emancipated.
Issues:
Whether or not quasi-delict is restricted to negligence and cannot apply to voluntary acts or omissions
producing injury ( or felony)?
Whether or not a father may be held liable for the act of his emancipated child constituting quasi-delict?
Held:
No. To repeat the Barredo case, under Article 2177, acquittal from an accusation of criminal negligence,
whether on reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil liability
arising from criminal negligence, but for damages due to a quasi-delict or ‘culpa aquiliana’ although it
mentions the word “negligence” but according to Justice Bocobo it must be construed according to “the
spirit that giveth lift- rather than that which is literal that killeth the intent of the lawmaker should be
observed in applying the same.” Criminal prosecution and civil action are two different things.
On the second issue (obsolete), Yes, the father may be held liable. While it is true that marriage of a child
emancipates him from the parental authority of his parents, what matters really is whether or not such
minor is completely emancipated as defined by law. In the case at bar, his emancipation is only partial for
as provided by law he can sue and be sued in court with the assistance of his parents, he cannot manage
his own properties without the approval of his parents, and third as in the facts, he relies for subsistence
from his parents.
Occena vs Icamina 1990 (Antique)
Facts:
On May 31, 1979, herein petitioner Eulogio Occena instituted before the Second Municipal Circuit Trial
Court of Sibalom Antique, Criminal Case No. 1717, a criminal complaint for Grave Oral Defamation
against herein private respondent Cristina Vegafria for allegedly openly, publicly and maliciously uttering

the following insulting words and statements: “Gago ikaw nga Barangay Captain, montisco, traidor,
malugus, Hudas,” which, freely translated, mean: “You are a foolish Barangay Captain, ignoramus, traitor,
tyrant, Judas” and other words and statements of similar import which caused great and irreparable
damage and injury to his person and honor.
Accused pleaded not guilty. Trial ensued and judgment was rendered finding the accused guilty beyond
reasonable doubt for slight oral deflation sentencing her to pay a fine of P50.00 and subsidiary in case of
insolvency but no damages were awarded to petitioner as held by the trial court.
Disagreeing, petitioner sought relief with the RTC which affirmed the decision of the MTC.
Hence, this appeal.
Issue:
Whether or not the instant appeal should be dismissed on the ground that the decision rendered by the
RTC has become final?
Whether or not damages are warranted to petitioner?
Held:
No. While the criminal aspect of the case has become final, the civil aspect did not due to the timely
appeal filed by petitioner with regard to the civil aspect of the case (Peeple vs Coloma).
Yes. Every person criminally liable for a felony is also civilly liable (Art. 100, RPC). Likewise, article 2219
of the New Civil Code provides that moral damages may be recovered in libel, slander or any other form
of defamation.
In the ultimate analysis, what gives rise to the civil liability is really the obligation of everyone to repair or
to make whole the damage caused to another by reason of his act or omission, whether done intentional
or negligently and whether or not punishable by law.
Banal vs Tadeo 1987
Facts:
Petitioner herein is one of the complainants in the criminal cases filed against Rosario Claudio. Claudio is
charged with 15 separate information for violation of BP 22. Claudio pleaded not guilty, thus trial ensued.
Petitioner moved to intervene through private prosecutor but it was rejected by respondent judge on the

ground that the charge is for the violation of Batas Pambansa Blg. 22 which does not provide for any civil
liability or indemnity and hence, “it is not a crime against property but public order.” Petitioner filed a
motion for reconsideration but was denied by the respondent judge. Hence this appeal.
Issue:
Whether or not a private prosecutor may intervene in the prosecution for violation of BP 22 (a special
penal law) which does not provide for civil liability?
Note:
Intervention of a private prosecutor is for the purpose of protecting the private interest of the complainant
to recover damages.
Held:
Yes! Under Art. 100 of the RPC, ‘every person criminally liable for a felony is also civilly liable.’ Thus a
person committing a felony offends namely (1) the society in which he lives in or the political entity called
the State whose law he had violated; and (2) the individual member of that society whose person, right,
honor, chastity or property was actually or directly injured or damaged by the same punishable act or
omission.
While an act or omission is felonious because it is punishable by law, it gives rise to civil liability not so
much because it is a crime but because it caused damage to another. Viewing things pragmatically, we
can readily see that what gives rise to the civil liability is really the obligation and the moral duty of
everyone to repair or make whole the damage caused to another by reason of his own act or omission,
done intentionally or negligently, whether or not the same be punishable by law. In other words, criminal
liability will give rise to civil liability only if the same felonious act or omission results in damage or injury to
another and is the direct and proximate cause thereof. Damage or injury to another is evidently the
foundation of the civil action. Such is not the case in criminal actions for, to be criminally liable, it is
enough that the act or omission complained of is punishable, regardless of whether or not it also causes
material damage to another. (Sangco, Philippine Law on Torts and Damages, 1978, Revised Edition, pp.
246-247).
Article 20 of the New Civil Code provides:
“Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.”
Regardless, therefore, of whether or not a special law so provides, indemnification of the offended party
may be had on account of the damage, loss or injury directly suffered as a consequence of the wrongful
act of another.
Bricktown vs Amor Tierra Devt. 1994
A contract, once perfected, has the force of law between the parties with which they are bound to comply
in good faith and from which neither one may renege without the consent of the other. The autonomy of
contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may
deem appropriate provided only that they are not contrary to law, morals, good customs, public order or
public policy. The standard norm in the performance of their respective covenants in the contract, as well

as in the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that
juridical relation must act with justice, honesty and good faith.
Southeastern College vs CA 1998 (Quantum of proof; Fortuitous Event)
Facts:
Private respondents are owners of a house at 326 College Road, Pasay while petitioner owns a four-
storey school building along the same College Road. That on October 11, 1989, a powerful typhoon hit
Metro Manila. Buffeted by very strong winds, the roof of the petitioner’s building was partly ripped off and
blown away, landing on and destroying portions of the roofing of private respondents’ house. When the
typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of
engineers headed by the city building official.
In their report, they imputed negligence to the petitioner for the structural defect of the building and
improper anchorage of trusses to the roof beams to cause for the roof be ripped off the building, thereby
causing damage to the property of respondent.
Respondents filed an action before the RTC for recovery of damages based on culpa aquiliana. Petitioner
interposed denial of negligence and claimed that the typhoon as an Act of God is the sole cause of the
damage. RTC ruled in their favor relying on the testimony of the City Engineer and the report made after
the ocular inspection. Petitioners appeal before the CA which affirmed the decision of the RTC.
Hence this present appeal.
Issue:
(1) Whether the damage on the roof of the building of private respondents resulting from the impact
of the falling portions of the school building’s roof ripped off by the strong winds of typhoon
“Saling”, was, within legal contemplation, due to fortuitous event?
(2) Whether or not an ocular inspection is sufficient evidence to prove negligence?
Held:
On the first issue, Yes, petitioner should be exonerated from liability arising from the damage caused by
the typhoon. Under Article 1174 of the Civil Code, Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen, or which, though
foreseen, were inevitable.
In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any
previous negligence or misconduct by reason of which the loss may have been occasioned. 12
An act of
God cannot be invoked for the protection of a person who has been guilty of gross negligence in not
trying to forestall its possible adverse consequences. When a person’s negligence concurs with an act of
God in producing damage or injury to another, such person is not exempt from liability by showing that the
immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is found
to be partly the result of the participation of man — whether it be from active intervention, or neglect, or
failure to act — the whole occurrence is hereby humanized, and removed from the rules applicable to acts
of God.
In the case under consideration, the lower court accorded full credence to the finding of the investigating
team that subject school building’s roofing had “no sufficient anchorage to hold it in position especially
when battered by strong winds.” Based on such finding, the trial court imputed negligence to petitioner
and adjudged it liable for damages to private respondents.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be
foreseen but is unavoidable despite any amount of foresight, diligence or care. In order to be exempt from
liability arising from any adverse consequence engendered thereby, there should have been no human
participation amounting to a negligent act. In other words; the person seeking exoneration from liability
must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance which the circumstances justify demand, or the omission to do something which
a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human
affairs, would do.
On the second issue, it bears emphasizing that a person claiming damages for the negligence of another
has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts
constitutive of negligence must be affirmatively established by competent evidence, 19
not merely by

presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report submitted by a team which made an ocular
inspection of petitioner’s school building after the typhoon. As the term imparts, an ocular inspection is
one by means of actual sight or viewing. What is visual to the eye through, is not always reflective of the
real cause behind.
In the present case, other than the said ocular inspection, no investigation was conducted to determine
the real cause of the partial unroofing of petitioner’s school building.
Barzaga vs CA 1998 (DELAY)
Facts:
Petitioner’s wife died and her wish is to be buried before Christmas.
After her death on Dec 21, 1990, in fulfillment of her wishes, petitioner went to respondent’s store to
inquire the availability of materials to be used in building his wife’s niche. Respondent’s employee

advised petitioner that to come back the following morning. That following morning, petitioner made a
payment of P2,100 to secure the delivery of the materials. However, the materials were not delivered on
time. Several times petitioner went to respondent’s store to ask for the delivery. Later that day, the
petitioner was forced to dismiss his laborer since there is nothing to work with for the materials did not
arrive.
Petitioner however purchased the materials from other stores.
After his wife was buried, he sued respondent for damages because of delay
For his part, respondent offered a lame excuse of fortuitous event that the reason for delay is because the
trucks tires were flat.
Issue:
Whether or not respondent is guilty of delay that will entitle petitioner for damages, although it was not
specified in the invoice the exact time of delivery?
Held:
Yes! The law expressly provides that 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.
(Art 1170 of the Civil Code).
The appellate court appears to have belittled petitioner’s submission that under the prevailing
circumstances time was of the essence in the delivery of the materials to the grave site. However, we find
petitioner’s assertion to be anchored on solid ground. The niche had to be constructed at the very least on
the twenty-second of December considering that it would take about two (2) days to finish the job if the
interment was to take place on the twenty-fourth of the month. Respondent’s delay in the delivery of the
construction materials wasted so much time that construction of the tomb could start only on the twenty-
third. It could not be ready for the scheduled burial of petitioner’s wife. This undoubtedly prolonged the
wake, in addition to the fact that work at the cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a reciprocal obligation. 7
In their contract of purchase and
sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment
of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation
to deliver the goods otherwise delay would attach.
NPC vs CA, ECI 1986 (Quasi-Delict; Fortuitous Event)
Facts:
ECI entered into a contract with NAWASA to undertake a construction of a tunnel from Ipo Dam to Bicti
including all materials, equipment and labor for the said construction for 800 days. The project involved 2
phases. The first involves tunnel works and the second consists of outworks at both ends of the tunnel.

As soon as ECI finished the tunnel works in Bicti, it transferred all its equipments to Ipo Dam to finish the
second phase of the project.
The record shows that on November 4,1967, typhoon ‘Welming’ hit Central Luzon, passing through
defendant’s (NPC) Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds
struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the
reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent
an overflow of water from the dam, since the water level had reached the danger height of 212 meters
above sea level, the defendant corporation caused the opening of the spillway gates.”
ECI sued NPC for damages. The trial court and the court of appeals found that defendant NPC was
negligent when opened the gates only at the height of the typhoon holding that it could have opened the
spill gates gradually and should have done so before the ‘typhoon’ came. Thus both courts awarded ECI
for damages.
NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained
by ECI was due to force majeure. It argued that the rapid rise of water level in the reservoir due to heavy
rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen.
On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court
eliminating the awarding of exemplary damages.
Issues:
1. Whether or not NPC is liable for damages even though the cause of the damage is due to a force
majeure? Otherwise stated, whether or not the damage sustained by ECI could be attributed to
NPC notwithstanding the occurrence of a force majeure?
2. Whether or not ECI is entitled to exemplary damages?
Held:
Yes. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the
height of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually
and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it
actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC
cannot escape liability because its negligence was the proximate cause of the loss and damage. As we
have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with an act of God in producing
a loss, such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Substantial evidence is defined as such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90
SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302
[1985])
Exemplary Damages
No. As to the question of exemplary damages, we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of NPC and that neither can the latter’s negligence

be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
ruled:
Neither may private respondent recover exemplary damages since he is not entitled to moral or
compensatory damages, and again because the petitioner is not shown to have acted in a
wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric
Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA 577; Gutierrez v.
Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888).
Comments:
Under Art. 1170 of the Civil Code, “When those who in the performance of their obligations are guilty of
fraud, delay, or negligence, or in any manner contravene in the tenor of the obligation, are liable for
damages.” What the provision contemplates is that there is an express obligation between the obligor and
the obligee arising from a contractual obligation that must be complied with in good faith. And what the
aforestated provision liable for damages is that breach either because of fraud, delay, or negligence, or
contravention to the tenor of obligation. Hence it should not be applied generally in all cases, especially in
quasi-delict which is treated specifically by law. In the case at bar, ECI and NPC has no pre-existing
obligation arising from a contract. Although negligence is indubitably present in the case, there cannot be
located from the facts that there is a prior obligation arising form NPC and ECI. But instead the applicable
law in the case at bar is Art. 2176 which provides, “Whoever by act or omission causes damage to
another, there being fraud or negligence, is obliged to pay for the damage done. Such fault of negligence,
if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed
by the provisions of this chapter.” I should rather say that the Honorable Supreme Court misplaced the
application of the law.
I should further say that the Act of God Doctrine should be applied inversely to that
Rural Bank of Sta Maria Pangasinan vs CA Gr no. 110672 1999
Facts:
A Deed of Absolute Sale with Assumption of Mortgage was executed between Manuel Behis as
vendor/assignor and Rayandayan and Arceño as vendees/assignees for the sum of P250,000.00. On the
same day, Rayandayan and Arceño together with Manuel Behis executed another Agreement embodying

the real consideration of the sale of the land in the sum of P2,400,000.00. Thereafter, Rayandayan and
Arceño negotiated with the principal stockholder of the bank, Engr. Edilberto Natividad in Manila, for the
assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the
property by the bank.
Rayandayan and Arceño did not show to the bank the Agreement with Manuel Behis providing for the real
consideration of P2,400,000.00 for the sale of the property to the former. Subsequently, the bank
consented to the substitution of plaintiffs as mortgage debtors in place of Manuel Behis in a Memorandum
of Agreement between private respondents and the bank with restructured and liberalized terms for the
payment of the mortgage debt.
Instead of the bank foreclosing immediately for non-payment of the delinquent account, petitioner bank
agreed to receive only a partial payment of P143,000.00 by installment on specified dates. After payment
thereof, the bank agreed to release the mortgage of Manuel Behis; to give its consent to the transfer of
title to the private respondents; and to the payment of the balance of P200,000.00 under new terms with a
new mortgage to be executed by the private respondents over the same land.
However, petitioner bank did not comply with the MOA with respondents because of a supervening event
namely the protest made by Cristina Behis, wife of Manual Behis, alleging that she did not consent to the
negotiation made as regards the Deed of absolute sale with Assumption of Mortgage by her husband with
the respondents and that her signature was forged by respondents. The petitioner bank then told
respondents to settle the matter with Mrs. Behis.
At that point, petitioner bank cancelled its MOA with respondents because: first, the latter failed to settle
the protest of Mrs. Behis; and, secondly, the terms of the Memorandum of Agreement have not been fully
complied with as the payments were not made on time on the dates fixed therein; and third, their consent
to the Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank was not shown the
Agreement containing the real consideration of P2,400.000.00 of the sale of the land of Manuel Behis to
plaintiffs.
Thereafter, the petitioner bank returned the initial payment of P143,000.00 to respondents.
In the mean time, petitioner entered into an agreement with Halsema Bank that the latter would assume
the mortgage of Manuel Behis in consideration of P521,765.45.
Thereafter, respondents brought the matter before the RTC which ruled that the MOA is valid.
The case was elevated to the CA on certiorari. The respondent Court affirmed the validity of the MOA
dismissing the claim of the respondent that their consent to the agreement made with respondents to
assume the mortgage of Manuel Behis, and awarding the respondents for damages.
Issues:
Whether or not respondents are guilty of fraud (which would make the contract between respondents and
petitioner viod) when it did not show or it concealed from the petitioner the Agreement (between
respondents and Manuel Behis) the consideration of P2.4, and rather what was only shown was the first
agreement with regard to the Deed of Sale with Assumption of Mortgage?
Held:
No. This brings us to the first issue raised by petitioner bank that the Memorandum of Agreement is
voidable on the ground that its consent to enter said agreement was vitiated by fraud because private
respondents withheld from petitioner bank the material information that the real consideration for the sale
with assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceño is
P2,400,000.00, and not P250,000.00 as represented to petitioner bank. According to petitioner bank, had
it known of the real consideration for the sale, i.e. P2.4 million, it would not have consented into entering
the Memorandum of Agreement with Rayandayan and Arceño as it was put in the dark as to the real
capacity and financial standing of private respondents to assume the mortgage from Manuel Behis.
Petitioner bank pointed out that it would not have assented to the agreement, as it could not expect the
private respondents to pay the bank the approximately P343,000.00 mortgage debt when private
respondents have to pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.
The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by
one of the contracting parties to induce the other to enter into a contract which without them he would not
have agreed to. 13
Simply stated, the fraud must be the determining cause of the contract, or must have
caused the consent to be given. It is believed that the non-disclosure to the bank of the purchase price of
the sale of the land between private respondents and Manuel Behis cannot be the “fraud” contemplated

by Article 1338 of the Civil Code. 14
From the sole reason submitted by the petitioner bank that it was kept
in the dark as to the financial capacity of private respondents, we cannot see how the omission or
concealment of the real purchase price could have induced the bank into giving its consent to the
agreement; or that the bank would not have otherwise given its consent had it known of the real purchase
price.
The deceit which voids the contract exists where the party who obtains the consent does so by
means of concealing or omitting to state material facts, with intent to deceive, by reason of which
omission or concealment the other party was induced to give a consent which he would not otherwise
have given (Tolentino, Commentaries and Jurisprudence on the Civil Code, Vol. IV, p. 480). In this
case, the consideration for the sale with assumption of mortgage was not the inducement to
defendant bank to give a consent which it would not otherwise have given.
Consequently, not all the elements of fraud vitiating consent for purposes of annulling a contract concur,
to wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter
into the contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking
annulment. 18
Petitioner bank has not sufficiently shown that it was induced to enter into the agreement by
the non-disclosure of the purchase price, and that the same resulted in damages to the bank. Indeed, the
general rule is that whosoever alleges fraud or mistake in any transaction must substantiate his
allegation, since it is presumed that a person takes ordinary care for his concerns and that private
transactions have been fair and regular. Petitioner bank’s allegation of fraud and deceit have not been
established sufficiently and competently to rebut the presumption of regularity and due execution of the
agreement.
Telefast vs Castro (1988)
Facts:
In 1956, Sofia Castro-Crouch (plaintiff-respondent) was vacationing in Pangasinan in her parent’s house.
That same year in November, her mother, Consolacion died. On the day of her mother’s death she
addressed a telegram to her father Ignacio who was then in the US announcing Consolacion’s death. The

telegram was accepted by Telefast (defendant-petitioner) in its Dagupan office after payment of required
fees or charges.
The telegram never reached the addressee. Consolacion was interred without her husband and children
besides Sofia.
Sofia went back to the US and learned that the telegram never reached her father. Thus, she and her
siblings and their father sued Telefast for damages arising from the breach of contract by the defendant.
Petitioner-defendant Telefast interposed that the reason why the telegram never reached the addressee
is because of “technical and atmospheric factors beyond its control.” It appears though that no attempt
made by defendant to inform Sofia for that matter or any reason at all that explains why the telegram
reached the addressee.
The CFI ruled in favor of Sofia and her co-plaintiffs awarding her damages she prayed for. Telefast
appealed before the IAC which affirmed the decision of the CFI.
Hence this appeal.
Issues:
Whether or not petitioner is liable for damages arising from the breach of contract even though that there
was a technical and atmospheric factors that lead to its failure to comply with terms of the contract?
Held:
Yes. Art. 1170 of the Civil Code provides, “Those who in the performance of their obligation are guilty of
fraud, delay, negligence, and those who in any manner contravene the tenor thereof, are liable for
damages. Art. 2176 also provides that “whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done.
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for
a fee, petitioner undertook to send said private respondent’s message overseas by telegram. This,
petitioner did not do, despite performance by said private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent
and is thus liable for damages.
Also, it is evident that petitioner did not do anything to advise the plaintiff of the circumstances which lead
to its failure to comply with its obligation. It is apparent that such tantamount to gross negligence. Hence
bad faith.
Agcaoili vs GSIS 1988 (Art 1169; Compensatio Morae; pg 109)
Facts:
In 1964, plaintiff Agcaoili applied with the defendant GSIS to purchase a house and lot in Marikina. In the
following year in a letter, respondent approved petitioner’s application with the advise ‘to occupy the said

house immediately’ and ‘failure to occupy the same from the receipt of the notice, plaintiff’s application
shall be considered disapproved and will be awarded to another applicant.’
Plaintif lost no time in occupying the house. However, he could not stay in it and had to leave the
following day because the house was nothing more than a shell, in such a state of incompleteness that
civilized occupation was not possible. Agcaoili did however ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the construction of the house.
Agcaoili thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly
installment and the incidental fees, 3
but refused to make further payments until and unless the GSIS
completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate
the premises. 4
Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific
performance and damages.
The CFI ruled in favor of Agcaoili declaring the cancellation of the award illegal and viod and ordering
GSIS to respect and enforce the aforesaid award, and to complete the house in question to make the
same habitable and authorizing GSIS to collect the monthly amortization only after said house shall have
been completed.
GSIS argued the following:
1. Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of
his housing unit, since said unit had been sold “in the condition and state of completion then
existing ... (and) he is deemed to have accepted the same in the condition he found it when he
accepted the award.
2. Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter’s
immediate occupancy of the house subject thereof, and the latter having failed to comply with the
condition, no contract ever came into existence between them.
Issues:
1. Whether or not Agcaoli may suspend payment of amortization on account of the incompleteness of his
housing unit, since said unit had been sold “in the condition and state of completion then existing ... (and)
he is deemed to have accepted the same in the condition he found it when he accepted the award?
Whether or not there was a valid contract of sale between Agcaoili and GSIS?
2. Whether or not Agcaolili repudiated his contract with GSIS?
Held:
On the first issue, Yes, because Art. 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.” Certainly, the prestation of the contract which was ratified upon approval of GSIS
(presupposing the meeting of the minds of GSIS and Agcaoli) is the house and lot, on the condition that
the house should be habitable. Thus: “There was then a perfected contract of sale between the parties;
there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in
the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56
per month, and from that moment the parties acquired the right to reciprocally demand performance.”
There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a
structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that
this was what was intended by the parties, since the contract did not clearly impose upon it the obligation
to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any
objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an
obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the
stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable
state, it cannot invoke Agcaoili’s suspension of payment of amortizations as cause to cancel the contract
between them. It is axiomatic that “(i)n 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.” 15

Nakpil and Sons Vs Court of appeals 1986
Facts:

Philippine Bar Association, an NGO, entered into a contract with UCCI on administration basis and Nakpil
& Sons to construct a building; the latter will provide the design and specifications of the said building.
Two years after the building is constructed and is being leased by PBA, an earthquake, unusually strong
hit Metro Manila. As a result, the building is severely damaged (partially collapsed) which compelled the
tenants to vacate the premises. PBA, sued UCCI and Nakpil. Since the case involves a high degree of
technicality to ascertain the cause of action, the trial court appointed a Commissioner to report to him his
findings.
According to the Commissioner the damage is caused by:
1. Earthquake
2. defects in the plans and specifications prepared by the third-party defendants’ architects.
3. deviations from said plans and specifications by the defendant contractors
4. failure of the latter to observe the requisite workmanship in the construction of the building and of
the contractors, architects
5. failure of the owners to exercise the requisite degree of supervision in the construction of subject
building
The trial court agreed with the findings of the Commissioner except as to the holding that the owner is
charged with full nine supervision of the construction. The Court sees no legal or contractual basis for
such conclusion. Defendants appealed the decision of the trial court to CA.
CA’s decision is to affirm the lower courts decision with the additional P200K damages.
Issue:
The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which
caused the failure of the building, exempts from liability, parties who are otherwise liable because of their
negligence.
Held:
No. ART 1723 NCC
Liability of the engineer or architect is if the building should collapse within 15 years because of a defect
in the plans and specification OR due to the defects in the ground.
The liability of the contractor lies if the building should collapse w/in 15 years because of (1) defects in the
CONSTRUCTION (2) USE of materials of INFERIOR QUALITY furnished by contractor or (3)
VIOLATION of the terms of the contract.
If the construction was supervised by the engineer or architect, he shall be solidarily liable with the
contractor.
If the owner of the building accepts the building after it is constructed does not mean a WAIVER of any
cause of action by reason of defects. The action should be brought within 10 years.
Upon the other hand, 1174 of NCC:
Except in cases expressly specified by law, or otherwise when it is declared in stipulation or when from
the nature of the obligation requires the assumption of risk, no person shall be liable for those events
which could not be foreseen, or which, though foreseen, were ineveitable.
Elements of 1174, fortuitous event
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals
that “while it is not possible to state with certainty that the building would not have collapsed were those
defects not present, the fact remains that several buildings in the same area withstood the earthquake to
which the building of the plaintiff was similarly subjected,” cannot be ignored.
One who negligently creates a dangerous condition cannot escape liability for the natural and probable
consequences thereof, although the act of a third person, or an act of God for which he is not responsible,
intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the damage would not have occurred.
UP v. Delos Angeles
Facts:
UP petitioner entered into a contract with ALUMCO respondent, a logging company, where the latter is
granted a right to cut,collect and remove timber from the land grant in return for a consideration of money.
But respondent incurred unpaid account amounting to P220K and despite repeated demands, it still failed
to settle its dues. UP sent a notice to rescind the contract, and respondent executed an instrument,

entitled “Acknowledgment of Debt and Proposed Manner of Payments” wherein it undertook to settle the
balance on or before June 1965 and in case of non-fulfillment, UP is entitled to rescind the contract and
respondent will pay P50K as liquidated damages without the necessity of judicial suit. UP President
approved the instrument.
Respondent constinued its logging operations but again failled to settle its account in addition to the
indebtedness it had previously acknowledged.
That o July 1965, UP informed ALUMCO that it had, as of that date, considered as rescinded and of no
further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP
filed a complaint against ALUMCOfor the collection or payment of the herein before stated sums of
money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and
obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction
restraining ALUMCO from continuing its logging operations in the Land Grant.
Before the issuance of the preliminary injuction UP had taken steps to have another concessionaire take
over the logging operation; after it advertised its invitation to bid, the concession was awarded to Sta.
Clara Lmber signed in Feb. 1966. In the mean time, ALUMCO filed a petition to enjoin UP form the
conducting the bidding, the CFI ejoined UP from awarding the logging rights. However, the order was
received only after it had concluded the its contract with Sta. Clara.
And upon motion of ALUMCO, UP was declared in contempt and directed Sta. Clara from exercising
logging rights or conducting logging operations in the concession.
UP moved to reconsider the order but it was denied.
Issue:
Whether or not by virtue of the instrument respondent executed, petitioner can rescind the contract upon
default of respondent without judicial pronouncement?
Held:
Yes. UP and ALUMCO had expressly stipulated in the “Acknowledgment of Debt and Proposed Manner
of Payments” that, upon default by the debtor ALUMCO, the creditor (UP) has “the right and the power to
consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any
judicial suit.” As to such special stipulation, and in connection with Article 1191 of the Civil Code, this
Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
“there is nothing in the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention. In other words, it
is not always necessary for the injured party to resort to court for rescission of the contract.”
“Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law. (1124)”
Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may 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. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law

itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article
2203).
Central Bank vs CA and Tolentino 1985
Facts:
On April 1965, Island Savings Bank approved the loan of Sulpicio Tolentino for P80K payable in 3 years
with 12% interest per annum, in consideration of his 100-hectare land.
On May 1965, only a mere P17K of the P80K was released by the bank and Sulipicio and his wife signed
a promissory note for the same consideration. The bank promised repeatedly the release of P63K.

On August 1965, the Monetary Board of the Central Bank, after finding Island Savings was suffering
liquidity problems, issued a resolution prhibiting it from making new loans and investments (except
investment in government securities) excluding granting extensions and renewals of already approved
loans subject to review by the Superintendent of Banks.
On June 1968, after finding that Island savings failed to put up the required capital to restore its solvency
prohibited it from doing diong business and instructed the Acting Superintendent of Banks to take charge
of the Bank’s assets.
On August 1968, Island savings filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio.
On January 1979, Sulpicio filed a petition with the CFI for injuction, specific performance or rescission
with damages with preliminary injuction alleging that Island Savings failed to deliver the P63K balance of
the P80K loan. He prayed the delivery of P63K plus 12% legal interest and if the same is not fulfilled, then
the real estate mortgage should be rescinded.
Upon filing of a P5K bond, the CFI issued a TRO enjoining Island Savings from continuing with
foreclosure of the mortgage.
After the trial, the CFI dismissed the petition of Sulpicio ordered him to pay the P17K loan plus 12% legal
interest and if he failed to pay the same the TRO be lifted and the foreclosure may proceed.
Sulpicio appealed the decision to the CA which in turn affirmed the dismissal of his petition but ruled that
Island Savings can neither foreclose the mortgage nor collect the P17K loan.
Hence this appeal.
Issues:
(1) Whether or not Sulpicio entitled to the relief of specific performance?
(2) Whether or not Sulpicio is liable to pay the P17K debt covered by the promissory note?
(3) If Sulpicio’s liability to pay the P17K subsists, can his real estate mortgage be foreclosed to satisfy the
said amount?
Held:
When Island Savings and Sulpicio entered into an P80K loan agreement in 1965, they undertook
reciprocal obligations. In reciprocal oblications, neither party incurs in delay when the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. So when Sulpicio
furnished his land on April 1965 in consideration of P80K and when Island Savings failed to comply the
fulfillment of the P80K, the latter incurred in delay. Neither is it a valid defense when the monetary board
prohibited it from extending new loans because it did not prevent it from releasing the balance of a loan
agreement previously contracted. Sulpicio then has the right to demand specific performance but in view
of the consideration that the monetary board prohibited it from doing any business, specific performance
can no longer be granted. In the same line, the only remedy left is rescission of the contract but it can only
apply to the balance of P63K because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00,
which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed
to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the P17,000.00 loan when it falls due. His
failure to pay the overdue amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory
note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission
of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay. Thus there is still the obligation of Sulpicio to pay Island Savings the P17k he
loaned.
However, Sulpicio’s land may not be foreclosed in whole because the 100-hectare land was in
consideration of P80K. Since only P17K was given or constituting only 21.25 percent, the land that may
only be foreclosed should correspond to the amount given. Thus his real estate covering 78.75 hectares
was declared unenforceable.

Zulueta v. Mariano GR 29360 (1982)
Facts:
Zulueta and Avellana (a movie director) entered into a Contract to Sell a residential house and lot for
P75k payable in 20 years, with Avellana assuming to pay P5k of down payment and monthly installment
payable in advance before 5th
of each month, starting Dec. 1964.

It was also stipulate that upon failure of the BUYER (Avellana) to fulfill any of the conditions, it will
authorize the owner to(1) recover physical possession of the land, and (2) rescind the contract, and by
such (3) all payments made by the BUYER to OWNER shall be deemed as rental payments.
Avellana failed to make payment despite several demands. Thus compelled Zulueta to sue Avellana for
ejectment before the Municipal Court.
Avellana contended that that the Municipal Court had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the contract; that prior to the execution of the contract to
sell, petitioner was already indebted to him in the sum of P31,269.00 representing the cost of two movies
respondent made for petitioner and used by the latter in his political campaign in 1964 when petitioner ran
for Congressman, as well as the cost of one 16 millimeter projector petitioner borrowed from respondent
and which had never been returned
The Municipal Court found that respondent Avellana had failed to comply with his financial obligations
under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner.
Respondent Avellana appealed to the CFI which granted his contention that the Municipal Court had no
jurisdiction to try the case, thus dismissed it.
Hence this appeal.
Issue:
Was the action before the Municipal Court of Pasig essentially for detainer and, therefore, within its
exclusive original jurisdiction, or one for rescission or annulment of a contract, which should be litigated
before a Court of First Instance?
Held:
The case is essentially one for rescission of the contract.
Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is
only when the violation has been established that the contract can be declared resolved or rescinded.
Upon such rescission, in turn, hinges a pronouncement that possession of the realty has become
unlawful. Thus, the basic issue is not possession but one of rescission or annulment of a contract, which
is beyond the jurisdiction of the Municipal Court to hear and determine.
True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however,
where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is
still necessary.
A stipulation entitling one party to take possession of the land and building if the other party violates the
contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected
to without judicial intervention and’ determination. The writ of mandamus was denied.
Palay Inc. vs Clave 56076 1983
Facts:
In 1965, Petitioner and private respondent entered into a Contract to Sell a parcel of land. In the said
contract, it provided the petitioner for automatic extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the expiration of the grace period of one month,
without need of notice and with forfeiture of all installments paid.

Respondent Dumpit paid the downpayment and several installments. The last payment was made on
Dec. 1967.
On 1973, private respondent wrote petitioner offering to update all his overdue accounts with interest,
and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying
petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph
6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the
(NHA) for reconveyance with an alternative prayer for refund. In a Resolution, dated July 10, 1979, the
NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc.
and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund
immediately to private respondent with 12% interest from the filing of the complaint. Petitioners’ Motion for
Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979.
The case was appealed to the Office of the President which affirmed the resolution of the NHA.
Issues:
1. Whether notice or demand is not mandatory under the circumstances and, therefore, may be
dispensed with by stipulation in a contract to sell?
2. Whether petitioners may be held liable for the refund of the installment payments made by
respondent Nazario M. Dumpit?
3. Whether or not petitioner Onstott the President of petitioner corporation may be held personally
liable?
Held:
1.We hold that resolution by petitioners of the contract was ineffective and inoperative against private
respondent for lack of notice of resolution.
Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent
to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de
los Angeles the act of a party in treating a contract as cancelled should be made known to the other. We
quote the pertinent excerpt:
It must be understood that the act of a party in treating a contract as cancelled or resolved in account of
infractions by the other contracting party must be made known to the other and is always provisional
being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is
justified it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may 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. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article
2203).
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.
in case of abuse or error by the rescinder the other party is not barred from questioning in court such
abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative
of instituting suit, instead of the rescinder.

This was reiterated in Zulueta vs. Mariano where we held that extrajudicial rescission has legal effect
where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is
still necessary.
The contention that private respondent had waived his right to be notified under paragraph 6 of the
contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully
accorded. Moreover, it is a matter of public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments
2. Yes. The payments must be returned.
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
3.We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who
was made jointly and severally liable with petitioner corporation for refund to private respondent of the
total amount the latter had paid to petitioner company. It is basic that a corporation is invested by law
with a personality separate and distinct from those of the persons composing it as wen as from that of
any other legal entity to which it may be related. 11
As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice 12
; or for purposes that could not have been intended by
the law that created it 13
; or to defeat public convenience, justify wrong, protect fraud, or defend crime.
14
; or to perpetuate fraud or confuse legitimate issues 15
; or to circumvent the law or perpetuate
deception 16
; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.
We find no badges of fraud on petitioners’ part. They had literally relied, albeit mistakenly, on paragraph
6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and
had sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President of the corporation
and he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used
the corporation to defraud private respondent. He cannot, therefore, be made personally liable just
because he “appears to be the controlling stockholder”. Mere ownership by a single stockholder or by
another corporation is not of itself sufficient ground for disregarding the separate corporate personality.
18
In this respect then, a modification of the Resolution under review is called for.
Angeles v. Calasanz G.R. No. L-42283 March 18, 1985
Facts:
Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the former’s
purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest
per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract
and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-
appellees paid the monthly instalments until July 1966 and their aggregate payment already reached

P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments
despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in
the contract which states that the seller (defendants-appellants) has the “right to declare the contract
cancelled and of no effect” as a consequence of failure to pay the agreed amount plus interests. Thus,
the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their
favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of
interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-
appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of
Appeals then brought the matter to the Supreme Court as it involves pure questions of law.
Issue:
Whether or not the contract has been automatically and validly cancelled by the defendant-appellants
(Ursula Torres Calasanz and Tomas Calasanz)
Held:
Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the former’s
purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest
per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract
and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-
appellees paid the monthly instalments until July 1966 and their aggregate payment already reached
P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments
despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in
the contract which states that the seller (defendants-appellants) has the “right to declare the contract
cancelled and of no effect” as a consequence of failure to pay the agreed amount plus interests. Thus,
the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their
favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of
interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-
appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of
Appeals then brought the matter to the Supreme Court as it involves pure questions of law.
Citing the case of University of the Philippines v. De los Angeles (35 SCRA 102) where it is stated that “if
the other party denies that rescission (of a contract) is justified, it is free to resort to judicial action in its
own behalf and bring the matter to court” and that “for it is only the final judgement of the Court that will
conclusively and finally settle the action taken whether the action taken was or was not correct in law”, the
Supreme Court that the right to rescind the contract for non performance of one of its stipulations is not
absolute. Furthermore, citing Song Fo & Co. v. Hawaiian-Philippine Co., (47 Phil. 821, 827) which states
that “The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in making
the agreement, the Court held that the breach of the contract is so slight and casual when the initial
downpayment plus the aggregates amount is considered.
The Court also cited Article 1234 of the Civil Code which states that: “If the obligation has been
substantially performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee” as a provision which militates against the
unilateral act of the defendants-appellants in cancelling the contract.
The Court also held that the contract to sell, being essentially a contract of adhesion, must be construed
against the party causing it.
Therefore, the Court ruled in favour of the plaintiffs-appellees and did not uphold the cancellation of the
contract. The petition of the defendants-appellants was denied and the plaintiffs-appellees were ordered
to pay the remaining balance and after which the defendants-appellants were ordered to execute a final
deed of sale in favour of the plaintiffs-appellee.

GARCIA, JR. V. COURT OF APPEALS, G.R.NO. 80201,
Facts:
On April 15, 1977, Western Minolco Corporation (WMC) secured from the Philippine Investments
Systems Organization (PISO) two loans amounting to P2,500,000 and P1,000,000 to be paid on May 30,
1977. On the same date, Antonio Garcia,jr. and Ernest Kahn executed a surety agreement binding
themselves jointly and severally for the payment of the P2,500,000 loan on due date. After repeated
demands wherein WMC still did not pay the loans, Garcia was sued by Lasal Development Corporation
which the credit was assigned to by PISO, for not paying the loan as part of the surety agreement. On

May 1983, Garcia moved that the complaint be dismissed on the ground that the principal obligation has
been novated. He claimed that there was novation due to the fact that there was re-structuring of the
payment scheme and thus, the existing contract has been novated. The trial court granted the petition of
Garcia but it was later reversed by the Court of Appeals.
Issue:
Whether or not there was indeed novation of the old contract or obligation.
Held:
The Supreme Court held that Novation of contract cannot be presumed. In order that an obligation may
be extinguished by another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point compatible with each other.
In every novation, there are four essential requisites: 1) a previous valid obligation; 2) the agreement of
the parties to a new contract; 3) the extinguishment of the old contract; and 4) the validity of the new one.
Novation requires the creation of new contractual relations as well as extinguishment of the old. There
must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and
the creation of a new valid one. The legal doctrine is that an obligation to pay a sum of money is not
novated in a new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by
the mere granting of extension of payment which did not even alter its essence. The Supreme Court
denied the petition of Garcia and affirmed the decision of the Court of Appeals.
Asia Production Co. Inc. v. Pano G.R. No. L-51058 January 27, 1992
Facts:
Sometime in March 1976, private respondents, who claimed to be the owners of a building constructed on
a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to sell the building to the
petitioners for P170,000.00. Petitioners agreed because of private respondents' assurance that they will
also assign to the petitioners the contract of lease over the land. The above agreement and promise were
not reduced to writing. Private respondents undertook to deliver to the petitioners the deed of conveyance

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