ARTURO PELAYO v. MARCELO LAURON, ET AL.,

G.R. No. L-4080 January 12, 1909

Topic: Sources of Obligations

FACTS

On the night of the 13th of October of 1906, the plaintiff, Arturo Pelayo was

called to the house of the defendants, Marcelo Lauron and Juana Abella, situated in

San Nicolas, and that upon arrival he was requested by them to render medical

assistance to their daughter-in-law who was about to give birth to a child. After

consultation with the attending physician, Dr. Escaño, it was found necessary, on

account of the difficult birth, to remove the fetus by means of forceps which operation

was performed by the plaintiff, who also had to remove the afterbirth, in which services

he was occupied until the following morning. Afterwards, on the same day, he visited

the patient several times.

The just and equitable value of the services rendered by him was P500. The

defendants refuse to pay without alleging any good reason therefore. For said reason

he filed a complaint against the defendants praying that judgment be entered in his

favor as against the defendants, or any of them, for the sum of P500 and costs,

together with any other relief that might be deemed proper.

The defendants answered that they are not liable for the payment because they

brought their daughter-in-law to the plaintiff under the request of their son, the latter’s

wife and that their husband must be held liable for the payment asking by the plaintiff.

ISSUE

Are the defendants under obligation to pay the plaintiff for the latter’s

professional services?

RULING

No.

As provided in Article 1089 of the Civil Code, obligations are created by law, by

contracts, by quasi-contracts, and by illicit acts and omissions or by those in which any

kind of fault or negligence occurs.

Obligations arising from law are not presumed. Those expressly determined in the

code or in special laws, etc., are the only demandable ones. Obligations arising from

contracts have legal force between the contracting parties and must be fulfilled in

accordance with their stipulations (Arts. 1090 and 1091).

The rendering of medical assistance in case of illness is comprised among the

mutual obligations to which the spouses are bound by way of mutual support. (Arts. 142

and 143).

In the face of the above legal precepts it is unquestionable that the person

bound to pay the fees due to the plaintiff for the professional services that he rendered

to the daughter-in-law of the defendants during her childbirth, is the husband of the

patient and not her father and mother- in-law, the defendants herein.

The fact that it was not the husband who called the plaintiff and requested his

assistance for his wife is no bar to the fulfillment of the said obligation, as the

defendants, in view of the imminent danger, to which the life of the patient was at that

moment exposed, considered that medical assistance was urgently needed, and the

obligation of the husband to furnish his wife in the indispensable services of a physician

at such critical moments is specially established by the law.

It was improper to have brought an action against the defendants. The

defendants were not, nor are they now, under any obligation by virtue of any legal

provision, to pay the fees claimed, nor in consequence of any contract entered into

between them and the plaintiff from which such obligation might have arisen.

ELCANO v. HILL

G.R. No. L-24303, May 26, 1977

Topic: Sources of Obligation

FACTS

Reginald Hill, son of Atty. Marvin Hill who was a minor but emancipated through

marriage, killed Agapito Elcano. However, in a criminal case filed against him, he was

acquitted because of absence of intent to kill and his offense was that coupled with

mistake. The family of Elcano now filed claim for damages but, upon motion of

defendants, such was dismissed by the Court of First Instance of Quezon City on the

basis that Reginald was acquitted of the criminal charge and that they have no cause

of action against his father as he was already emancipated by his marriage.

ISSUE

Whether petitioners have a right of action against defendants in that Reginald

was acquitted of the criminal case and was already emancipated by marriage

RULING

Yes.

The Court held that despite Reginald’s acquittal, petitioners shall not be barred

from instituting recovery for damages as under Article 2177 of the Civil Code. The

nature of the offense is that of culpa aquiliana where it involved negligence of the

defendant and wherein there was no preexisting contractual relation between them.

The civil action was separate and independent from the criminal case. Also, petitioners

have action against his father as Article 2180 states that those responsible for the

persons who committed an offense which was a quasi-delict shall also be liable. His

marriage does not emancipate him from entering into transaction which gives rise to

judicial litigation and so his father is subsidiary liable. The Court reversed the appealed

decision and ordered the trial court to proceed according to its opinion.

PEOPLE OF THE PHILIPPINES v. ROGELIO BAYOTAS

G.R. No. 102007, Sept. 2, 1994

Topic: Sources of Obligation

FACTS

Rogelio Bayotas was charged with rape and eventually convicted on June 19,

1991. While the appeal was pending, Bayotas died. The Supreme Court dismissed the

criminal aspect of the appeal; however, it required the Solicitor-General to comment

with regard to Bayotas’ civil liability arising from his commission of the offense charged.

In his comment, the Solicitor-General expressed his view that the death of

accused-appellant did not extinguish his civil liability as a result of his commission of the

offense charged. This comment was opposed by the counsel of accused-appellant,

arguing that the death of the accused while judgment of the conviction is pending

appeal extinguishes both criminal and civil penalties, he cited in support and invoked

the ruling of the Court of Appeals in People v. Castillo, which was held that the civil

obligation in a criminal case takes root in the criminal responsibility and therefore civil

liability is extinguished if accused should die before final judgment is rendered.

ISSUE

Whether or not the death of the accused pending appeal of his conviction

extinguished his civil liability

RULING

Yes.

The death of the accused pending appeal of his conviction extinguishes his civil

liability because the liability is based solely on the criminal act committed.

Corollarily, the claim for civil liability survives notwithstanding the death of the

accused, if the same may also be predicted as one source of obligation other than

delict.

Moreover, when a defendant dies before judgment becomes executory, there

cannot be any determination by final judgment whether or not the felony upon which

the civil action might arise exists, for the simple reason that there is no party defendant.

The Rules of Court state that a judgment in a criminal case becomes final after the

lapse of the period for perfecting an appeal or when the sentence has been partially

or totally satisfied or served, or the defendant has expressly waived in writing his right to

appeal. In addition, where the civil liability does not exist independently of the criminal

responsibility, the extinction of the latter by death, ipso facto extinguishes the former,

provided, of course, that death supervenes before final judgment. As in this case, the

right to institute a separate civil action is not reserved, the decision to be rendered

must, of necessity, cover both the criminal and the civil aspects of the case.' The

accused died before final judgment was rendered, thus, he is absolved of both his

criminal and civil liabilities based solely on delict or the crime committed.

Appeal dismissed.

COMMISSIONER OF INTERNAL REVENUE v. ACESITE (PHILIPPINES) HOTEL CORP.

G.R. No. 147295, February 16, 2007

Topic: Sources of Obligation

FACTS

Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along

United Nations Avenue in Manila. It leases 6,768.53 square meters of the hotel’s premises

to the PAGCOR for casino operations. It also caters food and beverages to PAGCOR’s

casino patrons through the hotel’s restaurant outlets. For the period January 1996 to

April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and

sale of food and beverages to PAGCOR during said period.

Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT

while the latter paid the VAT to the CIR as it feared the legal consequences of non-

payment of the tax. However, Acesite belatedly arrived at the conclusion that its

transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt

entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but

the latter failed to resolve the same.

ISSUE

Whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT to

entitle Acesite to zero percent VAT rate

RULING

Yes.

Tax refunds are based on the principle of quasi-contract or solutio indebiti and

the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil

Code, which provide, thus:

Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the

juridical relation of quasi-contract to the end that no one shall be unjustly

enriched or benefited at the expense of another.

Art. 2154. If something is received when there is no right to demand it, and

it was unduly delivered through mistake, the obligation to return it arises.

When money is paid to another under the influence of a mistake of fact, that is

to say, on the mistaken supposition of the existence of a specific fact, where it would

not have been known that the fact was otherwise, it may be recovered. The ground

upon which the right of recovery rests is that money paid through misapprehension of

facts belongs in equity and in good conscience to the person who paid it.

The Government comes within the scope of solutio indebiti principle as

elucidated in Commissioner of Internal Revenue v. Fireman’s Fund Insurance Company,

where we held that: "Enshrined in the basic legal principles is the time-honored doctrine

that no person shall unjustly enrich himself at the expense of another. It goes without

saying that the Government is not exempted from the application of this doctrine."

The BIR must release the refund to respondent without any unreasonable delay.

Indeed, fair dealing is expected by our taxpayers from the BIR and this duty demands

that the BIR should refund without any unreasonable delay what it has erroneously

collected.

BUNGE CORPORATION and UNIVERSAL COMMERCIAL AGENCIES v.

ELENA CAMENFORTE and COMPANY

G.R. No. L-4440 August 29, 1952

Topic: Effect of Loss

FACTS

Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract was

entered into between the Visayan Products Company and Bunge Corporation

whereby the former sold to the latter 500 long tons of merchantable Philippine copra in

bulk at the prices of $188.80, U.S. currency, per ton, less 1 per cent brokerage per short

ton of 2,000 pounds, C&F Pacific Coast, U.S.A.; that, according to the terms and

conditions of the contract, the vendor should ship the stipulated copra during the

month of November or December 1947, to San Francisco, California, U.S.A. for delivery

to the vendee.

Notwithstanding repeated demands made by the vendee, the vendor failed to

ship and deliver the copra during the period agreed upon; that believing in good faith

that the vendor would ship and deliver the copra on time, the vendee sold to El Dorado

Oil Works the quantity of copra it had purchased at the same price agreed upon; and

that because of the failure of the vendor to fulfill its contract to ship and deliver the

quantity of copra agreed upon within the period stipulated, the vendee has suffered

damages in the amount of P180,00.

Defendants answered separately the allegations set forth in the complaint and,

with the exception of Vicente Kho, denied that the Visayan Products Company has

ever entered into a contract of sale of copra with the plaintiffs, as mentioned in the

complaint.

ISSUE

Whether or not appellants are relieved from civil liability due to force majeure

RULING

No.

It appearing that the obligation of appellant is to deliver copra in a generic

sense, the obligation cannot be deemed extinguised by the destruction or

disappearance of the copra stored in San Ramon, Samar. Their obligation subsists as

long as that commodity is available. A generic obligation is not extinguished by the loss

of a thing belonging to a particular genus (Genus nunquan perit).

A perusal of the contract is necessary to see the feasibility of this contention. The

contract is embodied in Exhibit C. A perusal of this contract shows that the subject

matter is Philippine copra. The sale is to be made by weight, — 500 long tons. It does

not refer to any particular or specific lot of copra, nor does it mention the place where

the copra is to be acquired.

Having this view in mind, it is apparent that the copra which appellants claim to

have gathered and stored in a bodega at San Ramon, Samar, sometime in December,

1947, in fulfillment of their contract, and which they claim was later destroyed by storm,

in the supposition that the claim is true, cannot be deemed to be the one

contemplated in the contract.

SOCIAL SECURITY SYSTEM v. MOONWALK DEVELOPMENT & HOUSING CORPORATION

G.R. No. 73345. April 7, 1993.

Topic: Delay

FACTS

On February 20, 1980, the SSS filed a complaint against Moonwalk alleging that

the former had committed an error in failing to compute the 12% interest due on

delayed payments on the loan of Moonwalk — resulting in a chain of errors in the

application of payments made by Moonwalk and, in an unpaid balance on the

principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its

statement or account an unpaid balance on the said penalties for delayed payments

in the amount of P7,517,178.21 as of October 10, 1979.

The trial court issued an order dismissing the complaint on the ground that the

obligation was already extinguished by the payment by Moonwalk of its indebtedness

to SSS and by the latter's act of cancelling the real estate mortgages executed in its

favor by defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial

court was likewise dismissed by the latter.

ISSUE

Whether Moonwalk was in default in the performance of its obligation with SSS

RULING

No.

There are only three instances when demand is not necessary to render the

obligor in default. These are the following:

(1) When the obligation or the law expressly so declares;

(2) When from the nature and the circumstances of the obligation it appears

that the designation of the time when the thing is to be delivered or

the service is to be rendered was a controlling motive for the

establishment of the contract; or

(3) When the demand would be useless, as when the obligor has rendered it

beyond his power to perform.

This case does not fall within any of the established exceptions. Hence, despite

the provision in the promissory note that all amortization payments shall be made every

first 5 days of the calendar month until the principal and interest on the loan or any

portion thereof actually released has been fully paid, petitioner is not excused from

making a demand.

But mere delinquency in payment does not necessarily mean delay in the legal

concept. To be in default ". . . is different from mere delay in the grammatical sense,

because it involves the beginning of a special condition or status which has its own

peculiar effects or results." In order that the debtor may be in default it is necessary that

the following requisites be present: (1) that the obligation be demandable and already

liquidated; (2) that the debtor delays performance; and (3) that the creditor requires

the performance judicially and extrajudicially. Default generally begins from the

moment the creditor demands the performance of the obligation.

AEROSPACE CHEMICAL v. CA

G.R. No. 108129, September 23, 1999

Topic: Delay

FACTS

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased

five hundred (500) metric tons of sulfuric acid from private respondent Philippine

Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the

agreement provided that the buyer shall pay its purchases in equivalent Philippine

currency value, five days prior to the shipment date. Petitioner as buyer committed to

secure the means of transport to pick-up the purchases from private respondent's

loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be

taken from Basay, Negros Oriental storage tank, while the remaining four hundred

metric tons (400 MT) should be retrieved from Sangi, Cebu.

On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but

withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was

aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS)

Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these

occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank

with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel,

M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp.

28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the

petitioner, addressed letters to private respondent, concerning additional orders of

sulfuric acid to replace its sunken purchases.

ISSUE

Should expenses for the storage and preservation of the purchased fungible

goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil

Code?

RULING

No.

Article 1504 of the Civil Code clearly states:

"Unless otherwise agreed, the goods remain at the seller's risk until

the ownership therein is transferred to the buyer, but when the ownership

therein is transferred to the buyer the goods are at the buyer's risk whether

actual delivery has been made or not, except that: (2) Where actual

delivery has been delayed through the fault of either the buyer or seller

the goods are at the risk of the party at fault."

Petitioner tries to exempt itself from paying rental expenses and other damages

by arguing that expenses for the preservation of fungible goods must be assumed by

the seller. Rental expenses of storing sulfuric acid should be at private respondent's

account until ownership is transferred, according to petitioner. However, the general

rule that before delivery, the risk of loss is borne by the seller who is still the owner is not

applicable in this case because petitioner had incurred delay in the performance of its

obligation.

The defendant [herein private respondent] was not remiss in reminding the

plaintiff that it would have to bear the said expenses for failure to lift the commodity for

an unreasonable length of time. But even assuming that the plaintiff did not consent to

be so bound, the provisions of Civil Code come in to make it liable for the damages

sought by the defendant.

HEIRS OF LUIS BACUS v. COURT OF APPEALS, SPOUSES FAUSTINO DURAY AND VICTORIANA

DURAY

G.R.NO. 127695, DECEMBER 3, 2001

Topic: Delay

FACTS

On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel

of agricultural land in Talisay, Cebu for 6 years, ending May 31, 1990. The contract

contained an option to buy clause where the lessee had the exclusive and irrevocable

right to buy 2,000 square meters of the property within five (5) years from the year of the

effectivity of the contract at P200 per square meter the rate of which shall be

proportionately adjusted depending on the peso rate against the US dollar, which at

the time of the execution of the contract was P14.00. On March 15, 1990, the Duray

spouses signified their intention to Roque Bacus, one the decedent’s heirs, that they

were willing and ready to purchase the property under the option to buy clause. On

March 30, 1990, due to the heirs’ refusal to sell the property to the respondents, Duray’s

adverse claim was annotated by the Register of Deeds of Cebu. On April 5, 1990, Duray

filed a complaint for specific performance against the heirs of the decedent with the

Lupon Tagapamayapa of their barangay, asking that he be allowed to purchase the

land agreed upon in the contract with the decedent.

Having failed to come to an agreement, the private respondents filed a

complaint before the trial court, praying that the heirs: a) execute a deed of sale over

the subject property in favor of them; b) receive the payment of the purchase price;

and c) pay the damages.

Petitioners alleged that prior to the death of the decedent, respondents

conveyed to them their lack of interest to but the subject land for want of sufficient

funds. They even requested the respondents to pay in full the purchase price but the

respondents refused. On October 30, 1990, private respondents manifested in court that

they caused the issuance of a cashier’s check in the amount of P 650,000 payable too

petitioners at anytime upon demand.

On August 31, 1991, trail court rendered its decision, favoring the private

respondents. On appeal, the Court of appeals denied the motion of the petitioners.

Petitioners ratiocinated that they cannot be compelled to sell the disputed property by

virtue of the nonfulfillment of the obligation under the option contract of the private

respondents. Respondents argued that the petitioners are unclear if Rule 65 or 45 of the

Rules of Court govern their petition.

Further, that questions of fact, which were actually raised by the petitioners, cannot be

entertained by the Supreme Court in a petition for review. Nonetheless, if the claim

must be under Rule 45, the respondents opted to exercise their option to buy as

contained in the contract.

ISSUES

1. Whether or not when the respondents opted to buy the property, were they

already required to deliver the money or consign it in court before the execution of the

deed of transfer;

2. Whether or not the private respondents incurred in delay when they did not

deliver the purchase price or consign it in court or before the expiration of the contract

RULING

1. No.

The petitioners were not required to deliver the money or consign it in court.

Obligations under an option to buy are reciprocal obligations. The performance of one

obligation is conditioned on the simultaneous fulfillment of the other obligation. In an

option to buy, the payment of the purchase price by the creditor is contingent upon

the execution and delivery of a deed of sale by the debtor. In the case at bar, the

respondents were not yet obliged to make actual payment. Consequently, since the

obligation was not yet due, consignation in court of the purchase price was not yet

required.

2. No.

The private respondents did not incur delay when they did not deliver the

purchase price or consign it in court or before the expiration of the contract.

Consignation is the act of depositing the thing due with the court or judicial authorities

whenever the creditor cannot accept or refuses to accept payment and it requires a

prior tender of payment.

Petitioners’ contention that private respondents failed to comply with their

obligation under the option to buy because they failed to actually deliver the purchase

price or consign it in court before the contract expired is not tenable. Ergo, the private

respondents did not incur any delay when they did not yet deliver payment or make

consignation before the expiration of the contract. In reciprocal obligations, neither

party incurs delay if the other does not comply or is not ready to comply in a proper

manner with what is incumbent upon him. Only from the moment one of the parties

fulfills his obligation, does delay by the other begins.

In the case at bar, as early as March 15, 1990, respondents communicated with

the petitioners that they intended to exercise their exclusive right to buy the parcel of

land stipulated in the contract but which was not given due course by the petitioners

unless there is delivery of the sum of money.

As there was no compliance with what was incumbent upon the petitioners

under the option to but, private respondents had not incurred in delay when the

cashier’s check was issued even after the contract expired. The instant petition is

denied and the Court of Appeal’s decision is affirmed.

IGNACIO BARZAGA v. COURT OF APPEALS and ANGELITO ALVIAR

G.R. No. 115129, February 12, 1997

Topic: Delay

FACTS

Petitioner Ignacio Barzaga bought from the hardware store of respondent

Angelito Alviar construction materials for the niche of his wife scheduled for internment

on December 24, 1990. He paid for the materials purchased but the circumstances of

delivery with the specific date (December 22), time (8 A.M.), and place (Memorial

Cemetery, Dasmarinas) were not indicated in the invoice receipts but were verbally

acknowledged by the store attendant.

Respondent was not able to deliver the materials on the specified date and time

which resulted to the delay in the construction of the niche and consequently to the

delay in the internment of petitioners wife. The delay caused the inability of the

petitioner to accede to the dying wishes of his wife that she be buried on the 24th of the

month. She was buried 2 and ½ days later, after Christmas.

ISSUE

Whether or not the respondent is liable for damages due to his nonperformance

of his obligation to deliver the materials on the specified date and time

RULING

Yes, private respondent is liable for damages.

Respondent’s contention in the appellate court that he did not incur delay in the

performance of his obligation to deliver the thing sold to petitioner since the time of

delivery was not indicated in the invoice receipt covering the sale could not be

sustained in view of the positive verbal commitment of the respondent’s employee. It

was no longer necessary to indicate the time of delivery. Respondent was negligent

and incurred delay in the performance of his contractual obligations. Respondent had

no right to manipulate petitioner’s timetable and substitute it with his own.

Therefore, he is liable for moral damage for causing further anguish and pain,

and suffering to the family of petitioner especially during Christmas day, and for

exemplary damages for not performing his obligation under the business contract.

GENERAL MILLING CORPORATION v. Sps. LIBRADO RAMOS and REMEDIOS RAMOS

G.R. No. 193723, July 20, 2011

Topic: Delay

FACTS

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers

Contract with the spouses Ramos where GMC was to supply broiler chickens for the

spouses to raise on their land in Barangay Banaybanay, Lipa City, Batangas. It was

accompanied by a Deed of Real Estate Mortgage over a piece of real property.

The spouses Ramos eventually were unable to settle their account with GMC.

They alleged that they suffered business losses because of the negligence of GMC and

its violation of the Growers Contract.

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC

would institute foreclosure proceedings on their mortgaged property. On May 7, 1997,

GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the

property subject of the foreclosure was subsequently sold by public auction to GMC

after the required posting and publication. It was foreclosed for PhP 935,882,075, an

amount representing the losses on chicks and feeds exclusive of interest at 12% per

annum and attorney’s fees.

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or

Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. In its Answer,

GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the

Growers Contract. It argued that it was compelled to foreclose the mortgage because

of Spouses Ramos’ failure to pay their obligation.

The trial court ruled that the Deed of Real Estate Mortgage was valid even if its

term was not fixed. It held that the action of GMC in moving for the foreclosure of the

spouses’ properties was premature, because the latter’s obligation under their contract

was not yet due. The CA likewise found that GMC’s action against Spouses Ramos

was premature, as they were not in default when the action was filed on May 7, 1997.

GMC filed this Petition to the Supreme Court.

ISSUE

Was there sufficient demand to respondent spouses for the full payment of their

obligation?

RULING

None.

There are three requisites necessary for a finding of default. First, the obligation is

demandable and liquidated; second, the debtor delays performance; and third, the

creditor judicially or extrajudicially requires the debtor’s performance.

GMC did not make a demand on Spouses Ramos but merely requested them to

go to GMC’s office to discuss the settlement of their account. In spite of the lack of

demand made on the spouses, however, GMC proceeded with the foreclosure

proceedings. Neither was there any provision in the Deed of Real Estate Mortgage

allowing GMC to extrajudicially foreclose the mortgage without need of demand.

Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the

time the obligee judicially or extrajudicially demands from them the

fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in

order that delay may exist:

(1) When the obligation or the law expressly so declares;

x x x

As the contract in the instant case carries no such provision on demand not

being necessary for delay to exist, GMC should have first made a demand on the

spouses before proceeding to foreclose the real estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant

case:

The issue of whether demand was made before the foreclosure

was effected is essential. If demand was made and duly received by the

respondents and the latter still did not pay, then they were already in

default and foreclosure was proper. However, if demand was not made,

then the loans had not yet become due and demandable. This meant

that respondents had not defaulted in their payments and the foreclosure

by petitioner was premature. Foreclosure is valid only when the debtor is

in default in the payment of his obligation.

Petition is denied.

PHILIPPINE CHARTER INSURANCE CORPORATION v. CENTRAL COLLEGES OF

THE PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION

G.R. Nos. 180631-33, February 22, 2012

Topic: Delay

FACTS

On May 16, 2000, Central Colleges of the Philippines (CCP) contracted the

services of Dynamic Planners and Construction Corporation (DPCC) to be its general

contractor for the construction of its five (5)-storey school building. As embodied in a

Contract Agreement, the construction of the entire building would be done in two

phases. DPCC posted three (3) bonds all issued by the Philippine Charter Insurance

Corporation (PCIC). The Phase 1 of the project was completed without

issue. Thereafter, CCP paid DPCC P14,880,000.00 or 12% of the agreed price

of P124,000,000.00 with a check dated March 14, 2002 as downpayment for the Phase 2

of the project. The Phase 2 of the project, however, encountered numerous delays.

When CCP audited DPCC on July 25, 2003, only 47% of the work to be done was

actually finished.

Thus, in a letter dated October 29, 2003 addressed to DPCC and PCIC, CCP

informed them of the breach in the contract and its plan to claim on the construction

bonds. On November 6, 2003, CCP notified DPCC and PCIC that only 51% of the

project was completed, which was way behind the construction schedule, prompting it

to declare the occurrence of default against DPCC. It formally requested PCIC to remit

the proceeds of the bonds.

On November 14, 2003, DPCC wrote PCIC confirming the finding that Phase 2 was

only 51% finished and, at the same time, requesting for the extension of its performance

and surety bonds because the supposed revision of the plans would require more days.

In a letter dated November 21, 2003, CCP notified PCIC that because of DPCC’s

inability to complete the project on time, it decided to terminate its contract with the

latter and to continue the construction on its own.

Meanwhile, on December 5, 2003, PCIC informed DPCC that it had approved its

request for extension of the bonds.

Eventually, negotiations to continue on with the construction between CCP and

DPCC reached a dead end. CCP hired another contractor to work on the school site.

On August 13, 2004, CCP sent a letter to PCIC of its final demand for the payment

of P13,924,351.47 as indicated in the bonds.

On August 20, 2004, PCIC denied CCP’s claims against the three bonds.

On October 28, 2004, CCP filed a complaint with request for arbitration before the

Construction Industry Arbitration Commission (CIAC) against DPCC and PCIC. In their

Answer, DPCC and PCIC denied any liability and proffered that CCP unlawfully

withheld the materials, equipment, formworks and scaffoldings left at the premises

amounting to P4,232,264.12. On June 3, 2005, the CIAC rendered a decision in favor of

CCP.

All the parties appealed the CIAC decision to the CA. On June 29, 2007, the CA

modified CIAC’s earlier decision. The CA found that DPCC was already in delay for

managing to complete only 51% of the construction work necessary to finish the Phase

2 of the project. It held that due to DPCC’s inexcusable delay, CCP was legally within

its rights to terminate the contract with it. The CA, on appeal, however, deleted the

award of cost of the materials, equipment, formworks and scaffoldings allegedly left by

DPCC at the work site for its failure to prove the actual costs of said materials.

ISSUE

Whether DPCC is in default

RULING

Yes.

Article 1169 of the New Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially demands from

them the fulfillment of their obligation.

The civil law concept of delay or default commences from the time the obligor

demands, judicially or extrajudicially, the fulfillment of the obligation from the

obligee. In legal parlance, demand is the assertion of a legal or procedural right.

Hence, DPCC incurred delay from the time CCP called its attention that it had

breached the contract and extrajudicially demanded the fulfillment of its commitment

against the bonds.

It is the obligor’s culpable delay, not merely the time element, which gives the

obligee the right to seek the performance of the obligation. As such, CCP’s cause of

action accrued from the time that DPCC became in culpable delay as contemplated

in the surety and performance bonds. Thus, DPCC became in default on October 29,

2003 when CCP informed it in writing of the breach of the contract agreement and

demanded the fulfillment of its obligation against the bonds. Consequently,

the November 6, 2003 letter that CCP sent to PCIC properly complied with the notice of

claim requirement set forth in the said bonds.

Upon notice of default of obligor DPCC, PCIC’s liability, as surety, was already

attached. A surety under Article 2047 of the New Civil Code solidarily binds itself with

the principal debtor to assure the fulfillment of the obligation.

Having acted as a surety, PCIC is duty bound to perform what it has guaranteed

on its surety and performance bonds, all of which are callable on demand, occasioned

by its principal’s default.

LEGASPI OIL CO., INC. v. THE COURT OF APPEALS and BERNARD OSERAOS

G.R. No. 96505, July 1, 1993

Topic: Fraud

FACTS

Respondent Bernard Oseraos acting through his authorized agents, had several

transactions with appellee Legaspi Oil Co. for the sale of copra to the latter. The price

at which appellant sells the copra varies from time to time, depending on the prevailing

market price when the contract is entered into. One of his authorized agents, Jose

Llover, had previous transactions with appellee for the sale and delivery of copra.

On February 16, 1976, appellant's agent Jose Llover signed a contract for the

sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective

March 8, 1976. As compared to appellant's transaction on November 6, 1975, the

current price agreed upon is slightly higher than the last contract. In all these contracts

though, the selling price had always been stated as "total price" rather than per 100

kilos. However, the parties have understood the same to be per 100 kilos in their

previous transactions.

After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra

thus leaving a balance of 53,666 kilos as per running account card. Accordingly,

demands were made upon appellant to deliver the balance with a final warning

embodied in a letter dated October 6, 1976, that failure to deliver will mean

cancellation of the contract, the balance to be purchased at open market and the

price differential to be charged against appellant. On October 22, 1976, since there

was still no compliance, appellee exercised its option under the contract and

purchased the undelivered balance from the open market at the prevailing price of

P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of

P46,152.76 chargeable against appellant.

The petitioner then filed a complaint against private respondent for breach of a

contract and for damages. The trial court held Oseraos liable for damages amounting

to P48,152.76. The Appellate Court ordered the dismissal of the case on appeal.

Hence, the instant petition for review on certiorari.

ISSUE

Whether or not private respondent Oseraos is liable for damages arising from

fraud or bad faith in deliberately breaching the contract of sale entered into by the

parties

RULING

Yes.

The private respondent is guilty of fraud in the performance of his obligation

under the sales contract whereunder he bound himself to deliver to petitioner 100

metric tons of copra within twenty (20) days from March 8, 1976. However within the

delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving

an undelivered thus a balance of 53,666 kilograms. Petitioner made repeated demands

upon private respondent to comply with his contractual undertaking to deliver the

balance of 53,666 kilograms but private respondent elected to ignore the same.

In general, fraud may be defined as the voluntary execution of a wrongful act,

or a wilfull omission, knowing and intending the effects which naturally and necessarily

arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code of

the Philippines is the deliberate and intentional evasion of the normal fulfillment of

obligation; it is distinguished from negligence by the presence of deliberate intent,

which is lacking in the latter. The conduct of private respondent clearly manifests his

deliberate fraudulent intent to evade his contractual obligation for the price of copra

had in the meantime more than doubled from P82.00 to P168 per 100 kilograms.

Under Article 1170 of the Civil Code of the Philippines, 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. Pursuant to

said article, private respondent is liable for damages. In case of fraud, bad faith,

malice, or wanton attitude, the guilty party is liable for all damages, which may be

reasonably attributed to the non-performance of the obligation.

On account of private respondent's deliberate breach of his contractual

obligation, petitioner was compelled to buy the balance of 53,666 kilos of copra in the

open market at the then prevailing price of P168 per 100 kilograms thereby paying

P46,152.76 more than he would have paid had private respondent completed delivery

of the copra as agreed upon.

Thus, private respondent is liable to pay respondent the amount of P46,152.76 as

damages. Petition granted.

SOLIDBANK CORPORATION v. MINDANAO FERROALLOY CORPORATION

G.R. No. 153535. July 28, 2005

Topic: Fraud

FACTS

The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations,

namely, the Ssangyong Corporation, the Pohang Iron and Steel Company and the

Dongil Industries Company, Ltd., decided to forge a joint venture and establish a

corporation, under the name of the Mindanao Ferroalloy Corporation with principal

offices in Iligan City. Ricardo P. Guevara was the President and Chairman of the Board

of Directors of the Corporation. Jong-Won Hong, the General Manager of Ssangyong

Corporation, was the Vice-President of the Corporation for Finance, Marketing and

Administration. So was Teresita R. Cu. On November 26, 1990, the Board of Directors of

the Corporation approved a ‘Resolution’ authorizing its President and Chairman of the

Board of Directors or Teresita R. Cu, acting together with Jong-Won Hong, to secure an

omnibus line in the aggregate amount of P30,000,000.00 from the Solidbank.

In the meantime, the Corporation started its operations sometime in April, 1991.

Its indebtedness ballooned to P200,453,686.69 compared to its assets of

only P65,476,000.00. On May 21, 1991, the Corporation secured an ordinary time loan

from the Solidbank in the amount of P3,200,000.00. Another ordinary time loan was

granted by the Bank to the Corporation on May 28, 1991, in the amount

of P1,800,000.00 or in the total amount of P5,000,000.00, due on July 15 and 26, 1991,

respectively.

However, the Corporation and the Bank agreed to consolidate and, at the same

time, restructure the two (2) loan availments, the same payable on September 20,

1991. The Corporation executed ‘Promissory Note No. 96-91-00865-6’ in favor of the

Bank evidencing its loan in the amount of P5,160,000.00, payable on September 20,

1991. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure

the payment of the said loan, the Corporation, through Jong-Won Hong and Teresita

Cu, executed a ‘Deed of Assignment’ in favor of the Bank. The Corporation likewise

executed a ‘Quedan’, by way of additional security, under which the Corporation

bound and obliged to keep and hold, in trust for the Bank or its Order, ‘Ferrosilicon for

US$197,679.00’. Jong-Won Hong and Teresita Cu affixed their signatures thereon for the

Corporation. The Corporation, also, through Jong-Won Hong and Teresita Cu,

executed a ‘Trust Receipt Agreement’, by way of additional security for said loan.

However, shortly after the execution of the said deeds, the Corporation stopped

its operations. The Corporation failed to pay its loan availments from the Bank inclusive

of accrued interest. On February 11, 1992, the Bank sent a letter to the Corporation

demanding payment of its loan availments inclusive of interests due. The Corporation

failed to comply with the demand of the Bank. On November 23, 1992, the Bank sent

another letter to the [Corporation] demanding payment of its account which, by

November 23, 1992, had amounted to P7,283,913.33. The Corporation again failed to

comply with the demand of the Bank.

On January 6, 1993, the Bank filed a complaint against the Corporation with the

Regional Trial Court of Makati City, entitled and docketed as ‘Solidbank Corporation vs.

Mindanao Ferroalloy Corporation, Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil

Case No. 93-038’ for ‘Sum of Money’ with a plea for the issuance of a writ of preliminary

attachment.

In the interim, the Corporation filed, on June 20, 1994, a ‘Petition’, with the

Regional Trial Court of Iligan City, for ‘Voluntary Insolvency’. On December 10, 1999, the

Court rendered a Decision dismissing the complaint for lack of cause of action of

[petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo

Guevara.

Affirming the RTC, the appellate court ruled that the individual respondents were

not solidarily liable with the Mindanao Ferroalloy Corporation, because they had acted

merely as officers of the corporation, which was the real party in interest. They were

likewise held not liable to petitioner for damages, simply because (1) they had not

received the proceeds of the irrevocable Letter of Credit, which was the subject of the

Deed of Assignment; and (2) the goods subject of the Trust Receipt Agreement had

been found to be nonexistent. The appellate court took judicial notice of the practice

of banks and financing institutions to investigate, examine and assess all properties

offered by borrowers as collaterals, in order to determine the feasibility and advisability

of granting loans. Before agreeing to the consolidation of Minfaco’s loans, it presumed

that petitioner had done its homework.

ISSUE

Whether or not respondents committed fraud and misrepresentations and acted

in bad faith

RULING

No.

Fraud refers to all kinds of deception - whether through insidious machination,

manipulation, concealment or misrepresentation - that would lead an ordinarily

prudent person into error after taking the circumstances into account. In contracts, a

fraud known as dolo causante or causal fraud is basically a deception used by one

party prior to or simultaneous with the contract, in order to secure the consent of the

other. Needless to say, the deceit employed must be serious. In contradistinction, only

some particular or accident of the obligation is referred to by incidental fraud or dolo

incidente, or that which is not serious in character and without which the other party

would have entered into the contract anyway.

Fraud must be established by clear and convincing evidence; mere

preponderance of evidence is not adequate. Bad faith, on the other hand, imports a

dishonest purpose or some moral obliquity and conscious doing of a wrong, not simply

bad judgment or negligence. It is synonymous with fraud, in that it involves a design to

mislead or deceive another.

Petitioner contends that the corporation was used to protect the fraud foisted

upon it by the individual respondents. It argues that the CA failed to consider the

following badges of fraud and evident bad faith: 1) the individual respondents

misrepresented the corporation as solvent and financially capable of paying its loan; 2)

they knew that prices of ferrosilicon were declining in the world market when they

secured the loan in June 1991; 3) not a single centavo was paid for the loan; and 4) the

corporation suspended its operations shortly after the loan was granted.

Unfortunately, petitioner was unable to establish clearly and precisely how the

alleged fraud was committed. It failed to establish that it was deceived into granting

the loans because of respondents’ misrepresentations and/or insidious actions. Quite

the contrary, circumstances indicate the weakness of its submission.

First, petitioner does not deny that the P5 million loan represented the

consolidation of two loans,[31] granted long before the bank required the individual

respondents to execute the Promissory Note, Trust Receipt Agreement, Quedan or

Deed of Assignment. Hence, no words, acts or machinations arising from any of those

instruments could have been used by them prior to or simultaneous with the execution

of the contract, or even as some accident or particular of the obligation.

Second, petitioner bank was in a position to verify for itself the solvency and

trustworthiness of respondent corporation. In fact, ordinary business prudence required

it to do so before granting the multimillion loans. It is of common knowledge that, as a

matter of practice, banks conduct exhaustive investigations of the financial standing of

an applicant debtor, as well as appraisals of collaterals offered as securities for loans to

ensure their prompt and satisfactory payment. To uphold petitioner’s cry of fraud when

it failed to verify the existence of the goods covered by the Trust Receipt Agreement

and the Quedan is to condone its negligence.

PICART v. SMITH

37 PHIL 813

Topic: Negligence

FACTS

Plaintiff was riding on his pony across the bridge. Before he had gotten half-way

across, the defendant approached from the opposite direction in an automobile. As

the defendant neared the bridge, he saw the plaintiff and blew his horn to give

warning. The plaintiff heard the warning signal but instead of going to the let, he pulled

the pony closely up against the railing on the right side of the bridge. He averred that

he thought he did not have sufficient time to get over the other side. As the

automobile approached, the defendant guided it toward the plaintiff, without

diminution to speed, assuming the horseman would move to the other side. When he

had gotten quite near, there being no possibility o the horse getting across to the other

side, the defendant quickly turned his car sufficiently to the right to escape hitting the

horse. However, the horse was still hit and died while the rider was thrown off violently.

ISSUE

Whether the defendant was negligent in maneuvering his car giving rise to a civil

obligation

RULING

Yes.

The Court held that the control of the situation has shifted to the defendant

when the incident occurred. At first, he has the right to assume that the horse and rider

would pass over to the other side but as he moved to the center, it was demonstrated

that this would not be done. It was then his duty to bring his car to an immediate stop

or, seeing that there were no other persons on the bridge, to take the other side and

ass sufficiently far away from the horse to avoid the danger of collision. Instead of

doing this, the defendant ran straight on until he was almost upon the horse. When the

defendant exposed the horse and rider to this danger he was negligent in the eye of

the law.

Conduct is said to be negligent when a prudent man in the position of the

tortfeasor would have foreseen that an effect harmful to another was sufficiently

probable to warrant his foregoing the conduct or guarding against its consequences.

Applying this test to the conduct of the defendant, it is clear that negligence is

established. A prudent man, laced in the position o the defendant, would have

recognized that the course which he was pursuing was fraught with risk, and would

therefore have foreseen harm to the horse and rider as a reasonable consequence of

that course. Under these circumstances the law imposed on the defendant the duty to

guard against the threatened harm.

The plaintiff on the other hand was guilty of antecedent negligence in planting

himself on the wrong side o the road. The negligent acts of the two parties were not

contemporaneous, since the negligence of the defendant succeeded the negligence

of the plaintiff by an appreciable interval. Under these circumstances, the law is that

the person who has the last fair chance to avoid the impending harm and fails to do is

chargeable with the consequences, without reference to the prior negligence of the

other party.

In sum, though the plaintiff was guilty of negligence or being on the wrong side

of the bridge, the defendant was civilly liable as he had fair chance to avoid the

accident.