OBLIGATIONS AND CONTRACTS
2nd Semester 2020 - 2021
Atty. Norman Clarence Lasam
Monday: 6pm – 10pm
Tuesday: 6pm – 7pm
CASE 1
ORIENT FREIGHT INTERNATIONAL INC v. KEIHIN – EVERETT FORWARDING
COMPANY
GR no. 191937 / August 9, 2017
J. Leonen
Action: Petition for Review on Certiorari
Decision: Denied
Background:
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The Court of Appeals affirmed the decision of the Regional Trial Court. The Regional Trial Court
found that petitioner Orient Freight International’s negligence caused the cancellation of Keihin –
Everett Forwarding Company’s contract with Matsushita Communication Industrial Corporation
of the Philippines.
FACTS:
CONTRACT:
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Trucking Service Agreement between Keihin – Everett and Matsushita. (October 16, 2001)
AGREEMENT: Keihin – Everett would provide services for Matsushita’s trucking requirements.
Subcontracted by Keihin – Everett to Orient Freight. (Contract signed on the same day.)
After expiration of the contract on December 31, 2001, KE executed an In – House Brokerage
Service Agreement for Matsushita’s Philippine Economic Zone Authority export operations. Orient
Freight’s services were retained which sub-contracted its work to Schmitz Transport and Brokerage
Corporation.
CONTROVERSY:
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(2002) Matsushita called Keihin – Everetts’s Sales Manager Salud Rizada about a column written
in the newspaper ‘Tempo’ where it stated that there was an interception by the Caloocan City Police
of a stolen truck filled with shipment of video monitors and CCTV systems owned by Matsushita.
OF: The tabloid report had blown the incident out of the proportion. The incident simply involved
the breakdown and towing of the truck which was driven by Ricky Cudas and truck helper
Rubelito Aquino. The truck was promptly released and did not miss the closing time of the vessel
intended for the shipment.
KE ordered OF to investigate, but the latter reiterated that the truck MERELY BROKE DOWN
AND HAD TO BE TOWED.
During the shipment in Yokohama, Japan, it was discovered that 10 pallets of the shipment’s 218
cartons worth $34,226.14 were missing.
SEPARATE INVESTIGATION OF KE:
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KE obtained a police report from PNP Caloocan.
REPORT:
2pm on April 17, 2002 in Plaza Dilao, Paco Street, Manila, Cudas told Aquino to report engine
trouble to Orient Freight. After Aquino made the phone call, he informed Orient Freight that the
truck had gone missing. When the truck was intercepted by the police along C3 Road near the
corner of Dagat-Dagatan Avenue in Caloocan City, Cudas escaped and became the subject of a
manhunt.
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KE confronted OF, and the latter admitted that the previous report was erroneous.
CONTRACT:
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Matsushita terminated its In – House Brokerage Service Agreement with KE due to loss of
confidence.
M stated that KE’s way of handling the incident and the non-disclosure of this incident’s relevant
facts amounted to fraud and signified an utter disregard of the rule of law.
KE demanded P2.5M to OF as indemnity for lost of income. Argued that OF’s mishandling of the
situation caused the termination of KE’s contract with M.
OF refused to pay. Hence, KE filed a COMPLAINT FOR DAMAGES against OF in RTC
Manila. (Misrepresentation, malice, negligence, and fraud). Prayed for: compensation for lost of
income / with legal interest / exemplary damages / attorney’s fees / litigation expenses / and the
costs of the suit.
OF: The initial ruling of pilferage was in good faith. The contractual termination was a prerogative
of Matsushita.
In its own Audited Financial Statements filed with the Securities and Exchange Commission, KE
derived income substantially less than what it sued for.
OF asserted counterclaims for compensatory and exemplary damages, attorney’s fees, litigation
expenses, and the costs of the suit.
RTC:
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In favor of KE. Found that OF was negligent in failing to investigate properly the incident and
make a factual report to KE and M despite having enough time to properly investigate the incident.
The failure to exercise due diligence in disclosing facts to KE and M caused KE to suffer income
losses due to M’s cancellation of the contract.
Payment: P1,666,667.00 as actual damages representing net profit loss incurred / P50,000 in
attorney’s fees. Exemplary damages – DENIED. (The petitioner did not act with gross negligence)
OF APPEALED TO CA.
CA:
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Affirmed the decision of the RTC. Established that the damage suffered by KE and OF’s fault or
negligence.
RTC correctly arrived at the number of damages.
MR of OF denied.
CONTENTION/S:
OF:
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Applied the test in Far East Bank and Trust Company v. CA:
Failure to inform KE about the hijacking incident could not give rise to a quasi-delict since the
Trucking Service Agreement between the parties did not include this obligation. It argues that there
being no obligation under the Trucking Service Agreement to inform Keihin-Everett of the
hijacking incident, its report to Keihin-Everett was done in good faith and did not constitute
negligence. Its representations regarding the hijacking incident were a sound business judgment
and not a negligent act.
It reiterates that the pre-existing contractual relation between the parties should bar the application
of the principles of quasi-delict. Because of this, the terms and conditions of the contract between
the parties must be applied.
ISSUE:
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W/N Article 2176 is applicable in the case. No.
RULING:
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A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as
extra-contractual obligations, arise only between parties not otherwise bound by contract, whether
express or implied.
In situations where the contractual relation is indispensable to hold a party liable, there must be a
finding that the act or omission complained of was done in bad faith and in violation of Article 21
of the Civil Code to give rise to an action based on tort.
Negligence may either result in culpa aquiliana or culpa contractual. Culpa aquiliana is the "the
wrongful or negligent act or omission which creates a vinculum juris and gives rise to an obligation
between two persons not formally bound by any other obligation," and is governed by Article
2176 of the Civil Code:
Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter. Actions based on contractual negligence and actions based on quasidelicts differ in terms of conditions, defenses, and proof. They generally cannot co-exist.Once a
breach of contract is proved, the defendant is presumed negligent and must prove not being at fault.
In a quasi-delict, however, the complaining party has the burden of proving the other party's
negligence. However, there are instances when Article 2176 may apply even when there is a preexisting contractual relation. A party may still commit a tort or quasi-delict against another, despite
the existence of a contract between them.
Here, petitioner denies that it was obliged to disclose the facts regarding the hijacking incident
since this was not among the provisions of its Trucking Service Agreement with respondent. There
being no contractual obligation, respondent had no cause of action against petitioner.
The obligation to report what happened during the hijacking incident, admittedly, does not appear
on the plain text of the Trucking Service Agreement. Petitioner argues that it is nowhere in the
agreement. Respondent does not dispute this claim. Neither the Regional Trial Court nor the Court
of Appeals relied on the provisions of the Trucking Service Agreement to arrive at their respective
conclusions. Breach of the Trucking Service Agreement was neither alleged nor proved.
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While petitioner and respondent were contractually bound under the Trucking Service Agreement
and the events at the crux of this controversy occurred during the performance of this contract, it is
apparent that the duty to investigate and report arose subsequent to the Trucking Service
Agreement. When respondent discovered the news report on the hijacking incident, it contacted
petitioner, requesting information on the incident.Respondent then requested petitioner to
investigate and report on the veracity of the news report. Pursuant to respondent's request, petitioner
met with respondent and Matsushita on April 20, 2002 and issued a letter dated April 22, 2002,
addressed to Matsushita.Respondent's claim was based on petitioner's negligent conduct when it
was required to investigate and report on the incident.
TEST: The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be
stated thusly: Where, without a pre-existing contract between two parties, an act or omission can
nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound
is no bar to the application of quasi-delict provisions to the case. Here, private respondents' damage
claim is predicated solely on their contractual relationship; without such agreement, the act or
omission complained of cannot by itself be held to stand as a separate cause of action or as an
independent actionable tort.
Applying said test, assuming for the sake of argument that petitioner indeed failed to inform
respondent of the incident where the truck was later found at the Caloocan Police station, would an
independent action prosper based on such omission? Assuming that there is no contractual relation
between the parties herein, would petitioner's omission of not informing respondent that the truck
was impounded gives [sic] rise to a quasi-delict? Obviously not, because the obligation, if there is
any in the contract, that is to inform plaintiff of said incident, could have been spelled out in the
very contract itself duly executed by the parties herein specifically in the Trucking Service
Agreement. It is a fact that no such obligation or provision existed in the contract. Absent said terms
and obligations, applying the principles on tort as a cause for breaching a contract would therefore
miserably fail as the lower Court erroneously did in this case.
Both the Regional Trial Court and Court of Appeals erred in finding petitioner's negligence of its
obligation to report to be an action based on a quasi-delict Petitioner's negligence did not create
the vinculum juris or legal relationship with the respondent, which would have otherwise given rise
to a quasi-delict. Petitioner's duty to respondent existed prior to its negligent act. When respondent
contacted petitioner regarding the news report and asked it to investigate the incident, petitioner's
obligation was created. Thereafter, petitioner was alleged to have performed its obligation
negligently, causing damage to respondent.
The doctrine "the act that breaks the contract may also be a tort," on which the lower courts relied,
is inapplicable here. Petitioner's negligence, arising as it does from its performance of its obligation
to respondent, is dependent on this obligation. Neither do the facts show that Article 21 of the Civil
Code applies, there being no finding that petitioner's act was a conscious one to cause harm, or be
of such a degree as to approximate fraud or bad faith:
To be sure, there was inaction on the part of the defendant which caused damage to the plaintiff,
but there is nothing to show that the defendant intended to conceal the truth or to avoid liability.
When the facts became apparent to defendant, the latter readily apologized to Keihin and
Matsushita for their mistake
Consequently, Articles 1170, 1172, and 1173 of the Civil Code on negligence in the performance
of an obligation should apply.
CASE 2
THE WELLEX GROUP INC. v. KEIHIN – EVERETT FORWARDING COMPANY
GR no. 191937 / August 9, 2017
J. Leonen
DECISION: Denied.
TOPIC: Rescission as effect of fraud
For Article 1191 to be applicable, however, there must be reciprocal prestations as distinguished from
mutual obligations between or among the parties. A prestation is the object of an obligation, and it is the
conduct required by the parties to do or not to do, or to give. Parties may be mutually obligated to each
other, but the prestations of these obligations are not necessarily reciprocal. The reciprocal prestations must
necessarily emanate from the same cause that gave rise to the existence of the contract. This distinction is
best illustrated by an established authority in civil law, the late Arturo Tolentino:
This article applies only to reciprocal obligations. It has no application to every case where two persons are
mutually debtor and creditor of each other. There must be reciprocity between them. Both relations must
arise from the same cause, such that one obligation is correlative to the other.
Thus, a person may be the debtor of another by reason of an agency, and his creditor by reason of a loan.
They are mutually obligated, but the obligations are not reciprocal. Reciprocity arises from identity of
cause, and necessarily the two obligations are created at the same time.
Note:
Wellex is a corporation established under Philippine law and it maintains airline operations in the
Philippines. It owns shares of stock in several corporations including Air Philippines International
Corporation (APIC), Philippine Estates Corporation (PEC), and Express Savings Bank (ESB). Wellex
alleges that it owns all shares of stock of Air Philippines Corporation (APC).
U-Land Airlines Co. Ltd. (U-Land) "is a corporation duly organized and existing under the laws of
Taiwan, registered to do business in the Philippines." It is engaged in the business of air transportation in
Taiwan and in other Asian countries.
Note:
This case distinguished rescission under Art. 1191-“resolution” and rescission under Art. 1381, 1383 and
1384. When a party seeks the relief of rescission as provided in Article 1381, there is no need for reciprocal
prestations to exist between or among the parties. All that is required is that the contract should be among
those enumerated in Article 1381 for the contract to be considered rescissible. Unlike Article 1191,
rescission under Article 1381 must be a subsidiary action because of Article 1383.
FACTS:
Wellex and U-Land agreed to develop a long-term business relationship through the creation of joint interest
in airline operations and property development projects in the Philippines. The agreement includes:
I.
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III.
IV.
Acquisition of APIC and PEC shares;
Operation and management of APIC/PEC/APC;
Entering into and funding a joint development agreement;
The option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB")
up to 40% of the outstanding capital stock of ESB of U-Land. The provisions of the
memorandum were agreed to be executed within 40 days from its execution date.
The 40-day period lapsed but Wellex and U-Land were not able to enter into any share purchase agreement
although drafts were exchanged between the two. However, Despite the absence of a share purchase
agreement, U-Land remitted to Wellex a total of US$7,499,945.00. Wellex acknowledged the receipt of
these remittances in a confirmation letter addressed to U-Land and allegedly delivered stock certificates
and TCTs of subject properties. Despite these transactions, Wellex and U-Land still failed to enter into the
share purchase agreement and the joint development agreement. Thus, ULand filed a Complaint praying
for rescission of the First Memorandum of Agreement and damages against Wellex and for the issuance of
a Writ of Preliminary Attachment.Note: After verification with the Securities and Exchange Commission,
U-Land discovered that "APIC did not own a single share of stock in APC.
RTC: Ruled In favor of Uland and ordered rescission of contract under Art. 1911 of the civil code.
Basis of rescission:
Wellex’s misrepresentation that APIC was a majority shareholder of APC that compelled it to enter into
the agreement:
“Notwithstanding the said remittances, APIC does not own a single share of APC. On the other hand,
defendant could not even satisfactorily substantiate its claim that at least it had the intention to cause the
transfer of APC shares to APIC. Defendant obviously did not enter into the stipulated SPA because it did
not have the shares of APC transferred to APIC despite its representations. Under the circumstances, it is
clear that defendant fraudulently violated the provisions of the MOA.”
CA: Affirmed the ruling of the Regional Trial Court. Hence this petition.
NOTE:
Petitioners invokes Suria v. Intermediate Appellate Court, which held that an "action for rescission is not a
principal action that is retaliatory in character under Article 1191 of the Civil Code, but a subsidiary one
which is available only in the absence of any other legal remedy under Article 1384 of the Civil Code
Respondent U-land avers that this case was inapplicable because the pertinent provision in Suria was not
Article 1191 but rescission under Article 1383 of the Civil Code. The "rescission" referred to in Article
1191 referred to "resolution" of a contract due to a breach of a mutual obligation, while Article 1384 spoke
of "rescission" because of lesion and damage. Thus, the rescission that is relevant to the present case is that
of Article 1191, which involves breach in a reciprocal obligation. It is, in fact, resolution, and not rescission
as a result of fraud or lesion, as found in Articles 1381, 1383, and 1384 of the Civil Code.
ISSUE:
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W/N the respondent U-Land correctly sought the principal relief of rescission or resolution under
Article 1191.
RULING:
Yes. Respondent U-Land is praying for rescission or resolution under Article 1191, and not rescission under
Article 1381. The failure of one of the parties to comply with its reciprocal prestation allows the wronged
party to seek the remedy of Article 1191. The wronged party is entitled to rescission or resolution under
Article 1191, and even the payment of damages. It is a principal action precisely because it is a violation of
the original reciprocal prestation. Article 1381 and Article 1383, on the other hand, pertain to rescission
where creditors or even third persons not privy to the contract can file an action due to lesion or damage as
a result of the contract. Rescission or resolution under Article 1191, therefore, is a
principal action that is immediately available to the party at the time that the reciprocal prestation was
breached. Article 1383 mandating that rescission be deemed a subsidiary action cannot be applicable to
rescission or resolution under Article 1191. Thus, respondent U-Land correctly sought the principal relief
of rescission or resolution under Article 1191.
The order is valid. Enforcement of Section 9 of the First Memorandum of Agreement has the same effect
as rescission or resolution under Article 1191 of the Civil Code. The parties are obligated to return to each
other all that they may have received as a result of the breach by petitioner Wellex of the reciprocal
obligation. Therefore, the Court of Appeals did not err in affirming the rescission granted by the trial court.
RATIO:
Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the Civil Code. This
case does not involve prejudicial transactions affecting guardians, absentees, or fraud of creditors. Article
1381(3) pertains in particular to a series of fraudulent actions on the part of the debtor who is in the process
of transferring or alienating property that can be used to satisfy the obligation of the debtor to the creditor.
There is no allegation of fraud for purposes of evading obligations to other creditors. The actions of the
parties involving the terms of the First Memorandum of Agreement do not fall under any of the enumerated
contracts that may be subject of rescission. Further, respondent U-Land is pursuing rescission or resolution
under Article 1191, which is a principal action.
Justice J.B.L. Reyes’ concurring opinion in the landmark case of Universal Food Corporation v. Court of
Appeals gave a definitive explanation on the principal character of resolution under Article 1191 and the
subsidiary nature of actions under Article 1381:
The rescission on account of breach of stipulations is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties.
It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action
for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by
the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be
held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non
servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison detre as well as the measure of the
right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesión enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
Rescission or resolution under Article 1191, therefore, is a principal action that is immediately available to
the party at the time that the reciprocal prestation was breached. Article 1383 mandating that rescission be
deemed a subsidiary action cannot be applicable to rescission or resolution under Article 1191. Thus,
respondent U-Land correctly sought the principal relief of rescission or resolution under Article 1191.
The obligations of the parties gave rise to reciprocal prestations, which arose from the same cause: the
desire of both parties to enter into a share purchase agreement that would allow both parties to expand their
respective airline operations in the Philippines and other neighboring countries.
Other Matters:
1. The MOA is ambiguous. The parties were never able to arrive at a specific period within which they
would bind themselves to enter into an agreement.
2. There was no express or implied novation of the First Memorandum of Agreement. There was no
incompatibility between the original terms of the First Memorandum of Agreement and the remittances
made by respondent ULand for the shares of stock. These remittances were actually made with the view
that both parties would subsequently enter into a share purchase agreement. It is clear that there was no
subsequent agreement inconsistent with the provisions of the First Memorandum of Agreement. There
being no novation of the First Memorandum of Agreement, respondent U-Land is entitled to the return of
the amount it remitted to petitioner Wellex. Petitioner Wellex is likewise entitled to the return of the
certificates of shares of stock and titles of land it delivered to respondent U-Land.
3. Applying Article 1185 of the Civil Code, the parties are obligated to return to each other all they have
received. petitioner Wellex is obligated to return the remittances made by respondent U-Land, in the same
way that respondent U-Land is obligated to return the certificates of shares of stock and the land titles to
petitioner Wellex.
4. The jurisprudence relied upon by petitioner Wellex is not applicable.
5. Petitioner Wellex was not guilty of fraud but of violating Article 1159 of the Civil Code. The absence of
fraud in a transaction does not mean that rescission under Article 1191 is not proper. This case is not an
action to declare the First Memorandum of Agreement null and void due to fraud at the inception of the
contract or dolo causante. This case is not an action for fraud based on Article 1381 of the Civil Code.
Rescission or resolution under Article 1191 is predicated on the failure of one of the parties in a reciprocal
obligation to fulfill the prestation as required by that obligation. It is not based on vitiation of consent
through fraudulent misrepresentations.
6. Respondent U-Land was not bound to pay the US$3 million under the joint development agreement.
7. Respondent U-Land was not obligated to exhaust the "securities" given by petitioner Wellex
Provisions:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. 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.
Articles 1380 and 1381, on the other hand, provide an enumeration of rescissible contracts: ART. 1380.
Contracts validly agreed upon may be rescinded in the cases established by law. ART. 1381. The following
contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Article 1383 expressly provides for the subsidiary nature of rescission:
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. Rescission itself, however, is defined
by Article 1385:
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 shall 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.
CASE LAW/ DOCTRINE:
Rescission or resolution under Article 1191 is a principal action that is immediately available to the party
at the time that the reciprocal prestation was breached. Mutual restitution is required in cases involving
rescission under Article 1191. This means bringing the parties back to their original status prior to the
inception of the contract. Determining the existence of fraud is not necessary in an action for rescission or
resolution under Article 1191. The existence of fraud must be established if the rescission prayed for is the
rescission under Article 1381.
CASE 3
DM RAGASA ENTERPRISES, INC v. BDO
GR no. 190512 / June 20, 2018
J. Caguioa
FACTS:
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Ragasa and Equitable Banking Corporation entered into a Contract of Lease over the ground and
second floors of a commercial building for a period of five years, commencing on February 1, 1988
up to January 31, 2002, with a monthly rental of P122,607.00.
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Equitable bank emerged with Philippine Commercial International Bank thereby forming Equitable
PCI Bank Inc. and later on merged with BDO.
As a result of the merger, the bank closed and joined the branches of its banks which were in close
proximity to be practical.
One of the branches which had to be closed is the branch located in the subject premises.
The bank sent a notice informing Ragasa that they are pre-terminating their Lease Contract.
Ragasa responded with a demand letter for the payment of monthly rentals for the remaining term
of the Lease Contract from July 1, 2001 to January 31, 2003 totaling P3,146,596.42, because there
is no express provision in the Lease Contract allowing pre-termination.
The bank alleged that its only liability for pre-terminating the contract is the forfeiture of its security
deposit.
Later on, the bank vacated the subject premises without heeding Ragasa’s demand for payment.
Ragasa filed before RTC a Complaint for Collection of Sum of Money and Damages.
RTC: In favor of Ragasa; the bank may not unilaterally pre-terminate the Lease Contract; hence, it is still
liable to pay the rentals for the remaining duration of the said contract.
CA: Reversed the ruling of RTC; bank’s failure to continue the Lease Contract until its expiration
constituted a breach of its provision.
ISSUE:
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W/N there was a Breach of the Contract.
RULING:
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In the case at bar, there is no question that the bank breached the Lease Contract. When it served
upon Ragasa the Notice of Pre-termination effective June 30, 2001 and when it, indeed, vacated
the subject premises on said date, the bank, in effect, breached item 2 of the Lease Contract,
providing for a five – year term. It must be noted that the Lease Contract does not contain a pretermination clause.
Article 1170 of the Civil Code mandates that those who, in the performance of their obligations,
are guilty of fraud, negligence, or delay, and those who, in any manner contravene the tenor thereof,
are liable for damages.
If the lessor or the lessee should not comply with their obligations, the aggrieved party may ask for
either the rescission of the contract and indemnification for damages, or only the latter, allowing
the contract to remain in force.
In the present case, there is an express stipulation in item 8(p) of the Lease Contract that ‘breach or
non-compliance of any of the provisions of this contract especially non-payment of two consecutive
monthly rentals on time, shall mean the termination of this contract.
There is nothing wrong if the parties to the lease contract agreed on certain mandatory provisions
concerning their respective rights and obligations, such as the procurement of the insurance and
rescission clause.
To force either party to continue with a contract that is automatically terminated in case of its breach
by either party (pursuant to its express provision) is not in furtherance of or sanctioned by the
contract. Rather, it is a contravention thereof and it negates the autonomy characteristic of contracts.
On Ragasa’s claim to damages, lessee will be liable for damages equivalent to the rentals for the
duration of its possession from the termination of the lease until he vacates the premises.
CASE 4
CATHAY PACIFIC AIRWAYS v. REYES
GR no. 185891 / June 26, 2013
J. Perez
FACTS:
Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his family’s trip to Adelaide, Australia scheduled from 12 April 1997 to 4 May 1997.
Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was issued four
(4) Cathay Pacific round-trip airplane tickets for Manila-HongKong-Adelaide-HongKong-Manila.
On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes
(Michael) and mother-in-law Sixta Lapuz (Sixta), flew to Adelaide, Australia without a hitch.
One week before they were scheduled to fly back home, Wilfredo reconfirmed his family’s return flight
with the Cathay Pacific office in Adelaide. They were advised that the reservation was "still okay as
scheduled."
On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the airport on
time. When the airport check-in counter opened, Wilfredo was informed by a staff from Cathay Pacific that
the Reyeses did not have confirmed reservations, and only Sixta’s flight booking was confirmed.
Nevertheless, they were allowed to board the flight to HongKong due to adamant pleas from Wilfredo.
When they arrived in HongKong, they were again informed of the same problem. Unfortunately this time,
the Reyeses were not allowed to board because the flight to Manila was fully booked. Only Sixta was
allowed to proceed to Manila from HongKong. On the following day, the Reyeses were finally allowed to
board the next flight bound for Manila.
Upon arriving in the Philippines, Wilfredo went to Sampaguita Travel to report the incident. He was
informed by Sampaguita Travel that it was actually Cathay Pacific which cancelled their bookings.
ARGUMENT OF CATHAY:
Its refusal to honor the return flight bookings of respondents was due to the cancellation of one booking
and the two other bookings were not reflected on its computerized booking system because the said
bookings were purportedly made under the names of respondents through two (2) travel agencies,
namely: Sampaguita Travel and Rajah Travel Corporation thus appearing to be fictitious.
On the other hand, Sampaguita Travel, in its Answer, denied Cathay Pacific’s claim that it was the cause
of the cancellation of the bookings. Sampaguita Travel maintained that it made the necessary reservation
with Cathay Pacific for respondents’ trip to Adelaide. After getting confirmed bookings with Cathay
Pacific, Sampaguita Travel issued the corresponding tickets to respondents.
ISSUE:
• W/N the airline company and travel agency are liable to pay damages.
RULING:
Respondents’ cause of action against Cathay Pacific stemmed from a breach of contract of carriage. A
contract of carriage is defined as one whereby a certain person or association of persons obligate themselves
to transport persons, things, or news from one place to another for a fixed price. Under Article 1732 of the
Civil Code, this "persons, corporations, firms, or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to
the public" is called a common carrier.
[RE: Probative value of the ticket issued by Sampaguita Travel (Travel Agent)]
Respondents entered into a contract of carriage with Cathay Pacific. As far as respondents are concerned,
they were holding valid and confirmed airplane tickets. The ticket in itself is a valid written contract of
carriage whereby for a consideration, Cathay Pacific undertook to carry respondents in its airplane for a
round-trip flight from Manila to Adelaide, Australia and then back to Manila. In fact, Wilfredo called the
Cathay Pacific office in Adelaide one week before his return flight to re-confirm his booking. He was even
assured by a staff of Cathay Pacific that he does not need to reconfirm his booking.
[RE: Effect/s of the misunderstanding of Cathay and Travel Agent]
In its defense, Cathay Pacific posits that Wilfredo’s booking was cancelled because a ticket number was
not inputted by Sampaguita Travel, while bookings of Juanita and Michael were not honored for being
fictitious. Cathay Pacific clearly blames Sampaguita Travel for not finalizing the bookings for the
respondents’ return flights. Respondents are not privy to whatever misunderstanding and confusion that
may have transpired in their bookings. On its face, the airplane ticket is a valid written contract of carriage.
This Court has held that when an airline issues a ticket to a passenger confirmed on a particular flight, on a
certain date, a contract of carriage arises, and the passenger has every right to expect that he would fly on
that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of
carriage.
Cathay Pacific breached its contract of carriage with respondents when it disallowed them to board the
plane in Hong Kong going to Manila on the date reflected on their tickets. Thus, Cathay Pacific opened
itself to claims for compensatory, actual, moral and exemplary damages, attorney’s fees and costs of suit.
[RE: Contract entered between Respondents and the Travel Agency]
In contrast, the contractual relation between Sampaguita Travel and respondents is a contract for services.
The object of the contract is arranging and facilitating the latter’s booking and ticketing. It was even
Sampaguita Travel which issued the tickets.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a familyunder Article 1173 of the Civil Code. This connotes reasonable
care consistent with that which an ordinarily prudent person would have observed when confronted with a
similar situation. The test to determine whether negligence attended the performance of an obligation is:
did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is guilty of negligence.
There was indeed failure on the part of Sampaguita Travel to exercise due diligence in performing its
obligations under the contract of services. It was established by Cathay Pacific, through the generation of
the PNRs, that Sampaguita Travel failed to input the correct ticket number for Wilfredo’s ticket. Cathay
Pacific even asserted that Sampaguita Travel made two fictitious bookings for Juanita and Michael.
The negligence of Sampaguita Travel renders it also liable for damages.
[Issues regarding damages]
For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a reasonable
degree of certainty, premised upon competent proof and the best evidence obtainable by the injured party.
Wilfredo initially testified that he personally incurred losses amounting to ₱300,000.00 which represents
the amount of the contract that he was supposedly scheduled to sign had his return trip not been cancelled.
During the cross-examination however, it appears that the supposed contract-signing was a mere formality
and that an agreement had already been hatched beforehand. Hence, we cannot fathom how said contract
did not materialize because of Wilfredo’s absence, and how Wilfredo incurred such losses when he himself
admitted that he entered into said contract on behalf of Parsons Engineering Consulting Firm, where he
worked as construction manager. Thus, if indeed there were losses, these were losses suffered by the
company and not by Wilfredo. Moreover, he did not present any documentary evidence, such as the actual
contract or affidavits from any of the parties to said contract, to substantiate his claim of losses. With respect
to the remaining passengers, they likewise failed to present proof of the actual losses they suffered.
An award of moral damages, in breaches of contract, is in order upon a showing that the defendant acted
fraudulently or in bad faith.
In the instant case, it was proven by Cathay Pacific that first, it extended all possible accommodations to
respondents. "what may be attributed to x xx Cathay Pacific is negligence concerning the lapses in their
process of confirming passenger bookings and reservations, done through travel agencies. But this
negligence is not so gross so as to amount to bad faith." Cathay Pacific was not motivated by malice or bad
faith in not allowing respondents to board on their return flight to Manila.
Likewise, Sampaguita Travel cannot be held liable for moral damages. True, Sampaguita Travel was
negligent in the conduct of its booking and ticketing which resulted in the cancellation of flights. But its
actions were not proven to have been tainted with malice or bad faith.
With respect to attorney’s fees, we uphold the appellate court’s finding on lack of factual and legal
justification to award attorney’s fees.
We however sustain the award of nominal damages in the amount of ₱25,000.00 to only three of the four
respondents who were aggrieved by the last-minute cancellation of their flights. Nominal damages are
recoverable where a legal right is technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind or where there has been a breach of contract and no substantial
injury or actual damages whatsoever have been or can be shown.
CASE 5
CRUZ v. CRUZ
GR no. 173291 / September 1, 2010
J. Carpio
Action: Petition for review of CA.
Decision: Granted.
FACTS:
•
•
•
•
•
•
•
•
Memoracion Cruz (deceased) acquired a parcel of land at Tabora, Obrero, Tondo, Manila.
The lot was registered under her name under TCT no. 63467 at the Register of Deeds of Manila.
Memoracion discovered that the title of the property was transferred by appellee and the latter’s
wife in their names under TCT no. 0 – 199377 by virtue of a Deed of Sale.
The said deed was executed through fraud, forgery, misrepresentation, and simulation.
Memoracion with her husband Architect Guido Cruz and relatives asked Oswaldo to settle the
problem. Despite the pleas and demands, appellee refused to reconvey to her the property.
Memoracion filed a complaint in the barangay for a jurisdiction over the property. It was elevated
to the court.
After the presentation of evidence, Memoracion died.
Oswaldo filed a Motion to Dismiss due to: 1) The plaintiff’s reconveyance action is a personal
action which does not survive a party’s death; 2) To allow the case to continue would result in legal
absurdity whereby one heir is representing the defendant co – plaintiff in the case.
RTC: Dismissed.
Edgardo Cruz, son – heir, retained the services of Atty. Roberto Neri. Neri filed an MR. DENIED.
Edgardo filed a Notice of Appeal on behalf of Memoracion signed by Neri. DISMISSED.
Edgardo filed an MR. DENIED.
CA: RTC’s decision, AFFIRMED with MODIFICATION.
ISSUE:
•
W/N the Petition for Annulment of Deed of Sale, Reconveyance, and Damages are a personal action
which did not survive the death of petitioner.
RULING:
•
•
•
Bonilla v. Barcena:
The question as to whether an action survives or not depends on the nature of the action and the
damage sued for. In the causes of action which survive, the wrong complained [of] affects primarily
and principally property and property rights, the injuries to the person being merely incidental,
while in the causes of action which do not survive, the injury complained of is to the person, the
property and rights of property affected being incidental.8
If the case affects primarily and principally property and property rights, then it survives the death
of the plaintiff or petitioner. In Sumaljag v. Literato,9 we held that a Petition for Declaration of
•
•
•
•
•
•
•
•
•
Nullity of Deed of Sale of Real Property is one relating to property and property rights, and
therefore, survives the death of the petitioner. Accordingly, the instant case for annulment of sale
of real property merits survival despite the death of petitioner Memoracion Z. Cruz.
When a party dies during the pendency of a case, Section 16, Rule 3 of the 1997 Revised Rules of
Civil Procedure necessarily applies, viz:
Sec. 16. Death of party; duty of counsel. - Whenever a party to a pending action dies, and the claim
is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30)
days after such death of the fact thereof, and to give the name and address of his legal representative
or representatives. Failure of counsel to comply with this duty shall be a ground for disciplinary
action.
The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the
minor heirs.
The court shall forthwith order said legal representative or representatives to appear and be
substituted within a period of thirty (30) days from notice.
If no legal representative is named by the counsel for the deceased party, or if the one so named
shall fail to appear within the specified period, the court may order the opposing party, within a
specified time, to procure the appointment of an executor or administrator for the estate of the
deceased and the latter shall immediately appear for and on behalf of the deceased. The court
charges in procuring such appointment, if defrayed by the opposing party, may be recovered as
costs.
The foregoing section is a revision of Section 17, Rule 3 of the old Rules of Court:
SEC. 17. Death of party. - After a party dies and the claim is not thereby extinguished, the court
shall order, upon proper notice, the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or within such time as may be
granted. If the legal representative fails to appear within said time, the court may order the opposing
party to procure the appointment of a legal representative of the deceased within a time to be
specified by the court, and the representative shall immediately appear for and on behalf of the
interest of the deceased. The court charges involved in procuring such appointment, if defrayed by
the opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be
substituted for the deceased, without requiring the appointment of an executor or administrator and
the court may appoint guardian ad litem for the minor heirs.
If the action survives despite death of a party, it is the duty of the deceased’s counsel to inform the
court of such death, and to give the names and addresses of the deceased’s legal representatives.
The deceased may be substituted by his heirs in the pending action. As explained in Bonilla:
x x x Article 777 of the Civil Code provides "that the rights to the succession are transmitted from
the moment of the death of the decedent." From the moment of the death of the decedent, the heirs
become the absolute owners of his property, subject to the rights and obligations of the decedent,
and they cannot be deprived of their rights thereto except by the methods provided for by law. The
moment of death is the determining factor when the heirs acquire a definite right to the inheritance
whether such right be pure or contingent. The right of the heirs to the property of the deceased vests
in them even before judicial declaration of their being heirs in the testate or intestate proceedings.
When [plaintiff], therefore, died[,] her claim or right to the parcels of land x x x was not
extinguished by her death but was transmitted to her heirs upon her death. Her heirs have thus
acquired interest in the properties in litigation and became parties in interest in the case. There is,
therefore, no reason for the respondent Court not to allow their substitution as parties in interest for
the deceased plaintiff.
CASE 6
DKC HOLDINGS v. CA
GR no. 118248 / April 5, 2000
J. Ynares – Santiago
FACTS:
The subject of the controversy is a 14,021 square meter parcel of land located in Valenzuela, which was
originally owned by private respondent Victor U. Bartolome’s deceased mother, Encarnacion Bartolome,
under TCT No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one
of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site. On March
16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome,
whereby petitioner was given the option to lease or lease with purchase the subject land, which option must
be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner
undertook to pay P3,000 a month as consideration for the reservation of its option. Within the two-year
period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to
exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take
actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable
for another six years, and the monthly rental fee shall be P15,000 for the first six years and P18,000 for the
next six years, in case of renewal.
Petitioner regularly paid the monthly P3,000 provided for by the Contract to Encarnacion until her death in
January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the
sole heir of Encarnacion. Victor, however, refused to accept these payments. Meanwhile, on January 10,
1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion,
including the subject lot. Accordingly, respondent Register of Deeds cancelled TCT No. B-37615 and
issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its
option to lease the property, tendering the amount of P15,000 as rent for the month of March. Again, Victor
refused to accept the tendered rental fee and to surrender possession of the property to petitioner.
On April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and
the Register of Deeds. Petitioner prayed for the surrender and delivery of possession of the subject land in
accordance with the Contract terms; the surrender of title for registration and annotation thereon of the
Contract. RTC dismissed the complaint.
ISSUE:
•
W/N the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with
petitioner was terminated upon her death and does not bind her sole heir, Victor, even after her
demise.
RULING:
No, under both Article 1311 of the Civil Code and jurisprudence, the legal heir, Victor, is bound by the
subject Contract of Lease with Option to Buy executed by his predecessor-in-interest, Encarnacion. It is
futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his
deceased mother. He only succeeds to what rights his mother had and what is valid and binding against
her is also valid and binding as against him. The general rule is that heirs are bound by contracts
entered into by their predecessors-in-interest except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.
The nature of untransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:
"Among contracts which are untransmissible are those which are purely personal, either by provision of
law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom,
such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for
the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his
estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs,
and the lawyer, instead of presenting his claim for professional services under the contract to the probate
court, substituted the minors as parties for his client, it was held that the contract could not be enforced
against the minors; the lawyer was limited to a recovery on the basis of quantum meruit."
It has also been held that a good measure for determining whether a contract terminates upon the death of
one of the parties is whether it is of such a character that it may be performed by the promissor’s personal
representative. Contracts to perform personal acts which cannot be as well performed by others are
discharged by the death of the promissor. Conversely, where the service or act is of such a character
that it may as well be performed by another, or where the contract, by its terms, shows that
performance by others was contemplated, death does not terminate the contract or excuse
nonperformance.
In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the
exercise by the latter of its option to lease the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." In 1952, it
was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the
reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance.
This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered
into by their predecessor-in-interest because they have inherited the property subject to the liability
affecting their common ancestor.
In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death
of a party does not excuse nonperformance of a contract which involves a property right, and the
rights and obligations thereunder pass to the personal representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party when the other party has a property interest in
the subject matter of the contract.
CASE 7
VILLAMAR v. MANGAOIL
GR no. 188661 / April 11, 2012
J. Reyes
FACTS:
Estelita Villamar sold a property in San Francisco, Manuel, Isabela, with Balbino Mangaoil. Their deed of
sale indicated that ₱185,000 of the total price will be paid to the loan secured with Rural Bank of Cauyan
for the payment of the mortgages in favor of Romeo Lacaden and Florante Parangan. Villamor failed to
give the title to Mangaoil; the latter also informed the former that he was backing out from the sale agreed,
giving as one of the reasons that the area was not yet fully cleared by encumbrances as there are tenants
who are not willing to vacate the land without giving them back the amount that they mortgaged the land.
Mangaoil demanded refund of his ₱185,000.00 down payment, but Villamar refused. Hence, Mangaoil filed
a complaint of rescission of contract against Villamar. The latter argued that the execution of public
instrument amounted to delivery. RTC ruled in favour of Mangaoil. Dissatisfied, Villamar appealed but it
CA ruled also in favour of Mangaoil.
ISSUE:
•
W/N Villamar’s failure to deliver to the respondent the physical possession of the property amount
to substantial breach.
RULING:
Yes. Article 1498 of the NCC generally considers the execution of a public instrument as constructive
delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however,
falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is
created as the respondent failed to take material possession of the subject property.
Further, even if we were to assume for argument's sake that the agreement entered into by the contending
parties does not require the delivery of the physical possession of the subject property from the mortgagors
to the respondent, still, the petitioner's claim that her execution of an absolute deed of sale was already
sufficient as it already amounted to a constructive delivery of the thing sold which
Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor General, we held:
When the sale of real property is made in a public instrument, the execution thereof is equivalent
to the delivery of the thing object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred.1âwphi1
In other words, there is symbolic delivery of the property subject of the sale by the execution of the
public instrument, unless from the express terms of the instrument, or by clear inference therefrom,
this was not the intention of the parties. Such would be the case, for instance, x x x where the vendor
has no control over the thing sold at the moment of the sale, and, therefore, its material delivery
could not have been made.
Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery
of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive
and not conclusive delivery is created in cases where the buyer fails to take material possession of the
subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument.
In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the
possession of the subject property due to the continued presence and occupation of Parangan and Lacaden.
We find no ample reason to reverse the said findings. Considered in the light of either the agreement entered
into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking to deliver the
subject property to the respondent.
CASE 8
SONG FO & COMPANY v. HAWAIIAN PHILIPPINE CO.
GR no. 23769 / SEPTEMBER 16, 1925
J. MALCOM
Decision: Modified
FACTS:
•
•
•
Song Fo & Company presented a complaint with two causes of action for breach of contract against
Hawaiian – Philippine Co.
Both companies agreed to deliver 300,000 gallons of molasses (January, February, March). Song
Fo asked for another 100,000 supply of molasses. Payment must be at the end of each month.
HAWAIIAN: Corrected that it was Song Heng who visited. Song Fo defaulted in the payment for
the molasses delivered under the contract between the parties, the latter was compelled to cancel
and rescind the contract.
ISSUE:
•
W/N the respondent had the right to rescind the contract of sale made with Song Fo & Company.
No.
RULING:
•
•
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the
contract should be treated as of the essence of the contract. Theoretically, agreeable to certain
conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right
to rescind the contract because of the breach of Song Fo & Company. But actually, there is here
present no outstanding fact which would legally sanction the rescission of the contract by the
Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract,
but only for such breaches as are so substantial and fundamental as to defeat the object of the parties
in making the agreement. A delay in payment for a small quantity of molasses for some twenty
days is not such a violation of an essential condition of the contract was warrants rescission for
non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it
arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter,
•
Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in
reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes &
Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of
Song Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain
the finding of the trial judge in this respect.
CASE 9
VELARDE v. CA
GR no. 108346 / July 11, 2001
J. Panganiban
FACTS:
•
David Raymundo (respondent) is the absolute and registered owner of a parcel of land, together
with the house and other improvements, which was under mortgage.
•
Raymundo’s father negotiated with Avelina and Mariano Velarde (petitioners) for the sale of
the parcel of land, and A Deed of Sale with Assumption of Mortgage was executed in favor of
the Velardes.
•
Part of the consideration of the sale was the downpayment of P800,000 and the Velardes
assumption to pay the mortgage obligations of the property in the amount of 1,800,000.00 in
favor of the Bank of the Philippine Islands.
•
And while their application for the assumption of the mortgage obligations is not yet approved by
the mortgagee bank, they agreed to pay the mortgage obligations on the property with the bank
in the name of Mr. David Raymundo.
•
It was further stated in an undertaking agreement that “in the event that the Velardes violate any
of the terms and conditions of the said Deed of Assumption of Mortgage, they agree that
the downpayment of P800,000.00, plus all the payments made with the BPI on the mortgage
loan, shall be forfeited in Favor of Mr. Raymundo, as and by way of liquidated damages, w/out
necessity of notice or any judicial declaration to that effect, and Mr. Raymundo shall resume
total and complete ownership and possession of the property, and the sale shall be deemed
automatically cancelled”, signed by the Velardes.
•
Pursuant to said agreements, the Velardes paid BPI the monthly interest loan for three months
but stopped in paying the mortgage when informed that their application for the assumption of
mortgage was not approved.
Raymundo wrote the Velardes, informing them that their non-payment to the mortgagee bank
constituted non-performance of their obligation.
The Velardes responded and advised the vendor that they were willing to pay provided that Mr. Raymundo:
(1) delivers actual possession of the property to them not later than January 15, 1987 for their occupancy
(2) causes the release of title and mortgage from the BPI and make the title available and free from any
liens and encumbrances
(3) executes an absolute deed of sale in their favor free from any liens and encumbrances not later than Jan.
21, 1987.
Raymundo sent the Velardes a notarial notice of cancellation/recission of the intended sale of the subject
property, due to the latter’s of the subject property allegedly due to the latter’s failure to comply with the
terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking agreement
Consequently, the Velardes filed a complaint against Raymundo for specific performance, nullity of
cancellation, writ of possession and damages.
RTC: Dismissed the complaint of the Velardes against Raymundo.
MR: Granted. (different judge, because the initial RTC judge got promoted to the CA)
The court instructed the Velardes to pay the balance of P 1.8 million to Mr. Reymundo who, in turn executed
a deed of absolute sale and surrendered the disputed property to the Velardes.
CA: Set aside the MR and reinstated the RTC decision, upholiding the validity of the rescission made
by Reymundo.
ISSUE:
•
W/N the rescission of contract made by Reymundo is valid. Yes.
RULING:
There is a breach of contract because the Velardes did not merely stop paying the mortgage obligations
but they also failed to pay the balance purchase price. (1,800,000)
Their conditional offer by the Velardes cannot take the place of actual payment as would discharge the
obligation of the buyer under contract of sale.
Mr. Raymundo’s source of right to rescind the contract is Art. 1191 of the Civil Code predicated on a
breach of faith by the other party who violates the reciprocity between them. Moreover, the new
obligations as preconditions to the performance of the Velardes own obligation were repudiation of an
existing obligation, which was legally due and demandable under the contract of sale.
The breach committed by the Velardes was the non-performance of a reciprocal obligation. The mutual
restitution is required to bring back the parties to their original situation prior to the inception of the contract.
The initial payment and the mortgage payments advanced by Velarde should be returned by private
respondents, lest the latter unjustly enriched at the expense of the other. Rescission creates the obligation
to return the obligation of contract. To rescind, is to declare a contract void at its inception and to put an
end to it as though it never was.
The decision of the CA is affirmed with modification that Reymundo is ordered to return to Velarde, the
amount they have received in advanced payment.
CASE 10
WOODHOUSE v. HALILI
GR no. L – 4811 / July 31, 1953
J. Labrador
PETITIONER: Charles Woodhouse
RESPONDENT: Fortunato Halili
SUMMARY: Woodhouse entered into a written agreement with Halili that a partnership shall be organized
for the bottling and distribution of Mission soft drinks. Halili would finance while Woodhouse would secure
an exclusive franchise with Mission Dry corporation. Woodhouse was only able to secure a temporary 30
day option for exclusive franchise and thus, Halili would not execute the partnership agreement claiming
that Woodhouse’s misrepresentation of an exclusive franchise annuls the agreement between them. SC held
that there was misrepresentation on Woodhouse’s part but this was not the principal consideration which
induced Halili to enter into a partnership.
DOCTRINE:
Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party
who employs it liable for damages. This Court had held that in order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the
contract.
FACTS:
1. Woodhouse entered into a written agreement with Halili stating among others that: 1) that they shall
organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary
therefore; 2) that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net profits of the business.
2. Before the partnership was actually established the Halili required Woodhouse to secure an exclusive
franchise for the said venture.
3. The plaintiff sought to obtain the said exclusive franchise but was only given a temporary one, "a 30
days" option on exclusive bottling and distribution rights for the Philippines".
4. The parties signed the agreement before they went to the US. In the US, a formal franchise agreement
was entered into the Mission Dry Corp. and Halili and/or Woodhouse, which granted defendant the
exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the
Philippines.
5. The defendant then found out about the temporary franchise right given to the plaintiff, different from
the exclusive franchise rights they stipulated in their contract.
6. When the bottling plant was already in operation, plaintiff demanded that the partnership papers be
executed. Defendant Halili gave excuses and would not execute said agreement, thus the complaint by
the plaintiff
7. Plaintiff prays for the: 1) execution of the contract of partnership; 2) accounting of profits and 3)share
thereof of 30 percent.
8. The Defendant on the other hand claims that: 1) the defendant’s consent to the agreement, was secured
by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false,and that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so.
9. CFI ruling: 1)accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution of
contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved.
ISSUE/S:
1. W/N plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages – YES
2. W/N false representation, if it existed, annuls the agreement to form the partnership-NO
RULING:
Judgment appealed from AFFIRMED with MODIFICATIONS
RATIO:
1.
Plaintiff did make false representations and this can be seen through his letters to Mission Dry
Corporation asking for the latter to grant him temporary franchise so that he could settle the agreement with
defendant. The defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive
franchise.
2.
The immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, plaintiff’s participation in the net profits to one half of that agreed upon.
Also, he would not have gone to Cali and incurred expenses for the trip if he believed that there is no
exclusive privilege.
3.
Fraud was undoubtedly employed by the plaintiff to secure the consent of the defendant to enter
into the contract with him by representing himself as holder of exclusive franchise rights when in fact he
only holds a temporary franchise right good for 30 days.
4.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The
original draft prepared by defendant’s counsel was to the effect that plaintiff obligated himself to secure a
franchise for the defendant.
5.
The fraud employed, however was not such as to render the contract null and void but only such as
to hold the plaintiff liable for damages. Such false representation was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership agreement. On the other hand, this
supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership
6.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed ? SC finds no merit in the claim of plaintiff that the partnership was
already a fait accompli from the time of the operation of the plant, as it is evident from the very language
of the agreement that the parties intended that the execution of the agreement to form a partnership was to
be carried out at a later date. The defendant may not be compelled against his will to carry out the agreement
nor execute the partnership papers. The law recognizes the individual’s freedom or liberty to do an act he
has promised to do, or not to do it, as he pleases."
CASE 11
GUTIERREZ v. GUTIERREZ
GR no. 34840 / SEPTEMBER 23, 1931
J. MALCOLM
Decision: Modified
FACTS:
•
•
•
A passenger truck and an automobile of private ownership collided while attempting to pass each
other on a bridge.
The truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnine Cortez. The
automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by
Bonifacio’s father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the
father was not in the car, but the mother, together with several other members of the Gutierrez
family were accommodated therein.
The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured
right leg which required medical attendance for a considerable period of time.
ISSUE:
•
W/N both the driver of the truck and automobile are liable for damages and indemnification due
to their negligence.
RULING:
•
•
•
•
Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand, Saturnino
Cortez’s and his chauffeur Abelardo Velasco’s obligation rise from culpa contractual.
The youth Bonifacio was an incompetent chauffeur, that he was driving at an excessive rate of
speed, and that, on approaching the bridge and the truck, he lost his head and so contributed by his
negligence to the accident. The guaranty given by the father at the time the son was granted a
license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of Art. 1903 of the Civil Code, the father alone and not the minor
or the mother would be liable for the damages caused by the minor.
In the United States, it is uniformly held that the head of a house, the owner of an automobile, who
maintains it for the general use of his family is liable for its negligent operation by one of his
children, whom he designates or permits to run it, where the car is occupied and being used at the
time of the injury for the pleasure of other members of the owner's family than the child driving
it. The theory of the law is that the running of the machine by a child to carry other members of
the family is within the scope of the owner's business, so that he is liable for the negligence of the
child because of the relationship of master and servant.
The liability of Saturnino Cortez, the owner of the truck, and his chauffeur Abelardo Velasco rests
on a different basis, namely, that of contract.
CASE 12
VASQUEZ v. DE BORJA
GR no. L – 48930 / February 23, 1944
J. Ozaeta
Decision: Dismissed
Background: Francisco De Borja to recover P4,702.70 to Antonio Vasquez and Fernando Busuego.
FACTS:
•
•
•
•
•
•
•
January 1932: Defendants sold 4,000 cavans of palay for P2.10 / cavan to Vasquez which would
be delivered on February 1932.
After receiving the payment of P8,400, only 2,488 cavans of palay were delivered which was worth
P5,224.80 only.
The respondents refused to deliver the 1,512 cavans of the value of P3,175.20.
Due to the refusal to deliver the cavans of palay, the petitioner suffered damages amounting to
P1,000.
On account of the agreement, the defendants returned 2,490 and refused to deliver the 1,510 sacks
or to pay their value amounting to P377.50. In that refusal, the plaintiff suffered damages in the
sum of P150.
Vasquez denied that there was a contract entered. Said that the purchase of 4,000 cavans of palay
and the payment of P8,400 were not made to the Natividad – Vasquez Sabani Development Co.
Inc. (Vasquez was the acting manager)
Respondent alleged that he suffered damages in the amount of P1,000 due to the action of the
petitioner.
RTC: Ordered respondent to pay the petitioner P3,175.20 + P377.50 with legal interest in both sums, and
absolved Busuego (treasurer) from the complaint.
CA: Modified the judgment by reducing it to P3,314.78 with legal interest.
VASQUEZ FILED A PETITION FOR CERTIORARI.
ISSUE:
•
W/N the petitioner entered into the contract with the respondent in his personal capacity or as a
manager of the Natividad – Vasquez Sabani Development Co. Inc. NO.
RULING:
•
•
Borja’s argument is invalid and insufficient to show that the president of the corporation is
personally liable on the contract duly and lawfully entered into by him on his behalf.
NOTE: It is well – known that a corporation is an artificial being invested by law with a personality
of its own, separate, and distinct from that of its stockholders and from that of its officers who
manager and run its affairs. Corporations have to necessarily act through its agents, but that does
not make the latter personally liable on a contract duly entered into, or for an act lawfully
performed, by them for and in behalf of the corporation.
•
•
•
•
They have manifestly failed to distinguish a contractual from an extracontractual obligation, or an
obligation arising from contract from an obligation arising from culpa aquiliana. The fault and
negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the fulfillment
or non-fullfillment of a contractual obligation; while the fault or negligence referred to in article
1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common
law, which gives rise to an obligation independently of any contract.
The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or
fault or to any other cause, made the corporation and not its agent liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause
damaged to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But
then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract
alleged in his complaint herein; and Vazquez' liability would be principal and not merely
subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in
the complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17.
Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it
Indeed, we feel that a a matter of moral justice we ought to state here that the indignant attitude
adopted by the defendant towards the plaintiff for having brought this action against him is in our
estimation not wholly right. Altho from the legal point of view he was not personally liable for the
fulfillment of the contract entered into by him on behalf of the corporation of which he was the
acting president and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled the contract
by delivering the palay it had sold, the price of which it had already received. Recreant to such duty
as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances
he not only has no cause of action against the plaintiff for damages but is not even entitled to costs.
CASE 13
DE GUIA v. THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY
GR no. L – 14335 / January 28, 1920
J. Street
ACTION: Appeal
Decision: Modified
FACTS:
•
•
At about 8pm on September 4, 1915, near the end of the street-car line in Caloocan, Rizal, De Guia
(a physician residing in Caloocan) boarded a car belonging to the defendant at the end of the line
with the intention of coming to the city.
Within about 30 meters from coming out of the switch tract, the small wheels of the rear truck left
the tract, ran for a short distance along macadam filling and struck a concrete post at the left of the
tract. The post was shattered, and as the car stopped, the plaintiff was thrown against the door with
some violence, receiving bruises and possibly certain internal injuries.
RTC: The motorman of the derailed car was negligent in having maintained too rapid a speed. (Basis: The
result of the shattered post and the bending of the kingpost of the car.
DEFENSE OF THE COMPANY:
•
•
•
The derailment was due to the stone lodging between the rails. The derailment of the car should be
the casus fortuitos and must not be chargeable to the negligence of the motorman.
Motorman: Reduced the electrical energy (That the car barely entered the switch under its own
momentum).
WITNESS: Stated in court that the rate of a car propelled by electricity with the control at point
"four" should be about five or 6 miles per hour. There was some other evidence to the effect that
the car was behind schedule time and that it was being driven after leaving the switch, at a higher
rate than would ordinarily be indicated by the control at point four.
NOTES:
•
•
Dr. De Guia was unable to properly attend to his professional labors for three months and suspended
his practice for the said period.
Customary income as a physician was P300/month.
ISSUE:
•
W/N the derailment of the car was due to an uncontrollable accident (casus fortuitous) or to the
negligence of the motorman.
RULING:
•
•
•
The court is of the opinion that the finding of negligence in the operation of the car must be
sustained, as not being clearly contrary to the evidence; not so much because of the excessive speed
as because of the distance which the car was allowed to run with the front wheels of the rear tract
derailed. An experienced and attentive motorman should have discovered that something was
wrong and would have stopped before he had driven the car over the entire distance from the point
where the wheels left the tract to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving
the car, it results that the company is liable for the damage resulting to the plaintiff as a consequence
of that negligence. The plaintiff had boarded the car as a passenger for the City of Manila and the
company undertook to convey him for hire. The relation between the parties was, therefore, of a
contractual nature, and the duty of the carrier is to be determined with reference to the principles
of contract law, that is, the company was bound to convey and deliver the plaintiff safely and
securely with reference to the degree of care which, under the circumstances, is required by law
and custom applicable to the case (Article 1258, CC). Upon failure to comply with that obligation
the company incurred the liability defined in Articles 1103 – 1107.
Also, from the nature of the liability thus incurred, it is clear that the defendant company cannot
avail itself of the last paragraph of Article 1903 of the Civil Code, since that provision has reference
to liability incurred by negligence in the absence of contractual relation, that is, to the culpa
aquiliana of the Civil Law. It was therefore, irrelevant for the defendant company to prove, as it
did, that the company, had exercised due care in the selection and instruction of the motor man who
was in charge of its car and that he was in fact an experienced and reliable servant.
•
However, it should be observed that although in case like this, the defendant must answer for the
consequences of the negligence of its employee, the court has the power to moderate liability
according to the circumstances of the case (Art. 1103). It is obvious that an employer who has in
fact displayed due diligence in choosing and instructing his servants is entitled to be considered a
debtor in good faith, within the meaning of Art. 1107 of the same Code. Construing these two
provisions together, and applying them to the facts of the case, it results that the defendant’s liability
is limited to such damages as might, at the time of the accident, have been reasonably foreseen as
a probable consequence of the physical injuries inflicted upon the plaintiff and which were in fact
a necessary result of those injuries.
CASE 14
SARMIENTO v. Sps. LUIS
GR no. 141258 / April 9, 2003
J. Corona
Decision: Granted
FACTS:
•
•
•
•
•
•
•
•
Petitioner Tomasa Sarmiento’s friend, Dr. Virginia Lao asked her to find someone to reset a pair
of diamond earrings into two gold rings.
Sarmiento sent a certain Tita Payag with the pair of earrings to Dingding’s Jewelry Shop – owned
by respondent spouses Luis and Rose Cabrido. Job Order for P400.
Sarmiento provided 12 grams of gold to be used in crafting the pair of ring settings.
Payag delivered one of the earrings of Lao (appraised as .33 carat gold) to the jewelry shop.
Respondent Sun dismounted that diamond. Due to failure, Zenon Santos, a goldsmith, removed it
through pliers, and broke the gem.
The respondents refused to pay and replace the diamond. Sarmiento was then forced to buy a
replacement in the amount of P30,000.
Respondent Cabrido: Denied having a transaction with Payag (met only when seeking
compensation). Marilou admitted knowing Payag. Payag demanded P15,000 from Santos who
broke the earrings. As the latter had no money, she turned to Marilou for reimbursement whom she
thought owned the shop.
Santos recalled that Payag requested him to dismount what appeared to him was a sapphire. He
denied being an employee of the jewelry shop.
MTCC: In favor of Sarmiento. Ordered Spouses Luis and Rose Cabrido to pay P30,000 – compensatory
damages; P3,000 – moral damages; P5,000 – attorney’s fees; P2,000 – litigation expenses with legal interest
of 6 % / annum from the date of the decision, and 12 % / annum from the date when the current decision
becomes final until it shall have been fully paid.
RESPONDENTS appealed to the RTC.
RTC: Absolved the respondents from any responsibility arising from breach of contract.
CA: Affirmed the decision.
ISSUE:
•
W/N the respondents are liable. YES.
ARGUMENTS OF THE PARTIES:
Respondents
- dismounting of the diamond from its original setting was part of the obligation assumed by the private
respondents under the contract of service.
Petitioners
- agreement was for crafting two gold rings mounted with diamonds only and did not include the
dismounting of the said diamonds from their original setting.
RULING:
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those
who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any
manner contravene the tenor thereof, are liable for damages. The fault or negligence of the obligor consists
in the omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its
original setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious
gems, such as diamonds, from their original settings. However, Santos employed a pair of pliers in clipping
the original setting, thus resulting in breakage of the diamond. The jewelry shop failed to perform its
obligation with the ordinary diligence required by the circumstances. It should be pointed out that Marilou
examined the diamond before dismounting it from the original setting and found the same to be in order.
Its subsequent breakage in the hands of Santos could only have been caused by his negligence in using the
wrong equipment. Res ipsa loquitur.
Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an independent
worker. They also claim, rather lamely, that Marilou simply happened to drop by at Dingding’s Jewelry
Shop when Payag arrived to place her job order.
We do not think so.
The facts show that Santos had been working at Dingding’s Jewelry Shop as goldsmith for about 6 months
accepting job orders through referrals from private respondents. On the other hand, Payag stated that she
had transacted with Dingding’s Jewelry Shop on at least 10 previews occasions, always through
Marilou. The preponderance of evidence supports the view that Marilou and Zenon Santos were employed
at Dingding’s Jewelry Shop in order to perform activities which were usually necessary or desirable in its
business.
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the
respondent - spouses who admittedly owned and managed Dingding’s Jewelry Shop. It was proven that
petitioner replaced the damaged jewelry in the amount of P30,000.
The facts of the case also justify the award of moral damages. As a general rule, moral damages are not
recoverable in actions for damages predicated on a breach of contract for it is not one of the items
enumerated under Article 2219 of the Civil Code. Moral damages may be awarded in a breach of contract
only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to
bad faith, or in wanton disregard of his contractual obligation. Santos was a goldsmith for more than 40
years. Given his long experience in the trade, he should have known that using a pair of pliers instead of a
miniature wire saw in dismounting a precious stone like a diamond would have entailed an unnecessary
risk of breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as moral
damages due to the gross negligence of their employee.
However, private respondent’s refusal to pay the value of the damaged jewelry emanated from an honest
belief that they were not responsible therefor, hence, negating any basis for the award of attorney’s fees.
CASE 15
CRISOSTOMO v. CA
GR no. 138334 / AUGUST 25, 2003
J. YNARES – SANTIAGO
Decision: Denied.
Doctrine:
The negligence of the obligor in the performance of the obligation renders him liable for damages for the
resulting loss suffered by the oblige. Fault or negligence of the obligor consists in his failure to exercise
due care and prudence in the performance of the obligation as the nature of the obligation so demands.
There is no fixed standard of diligence applicable to each and every contractual obligation and each case
must be determined upon its particular facts. The degree of diligence required depends on the circumstances
of the specific obligation and whether one has been negligent is a question of fact that is to be determined
after taking into account the particulars of each case.
FACTS:
•
•
•
•
•
Estrela Crisostomo contracted the services of Caravan Travel and Tours International to arrange
and facilitate her booking, ticketing, and accommodation in a tour ‘Jewels of Europe’. (Package
Tour: England, Holland, Germany, Austria, Liechstenstein, Switzerland, France – P74,322.70).
NOTE: Given 5% discount (which included airfare / booking fee was waived) because Meriam
Menor, company’s ticketing manager was her niece.
Menor delivered the travel documents and plane tickets to Crisostomo and told her to be a NAIA
on Saturday, 2 hours before her flight.
The petitioner did not check her travel documents and proceeded to NAIA on Saturday, but
discovered that the flight left the day before.
She complained to Menor who in turned convinced her to take another tour package. She availed
the ‘British Pageant’ amounting to $785 or P20,881.00. She only gave a partial payment of $300
or P7,980.
•
•
•
Upon returning, she demanded the reimbursement of P61,421.70 for the sum she paid for ‘Jewels
of Europe’.
COMPANY: Refused to pay the amount because it was non – refundable.
Petitioner filed a complaint against the respondent for breach of contract of carriage and damages.
ARGUMENTS:
Petitioner:
•
•
•
Failure to join ‘Jewels of Europe’ was due to respondent’s fault because it did not clearly indicate
the departure date on the plane ticket.
Also negligent in informing her of the wrong flight schedule through Menor.
Insisted that the British Pageant was merely a substitute for the ‘Jewels of Europe’ tour. Hence, the
cost of the former should be properly set – off against the sum paid for the latter.
Respondent (through manager Concepcion Chipeco):
•
•
•
•
Insisted that petitioner was informed of the correct departure date which was legibly printed on the
plane ticket.
Petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm
her flight schedule as printed on the ticket.
No reimbursement because it had already been remitted to its principal in Singapore, Lotus Travel
Ltd.
British Pageant was not a substitute for the package tour that petitioner missed. Hence, she should
pay the balance of P12,901.
RTC: Ordered the RTC held that Caravan was negligent in advising Estela of the WRONG departure date,
but Estela was likewise guilty of contributory negligence since she should have verified the date and time
of her trip.
CA: Ruled that Estela was more negligent than Caravan because Estela should’ve verified the date of her
departure by looking at the travel documents and tickets given her (esp. since she is a lawyer and welltraveled person).
ISSUE:
•
WN Caravan was a common carrier to which the duty of exercising extraordinary diligence can be
imputed (No)
RULING:
Caravan is not a common carrier under CC 1732 as it is NOT an entity engaged in the business of
transporting either passengers or goods. Its business is making travel arrangements for its customers, NOT
transporting passengers or goods from one place to another.
IMPORTANT: The nature of the contractual relation between two parties is determinative of the degree of
care required in the performance of either party’s obligation under the contract
The object of Estela’s contractual relation with Caravan is Caravan’s service of arranging and facilitating
petitioner’s booking, ticketing and accommodation in the package tour, as against the object of a contract
of carriage --- the transportation of passengers or goods.
THUS, Caravan is not a common carrier and not expected to exercise extraordinary diligence
Degree of Diligence expected of a common carrier in a contract of carriage = “as far as human care and
foresight can provide using the utmost diligence of very cautious persons and with due regard for all the
circumstances”
The contract between Caravan and Estela is an ordinary contract for services, which only requires, as the
standard of care, the diligence of a good father of a family under CC 1173
Diligence of a good father of a family = Reasonable care consistent with that which an ordinarily prudent
person would have observed when confronted with a similar situation.
IMPORTANT: Evidence on record shows that Caravan exercised due diligence in performing its
contractual obligations and followed standard procedure in rendering its services.
o Plane ticket issued to petitioner reflected the departure date and time of her flight
o Travel documents were delivered to Estela two days before her trip.
o Caravan also booked Estela for the tour, prepared the documents and procured the plane tickets
Caravan’s failure to present Menor as witness to rebut Estela’s assertion that Caravan did not clearly
indicate the date and time of her flight DID NOT GIVE RISE TO AN UNFAVORABLE INFERENCE
against Caravan.
o It was physically impossible to have Menor testify as she was already working in France when the
complaint was filed.
o In any case, both parties could’ve obtained Menor’s testimony so it was wrong for the court to hold that
there is a presumption that Caravan willfully suppressed evidence (under Rule 131, Section 3e).
Menor’s negligence was not sufficiently proved since it was only based on Estela’s uncorroborated
narration of events. The party alleging a fact has the burden of proving it; a mere allegation cannot take the
place of evidence.
After the travel documents and plane tickets were delivered to Estela, she had the obligation to take
ordinary care of her concerns, at least reading the documents delivered to her to keep herself informed about
the important details regarding her trip. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as the nature of the obligation so
demands. In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach.
THUS, petitioner cannot recover and must bear her own damage.
CASE 16
VDA DE VILLARUEL v. MANILA MOTOR CO. INC.
GR no. L – 10394 / December 13, 1958
J. B. L. Reyes
FACTS:
Plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract whereby, the former
agreed to convey by way of lease with a term of five (5) years, to commence from the time that the building
were delivered and placed at the disposal of the lessee company, ready for immediate occupancy. The
contract was renewable for an additional period of five (5) years. The Manila Motor Company, in
consideration of the above covenants, agreed to pay to the lessors, or their duly authorized representative,
a monthly rental of Three Hundred (P300) pesos payable in advance before the fifth day of each month,
and for the residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos
"payable separately by the Manager".
The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from
which date, the period of the lease started to run continued until the Japanese invasion in 1941. The
American Forces occupied the same buildings that were vacated by the Japanese, including those leased by
the plaintiffs, until October 31, 1945. Monthly rentals were paid by the said occupants to the owners during
the time that they were in possession, as the same rate that the defendant company used to pay.
Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor
Co., Inc., through their branch manager, Rafael B. Grey, decided to exercise their option to renew the
contract for the additional period of five (5) years, and the parties, agreed that the seven months occupancy
by the U. S. Army would not be counted as part of the new 5-year term. Simultaneously with such renewal,
the company sublet the same buildings, except that used for the residence of the branch manager, to the
other defendant, Arturo Colmenares.
ISSUES:
• W/N the defendant-appellant Manila Motor Co., Inc. should be held liable for the rentals of the
premises leased corresponding to the lapse of time that they were occupied as quarters or barracks
by the invading Japanese army, and whether said appellant was placed in default by its refusal to
comply with the demand to pay such rents.
RULING:
The ouster of the least company by the Japanese, was, nevertheless, a mere act of trespass ("perturbacion
de mero hecho") that, under the Spanish Civil Code of 1889 (in force here until 1950), did not exempt the
lessee from the duty to pay rent. For under the generally accepted principles of international law (and it
must be remembered that those principles are made by our Constitution a part of the law of our nation 1) a
belligerent occupant (like the Japanese in 1942-1945) may legitimately billet or quarter its troops in
privately owned land and buildings for the duration of its military operations, or as military necessity should
demand.
We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased buildings
and occupying the same as quarters for troops, the Japanese authorities acted pursuant to a right recognized
by international and domestic law. Its act of dispossession, therefore, did not constitute perturbacion de
hecho but aperturbacion de derecho for which the lessors Villaruel (and not the appellants lessees) were
liable (Art. 1560, supra) and for the consequences of which said lessors must respond, since the result of
the disturbance was the deprivation of the lessee of the peaceful use and enjoyment of the property leased.
Wherefore, the latter's corresponding obligation to pay rentals ceased during such deprivation.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal of
the contract of lease for another five years (from June 1, 1946 to May 31 of 1951) without making any
reservation regarding the alleged liability of the lessee company for the rentals corresponding to the period
of occupancy of the premises by the Japanese army, and without insisting that the non-payment of such
rental was a breach of the contract of lease. This passivity of the lessors strongly supports the claim of the
lessees that the rentals in question were verbally waived. The proffered explanation is that the lessors could
not refuse to renew the lease, because the privilege of renewal had been granted to the lessees in the original
contract. Such excuse is untenable: if the lessors deemed that the contract had been breached by the lessee's
non-payment of the occupation rents how could they admit the lessee's right to renew a contract that the
lessee itself had violated?
Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was unwarranted
in law. Hence, their refusal to accept the current rentals without qualification placed them in default (mora
creditoris or accipiendi) with the result that thereafter, they had to bear all supervening risks of accidental
injury or destruction of the leased premises.
In other words, the only effect of the failure to consign the rentals in court was that the obligation to pay
them subsisted (P.N.B. vs. Relativo, 92 Phil., 203) and the lessee remained liable for the amount of the
unpaid contract rent, corresponding to the period from July to November, 1946; it being undisputed that,
from December 1946 up to March 2, 1948, when the commercial buildings were burned, the defendantsappellants have paid the contract rentals at the rate of P350 per month. But the failure to consign did not
eradicate the default (mora) of the lessors nor the risk of loss that lay upon them.
Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable value
of the occupation of the premises from July 1946, and the value of the destroyed buildings amounting to
P30,000.
Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor Company
should pay to the appellees Villaruel only the rents for the leased premises corresponding to the period from
July up to November 1946, at the rate of P350 a month, or a total of P1,750. Costs against appellees in both
instances.
CASE 17
TENGCO v. CA
GR no. L – 49852 / October 19, 1989
J. Padilla
FACTS:
In 1942, Emilia Tengco entered into a verbal lease agreement with Lutgarda Cifra over a house in Navotas
which belonged to the latter. Aside from the amount of rentals, no other condition or term was agreed upon.
The rentals were collected from Tengco by Lutgarda’s collector from time to time, with no fixed frequency.
On Septemner 16, 1976, herein private respondent Benjamin Cifra Jr. claiming to be the owner of the
subject property which he had leased to petitioner, Emilia Tengco, filed an action for unlawful detainer
with the Municipal court of Navotas in order to evict petitioner from the said premised for her alleged
failure to comply with the terms and conditions of the lease contract by refusing to pay the stipulated rentals
despite repeated demands. The subject property was bought by Benjamin from its original owner Lutgarda
Cifra. The Municipal Court ruled in favor of private respondent which was affirmed by both the CFI and
Court of Appeals. Thus, this petition for certiorari.
Petitioner contends that the respondent Court of Appeals erred in sustaining the decisions of the appellate
and trial courts which are allegedly contrary to the evidence and applicable jurisprudence. The petitioner
more particularly claims that (1) the private respondent Benjamin Cifra, Jr. is not the owner of the leased
premises; (2) the lessor was guilty of mora accipiendi; (3) the petitioner's version of the facts is more
credible than private respondent's; (4) laches had deprived the lessor of the right to eject her; and (5) the
private respondent failed to establish a cause of action against the petitioner.
ISSUE:
•
W/N the lessor (Benjamin Cifra) is guilty of mora accipiendi.
RULING:
No, there is no merit in the petitioner’s contention that the lessor is guilty of mora accipiendi. Under the
circumstances, the refusal to accept the proffered rentals is not without justification. The ownership of the
property had been transferred to the private respondent and the person (the person who usually collects
payment) to whom payment was offered had no authority to accept payment. It should be noted that the
contract of lease between the petitioner and Lutgarda Cifra, the former owner of the land, was not in writing
and, hence, unrecorded. The Court has held that a contract of lease executed by the vendor, unless recorded,
ceases to have effect when the property is sold, in the absence of a contrary agreement. The petitioner
cannot claim ignorance of the transfer of ownership of the property because, by her own account, Aurora
Recto and the private respondent, at various times, had informed her of their respective claims to ownership
of the property occupied by the petitioner. The petitioner should have tendered payment of the rentals to
the private respondent and if that was not possible, she should have consigned such rentals in the court.
CASE 18
CENTRAL BANK v. CA
GR no. L – 45710 / October 3, 1985
C.J Makasiar
TAKE – AWAY / DOCTRINE:
Compensatio Morae – default on part of both the debtor and creditor in reciprocal obligations.
RECIT – READY / SUMMARY:
Sulpicio Tolentino took a loan of P80,000 from Island Savings Bank (ISB) and mortgaged his property for the amount
loaned. ISB was able to deliver P17,000 of the P80,000 loan before it was declared insolvent by the Central Bank and
prohibiting it to further issue new loans and investments. Tolentino likewise issued a promissory note for the P17,000
with a 12% interest. When Tolentino failed to pay his mortgage, ISB filed for a foreclosure of the mortgaged property of
Tolentino. Both parties were in default since ISB only provided P17,000 and Tolentino never paid the P17,000
promissory note. The SC held that only 21.25 hectares of Tolentino’s land can be foreclosed and not the totality of 100
hectares. Tolentino is likewise held to pay the P17,000 plus P41,210 representing 12% interest per annum.
FACTS:
•
•
•
•
•
•
•
•
•
[April 28, 1965] Island Savings Bank approved a loan of P80,000 in favor of Sulpicio Tolentino. And
as security for the loan, the latter mortgaged his 100-hectare property.
[May 22, 1965] P17,000 was released to Tolentino. Tolentino likewise issued a promissory note in
favor of the bank with 12% interest per annum.
An advanced interest of P4,800 was deducted from the P17,000 given to Tolentino.
Despite repeated demands, the ISB was not able to issue the remaining P63,000 loan.
[August 13, 1965] The Central Bank, after finding that the ISB was suffering liquidity problems,
issued a resolution which prohibits the bank from issuing new loans and investments.
[August 1, 1968] Island Savings Bank filed for an extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Tolentino.
[January 20, 1969] Tolentino filed a petition with the CFI for specific performance of ISB to provide
the remaining P63,000 plus 12% per annum interest. And if the said balance cannot be delivered,
that the mortgage be rescinded.
The Trial Court issued a TRO enjoining the ISB from proceeding with the foreclosure. Likewise, it
asked Tolentino to pay the P17,000 plus legal interest towards ISB.
The CA dismissed the ruling of the trial court and ruled in favor of Tolentino.
ISSUE/S:
•
•
W/N Island Savings Bank can fully foreclose the mortgaged land of Tolentino.
W/N there was default in both parties.
RULING:
No. Island Savings Bank cannot fully foreclose the land of Tolentino. But it can only foreclose up to
the equivalent of the P17,000 that it had released to Tolentino or a total of 21.25 hectares of the total
100 hectares of land. The reason for which is that Tolentino issued a promissory note for the amount
the bank has given him. The Court ruled that if Tolentino did not issue a PN, then he would not be
liable to pay the amount to the bank since the bank was also in default in paying Tolentino with the
remaining P63,000 of the loan.
Yes. The reason of ISB that it can no longer provide for the P63,000 because of the Central Bank’s
resolution is untenable. The resolution only prohibits the ISB from issuing new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of loan
agreements previously contracted. Likewise, since Tolentino issued a Promissory Note in favor of the
bank, and failed to pay the amount of the note, he is also liable for default in payment of his obligation.
ARTICLES / LAWS INVOLVED:
Article 1192 of the civil code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts.
CASE 19
CETUS DEVELOPMENT CORP v. CA
GR no. 77648 / August 7, 1989
J. Medialdea
SUBJECT:
Breach of Obligation > Delay > Mora Solvendi
CASE SUMMARY:
The private respondents were unable to pay their lease for three months because the new owner of premises,
Cetus Devt. Inc., did not sent a collector. Cetus demanded that the respondents should vacate the premises
and pay their overdue debt. The respondents immediately tendered their payments, which were accepted
by the petitioner with the condition that the acceptance was without prejudice to the filing of ejectment suit.
The ejectment suit was filed but it was dismissed by the courts because records show that the time of filing
of the complaint, the rentals had all been paid therefore there is no cause of action for the ejectment case.
FACTS:
The private respondents (Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario,
and Flora Nagbuya) were lessees of the premises located in Quiapo, Manila. Each month, the respondents
pay to a collector of Susana Realty based on their individual verbal leases (P40.35-P96.10).
In March 1984, Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc.
In the succeeding months of July, August and September 1984, the respondents failed to pay their
monthly individual rentals as no collector came.
In October, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate
the subject premises and to pay the back rentals for the months of July, August and September, 1984, within
fifteen (15) days from the receipt thereof.
Immediately upon the receipt of the said demand letters on October 10, 1984, the private respondents
paid their respective arrearages in rent which were accepted by the petitioner subject to the unilateral
condition that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly
rental payments were likewise accepted by the petitioner under the same condition.
The Metropolitan Trial Court of Manila, RTC and CA dismissed the ejectment suit.
ISSUE:
•
W/N there exists a delay of payment considering the fact that upon demand by petitioner from
private respondents for payment of their back rentals, the latter immediately tendered payment
which was accepted by petitioner.
RULING:
NO. There was no failure yet on the part of private respondents to pay rents for three consecutive months.
As the terms of the individual verbal leases which were on a month-to-month basis were not alleged and
proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an
obligation when the creditor demands payment at the maturity of the obligation or at any time thereafter.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when the
obligation matured. Coupled with the fact that no collector was sent as previously done in the past, the
private respondents cannot be held guilty of mora solvendi or delay in the payment of rentals.
When petitioner first demanded the payment of the 3-month arrearages and private respondents lost no time
in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence,
its demand to vacate was premature as it was an exercise of a non-existing right to rescind.
Petition for review is denied. Decision of CA is affirmed.
CASE 20
SANTOS VENTURA HOCORMA FOUNDATION v. SANTOS
GR no. 153004 / November 5, 2004
J. Quisimbing
FACTS:
Ernesto Santos and Santos Ventura Hocorma Foundation Inc (SVHFI) were the plaintiff and defendant,
respectively, in several civil cases. On 26 October 1990, they executed a Compromise Agreement (CA) to
end the pending litigations. Some of the terms of the agreement are as follows:
1. SVHFI shall pay Santos P14.5M, 1.5M of which shall be paid immediately upon execution of this
agreement and 13M within a period of not more than two (2) years from the execution of the agreement.
2. If SVHFI does not pay the 13M within 2 years, it shall be paid with the land subject of lis pendens1
3. If SVHFI sells any of the lands subject of lis pendens, the proceeds will be partially devoted to the
payment of the P13M.
4. Santos will dismiss the Civil Cases and lift the notices of lis pendens on the real properties SVHFI paid
the P1.5M while Santos moved for the dismissal of the civil cases.
SVHFI sold 2 real properties previously subject to lis pendens. Upon discovering this, Santos sent a letter
demanding the payment of the P13M. On 30 September 1991, the RTC of Makati approved the CA.
On October 28, 1992, Santos sent another letter inquiring when it would pay the P13M, which didn’t get a
response. Santos applied for a writ of execution of its CA. On March 1993, the Sherriff levied the real
properties of SVHFI. Real properties in Pampanga (P12M in 1994) and Bacolod (1995) were auctioned and
sold to Riverland Inc.
Santos and Riverland filed a Complaint for Declaratory Relief and Damages alleging that there was delay
in paying the balance of P13M. It was supposed to be paid October 26, 1992 but was actually paid on
November 22, 1994. They pray that SVHFI pay legal interest, penalty, attorney’s fees and costs of litigation.
SVHFI says that petitioners have no cause of action because it fully paid its obligation and that the delay
was due to its valid exercise of its rights to protect its interests as provided under the Rules. Also, SVHFI
alleges that where a CA does not provide for a payment of interest, legal interest by way of penalty on
account of delay shall not be due and payable considering that the obligation, on which the payment of legal
interest is based on, has been superseded by the CA. Also, Santos is barred by res judicata from seeking
legal interest because of the waiver clause in the CA. It also claims that the CA didn’t fix a period within
which the obligation will become due and demandable.
Trial Court decided in favor of SVHFI but the Court of Appeals reversed the decision and decided in favor
of Santos.
ISSUE:
•
W/N Santos is entitled to legal interest
YES
RULING:
On Compromise Agreements
A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid
litigation or put an end to one already commenced. It is an agreement between two or more persons, who,
for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which
they agree on, and which everyone of them prefers in the hope of gaining, balance by the danger of losing.
The general rule is that a compromise has upon the parties the effects and authority or res judicata, with
respect to the matter definitely stated therein, or which by implication from its terms should be deemed to
have been included therein. This holds true even if the agreement has not been judicially approved.
The compromise agreement as a consensual contract became binding between the parties upon its execution
and not upon its court approval. From the time a compromise is validly entered into, it becomes the source
of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace
and terminate controverted claims.
On the Period
The CA was entered into on October 26, 1990 and was judicially approved on September 30, 1991. It has
the effect and authority of res judicata with respect to the matter stated therein even when it has not yet
been judicially approved. Thus, it became binding upon its execution and not its court approval. The
petitioner paid the initial P1.5M upon execution, which shows SVHFI acknowledged that the agreement
was immediately executory.
The Court finds that the terms and conditions of the compromise agreement as to the remaining balance of
P13M are clear and ambiguous. The 2-year period must be counted from October 26, 1990, the date of
execution of the CA. When Santos wrote a demand letter on October 28, 1992, the obligation was already
due and demandable. By NCC 1169, SVHFI incurred delay when it failed to pay its due obligation after
the demand was made.
In order for the debtor to be in default, there must be (1) an obligation that is demandable and already
liquidated, (2) debtor delays performance (3) creditor requires the performance judicially or extrajudicially.
1. In this case, the obligation was already due and demandable after the lapse of the 2-year period. When
Santos wrote a demand letter, the obligation was already demandable and liquidated since SVHFI already
knew how much it had to pay and when he should pay it.
2. SVHFI delayed in the performance; settled the balance only on Feb 8, 1995.
3. Demand letter sent on Oct 28, 1992 was an extra-judicial demand SVHFI is liable for damages for the
delay in the performance as provided for in NCC 1170. When the debtor knows the amount and period
when he is to pay, interest as damages is generally allowed as a matter of right. In the absence of agreement,
the legal rate of interest shall prevail (12% pa)
CASE 21
VASQUEZ v. AYALA CORP
GR no. 149734 / November 19, 2004
J. Tinga
FACTS:
•
•
•
•
•
Spouses Vasquez entered into a Memorandum of Agreement (MOA) with Ayala Corporation for
their share of stocks in Conduit Development. The main assets of conduit is the 49.9 hectares of
land (divided into village 1,2, and 3 of the Don Vicente Village) being developed by Conduit. The
development was undertaken by GP Construction and Development.
The MOA was signed on April 23, 1981, the closing of the agreement was to happen four weeks
after the signing. According to the MOA, Ayala intends to complete its development plan in three
years after the date of the agreement. Also, Ayala agreed to give the petitioners a first option to
purchase the developed lots at the prevailing market price at the time of the purchase.
After the execution of the MOA, Ayala suspended the work on Village 1. Ayala then received a
letter from Lancer General Builder, informing that they were claiming the amount of P1,509,558.80
as the subcontractor of GP.
On March 22, 1982, GP not being able to reach an amicable settlement with Lancer, Lancer sued
GP Construction, Conduit and Ayala. GP then filed a cross – claim against Ayala. Both Lance and
GP tried to enjoin Ayala for the development of the property. The suit was only terminated on
February 19, 1987, after Ayala paid GP and Lancer.
The Vasquez spouses believing that Ayala was obligated to sell them the lots 3 years after the
agreement, sent reminder letters of the approaching so-called deadline. Also, Engr. Turla (an
authorized agent of the Vasquez) sent a letter to Ayala stating that they expected “the development”
of Phase 1 to be completed by February 19, 1990, three years after the legal problems with the
•
•
previous contractor was settled. By early 1990, Ayala was able to finish the developments and
offered the lots to the Vasquez at the prevailing price in 1990.
The Vasquez rejected the offer and insisted to pay the 1984 price (the date of the supposed 3 – year
developed period given by Ayala after the agreement).
Ayala argued that the MOA only gives the petitioners a first right of refusal and can therefore not
demand Ayala to sell the property at the 1984 price.
ISSUE/S:
•
•
•
W/N Ayala committed or merely expressed intent to develop the property within 3 years of the
signing of the MOA.
W/N the MOA can properly be construed as an option contract or a right of first refusal.
W/N the Vasquez spouse can compel Ayala to sell them the property at the 1984 price.
RULING:
•
•
•
•
•
•
The MOA specifically said “The buyer hereby commits that it will develop the remaining property
into a 1st class residential subdivision of the same class as its New Alabang Subdivision, and that
it intends to complete the first phase under its amended development plan within three years from
the date of this agreement. Also, under Art. 1169 of the NCC, obligations whose fulfillment a day
certain has been fixed shall be demandable only when that day comes.
While the first phrase uses the word commits in reference to the development itself, the word
intends was used in relation to the development of the property within 3 years. It is then
unmistakable that Ayala merely expressed their intention in completing the development within 3
years.
An option is a preparatory contract which one party grants another, for a fixed period and at a
determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal
contract. In a right of first refusal, while the object might be determinate, the exercise of the right
would be independent 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 are yet to be firmed up.
The Court held that the MOA is a mere right of first refusal and not an option contract. The phrase
“at the prevailing market price at the time of the purchase” connotes that there is no definite period.
Since it has been established that the MOA is a mere right of first refusal, the Vasquez spouses
cannot compel Ayala to sell them the property at the 1984 price. The moment they rejected the
offer, petitioners lost their right to purchase the property.
DENIED.
CASE 22
ABELLA v. FRANCISCO
GR no. 32336 / December 20, 1930
J. Avancena
EXCEPTION TO THE RULE OF DELAY
FACTS:
1. Guillermo Francisco (defendant) purchased from the Government on installments, lots 937-945 of the
Tala Estate in Novaliches, Caloocan, Rizal.
2. He was in arrears for some of these installments and on October 31, 1928, he signed a document stating
that he received P500 from Julio Abella (plaintiff) on account of lots no. 937-945, containing an area of
221 hectares, at the rate of P100/hectare, the balance of which is due on or before December 15, of the same
year, extendible fifteen days thereafter.
3. On November 13, 1928, Abella made another payment of P415.31, upon demand made by Francisco.
4. On December 27, 1928, Francisco being in Cebu wrote a letter to Roman Mabanta, attaching a power of
attorney authorizing him to sign in behalf of the defendant all the documents required by the Bureau of
Lands for the transfer of the lots to the plaintiff.
5. In the same letter, defendant instructed Mabanta to inform the plaintiff that the option would be
considered cancelled, and to return the amount of 915.31, in the event that the plaintiff failed to pay the
remainder of the selling price.
6. On January 3, 1929, Mabanta notified the plaintiff that he had received the power of attorney to sign the
deed of conveyance of the lots to him, and that he was willing to execute the deed of sale upon payment of
the balance due.
7. The plaintiff asked for a few days’ time, but Mabanta only gave him until January 5.
8. Plaintiff failed to pay the rest of the price on January 5, but attempted to do so on January 9, but Mabanta
refused to accept it and instead returned by check the sum of P915.31.
9. Plaintiff brought an action to compel the defendant to execute the dee of sale upon the receipt of the
balance of the price, and asked that he be judicially declared the owner of said lots, and that the defendant
be ordered to deliver it to him.
10. The CFI absolved the defendant from the complaint, and the plaintiff appealed.
ISSUE:
•
W/N the time was essential element in the contract, and therefore, the defendant was entitled to
rescind the contract for failure of the plaintiff to pay the price within the specified time.
RULING:
Yes. The defendant is entitled to resolve the contract for failure to pay the price within the time specified.
In holding that the time was an essential element in the contract, the CFI considered that the agreement in
question was an option for the purchase of the lots. The SC, however, was divided on the question of
whether the agreement was an option or a sale. But the SC rules that regardless of whether it was an option
or a sale, having agreed that the selling price would be paid not later than December, 1928, and in view of
the fact that the vendor executed the contract to pay off with the proceeds thereof certain obligations which
fell due in the same month of December, the time fixed for the payment of the selling price was essential
in the transaction.
CASE 23
CHAVEZ v. GONZALES
GR no. 168338 / February 15, 2008
C.J. Puno
FACTS:
On June 5, 2005, Press Secretary Ignacio Bunye told reporters that the opposition was currently planning
to destabilize the administration through the release of an audio recording of a mobile phone conversation
(the Garci tapes) allegedly between Gloria Macapagal-Arroyo and a high-ranking official of the
COMELEC. It was further said that the conversation was obtained via wire-tapping. Sometime later, Bunye,
in a pressbriefing, produced two versions of the recording, one supposedly the complete version and the
other, spliced or altered to give the impression that the President gave instructions to the COMELEC official
for the rigging of the election results. It seems that Bunye confirmed that the female voice was of the
President’s but subsequently made a retraction.
Atty. Alan Paguia, on June 7, then released an alleged authentic tape recording of the said wiretap. Among
the tapes were alleged conversations of the President, her husband Mike Arroyo, COMELEC Commissioner
Garcillano and the late Senator Barbers. The next day, DOJ Secretary Raul Gonzales warned reporter that
those who possess copies of the Garci tapes and those who air or publish their contents could be held liable
under the Anti-Wiretapping Act. He also claimed that those possessing or broadcasting said tapes were
committing a continuing offense, subject to arrest by anybody who had personal knowledge if the crime
was committed or was being committed in their presence.
In another press briefing, Gonzales ordered the National Bureau of Investigation (NBI) to go after media
groups “found to have caused the spread, the playing, and the printing of the contents of a tape” of an
alleged wiretapped conversation involving GMA about manipulating the votes in the 2004 elections.
Gonzales said that he was going to start with Inq.net, a joint venture between the Philippine Daily Inquirer
and GMA7 television network, because by the very nature of the Internet medium, it was able to disseminate
the contents of the tape more widely. He then expressed his intention of inviting the editors and managers
of Inq7.net and GMA7 to a probe, and supposedly declared, "I [have] asked the NBI to conduct a tactical
interrogation of all concerned."
Come June 11, 2005, the National Telecommunications Commission issued a press release, reproduced
here with:
NTC GIVES FAIR WARNING TO RADIO AND TELEVISION OWNERS/OPERATORS TO
OBSERVE ANTI-WIRETAPPING LAW AND PERTINENT CIRCULARS ON PROGRAM
STANDARDS xxx xxx xxx
Taking into consideration the country’s unusual situation, and in order not to unnecessarily aggravate the
same, the NTC warns all radio stations and television network owners/operators that the conditions of the
authorization and permits issued to them by Government like the Provisional Authority and/or Certificate
of Authority explicitly provides that said companies shall not use [their] stations for the broadcasting or
telecasting of false information or willful misrepresentation. Relative thereto, it has come to the attention
of the [NTC] that certain personalities are in possession of alleged taped conversations which they claim
involve the President of the Philippines and a Commissioner of the COMELEC regarding supposed
violation of election laws.
These personalities have admitted that the taped conversations are products of illegal wiretapping
operations.
Considering that these taped conversations have not been duly authenticated nor could it be said at
this time that the tapes contain an accurate or truthful representation of what was recorded therein,
it is the position of the [NTC] that the continuous airing or broadcast of the said taped conversations
by radio and television stations is a continuing violation of the Anti-Wiretapping Law and the
conditions of the Provisional Authority and/or Certificate of Authority issued to these radio and
television stations. It has been subsequently established that the said tapes are false and/or fraudulent after
a prosecution or appropriate investigation, the concerned radio and television companies are hereby warned
that their broadcast/airing of such false information and/or willful misrepresentation shall be just
cause for the suspension, revocation and/or cancellation of the licenses or
authorizations issued to the said companies.
In addition to the above, the [NTC] reiterates the pertinent NTC circulars on program standards to be
observed by radio and television stations. NTC Memorandum Circular 111-12-85 explicitly states,
among others, that "all radio broadcasting and television stations shall, during any broadcast or
telecast, cut off from the air the speech, play, act or scene or other matters being broadcast or telecast
the tendency thereof is to disseminate false information or such other willful misrepresentation, or to
propose and/or incite treason, rebellion or sedition."
The foregoing directive had been reiterated by NTC Memorandum Circular No. 22-89, which, in addition
thereto, prohibited radio, broadcasting and television stations from using their stations to broadcast or
telecast any speech, language or scene disseminating false information or willful misrepresentation, or
inciting, encouraging or assisting in subversive or treasonable acts.
The [NTC] will not hesitate, after observing the requirements of due process, to apply with full force
the provisions of said Circulars and their accompanying sanctions on erring radio and television
stations and their owners/operators.
A few days later, NTC dialogued with the Board of Directors of the Kapisanan ng mga Brodkaster sa
Pilipinas (KBP). The two parties released a Joint Press Statement which states, among others, that:
· NTC respects and will not hinder freedom of the press and the right to information on matters of
public concern. KBP & its members have always been committed to the exercise of press freedom
with high sense of responsibility and discerning judgment of fairness and honesty.
· NTC did not issue any MC [Memorandum Circular] or Order constituting a restraint of press freedom or
censorship. The NTC further denies and does not intend to limit or restrict the interview of members of the
opposition or free expression of views.
· What is being asked by NTC is that the exercise of press freedom [be] done responsibly.
· KBP has program standards that KBP members will observe in the treatment of news and public affairs
programs. These include verification of sources, non-airing of materials that would constitute inciting to
sedition and/or rebellion.
· The KBP Codes also require that no false statement or willful misrepresentation is made in the treatment
of news or commentaries.
· The supposed wiretapped tapes should be treated with sensitivity and handled responsibly giving due
consideration to the process being undertaken to verify and validate the authenticity and actual content of
the same.
Petitioner Francisco Chavez then filed a petition for certiorari and prohibition praying for the “nullification
of acts, issuances, and orders of respondents committed or made since June 6, 2005 until the present that
curtail the public’s rights to freedom of expression and of the press, and to information on matters of public
concern specifically in relation to information regarding the controversial taped conversion of President
Arroyo and for prohibition of the further commission of such acts, and making of such issuances, and orders
by respondents.” Respondents, on the other hand, counter that the questioned acts did not violate the
Constitution. They also claim that the petitioner had no legal standing to file the petition, that broadcast
media enjoy less constitutional guarantees compared to print media, and that the warning was issued
pursuant to the NTC’s duty to regulate the telecommunications industry. They said further that “most of
the [television] and radio stations continue, even to this date, to air the tapes, but of late within the
parameters agreed upon between the NTC and KBP.
ISSUES:
1. WON the petitioner has legal standing file the suit
2. WON the acts of the DOJ Secretary Raul Gonzales and the NTC were violative of the freedom of speech,
expression, press as ensconced by the Constitution.
RULING:
1. YES
At first, it seems that Chavez, by virtue of the facts, does not have legal standing to pursue this suit. First,
he is not a member of the broadcast media (whose rights were allegedly curtailed). Second, the members
of the broadcast media did not make a motion to intervene in the said suit. And third, KBP issued a joint
statement with NTC that does not complain about restraints on freedom of the press.
Hence, he failed at alleging “such a personal stake in the outcome of the controversy as to assure
thatconcrete which sharpens the presentation of issues upon which the Court so largely depends for
illumination of difficult constitutional questions.” However, where the constitutional questions involved
are of serious gravity, “the transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside… technicalities of procedure.”
Since the right involved in this petition is of most fundamental importance, the Court took cognizance of
it.
Sidebar: In Carpio’s concurring opinion, he commented on the petitioner’s legal standing as a citizen:
When the issue involves freedom of expression, as in the present case, any citizen has the right to bring suit
to question the constitutionality of a government action in violation of freedom of expression, whether or
not the government action is directed at such citizen. The government action may chill into silence those to
whom the action is directed. Any citizen must be allowed to take up the cudgels for those who have been
cowed into inaction because freedom of expression is a vital public right that must be defended by everyone
and anyone.
2. YES
In discussing whether freedom of speech and freedom of the press have been infringed by the acts of
Secretary Gonzales and the NTC, Puno went on to:
a. Distill the essence of freedom of speech and of the press now beclouded by the vagaries of motherhood
statements.
b. Clarify the types of speeches and their differing restraints allowed by law.
c. Discuss the core concepts of prior restraint content-neutral and content-based regulations and their
constitutional standard of review.
d. Examine the historical difference in the treatment of restraints between print and broadcast media and
stress the standard of review governing both.
e. Call attention to the ongoing blurring of the lines of distinction between print and broadcast media.
A. Re-examining the law on freedom of speech, of expression, and of the press Article III, Section 4, 1987
Constitution: No law shall be passed abridging the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the government for redress of grievances.
According to Chief Justice Puno, the right to freedom of expression has attained recognition as a
fundamental principle of every democratic government, and given a preferred status placed at a higher plane
than substantive economic freedom or other liberties. Copied from the US Bill of Rights, the said provision
was considered the necessary consequence of republican institutions and the complement of free speech. In
the Philippines, the primacy and high esteem accorded freedom of expression is a fundamental postulate of
our constitutional system.
Moreover, our history shows that the struggle to protect the freedom of speech, expression and the press
was, at bottom, the struggle for the indispensable preconditions for the exercise of other freedoms. For it is
only when the people have unbridled access to information and the press that they will be capable of
rendering enlightened judgments.
Freedom of speech and of the press means something more than the right to approve existing political
beliefs or economic arrangements, to lend support to official measures, and to take refuge in the existing
climate of opinion on any matter of public consequence. The right belongs as well—if not more—to those
who question, who do not conform, who differ. To be truly meaningful, freedom of speech and of the press
should allow and even encourage the articulation of the unorthodox view, though it be hostile to or derided
by others; or though such view “induces a condition of unrest, creates dissatisfaction with conditions as
they are, or even stirs people to anger.
The scope of freedom of expression is so broad that it extends protection to nearly all forms of
communication. The constitutional protection assures the broadest possible exercise of free speech and free
press for religious, political, economic, scientific, news, or informational ends, inasmuch as the
Constitution's basic guarantee of freedom to advocate ideas is not confined to the expression of ideas that
are conventional or shared by a majority. But while all forms of communication are entitled the broad
protection of freedom and of expression clause, the freedom of film, television, and radio broadcasting is
somewhat lesser in scope than the freedom accorded to newspapers and other print media. Freedom of
expression is not absolute nor is it an “unbridled license that gives immunity for every possible use of
language and prevents the punishment of those who abuse this freedom.”
Thus, all speech are not treated the same. Some types of speech may be subjected to some regulation by
the State under its pervasive police power, in order that it may not be injurious to the equal right of others
or those of the community or society.
There are three tests which may be used in evaluating restraints on freedom of speech and expression:
a. Dangerous tendency doctrine: permits limitation on speech once a rational connection has been
established between the speech restrained and the danger contemplated.
b. Balancing of interests test: used a standard when courts need to balance conflicting social values and
individual interests, and requires a conscious and detailed consideration of the interplay of interests
observable in a given situation.
c. Clear and present danger rule: rests on the premise that speech may be restrained because there is a
substantial danger that the speech will likely lead to an evil the government has a right to prevent. Such evil
sought to be prevented must be substantive, “extremely serious and the degree of imminence extremely
high”.
In the Philippines, we generally adhere to the clear and present danger test to resolve free speech
challenges.
When it comes to freedom of the press, Philippine jurisprudence has recognized four aspects:
1. Freedom from prior restraint
2. Freedom from punishment subsequent to publication
3. Freedom of access to information
4. Freedom of circulation
Considering that petitioner has argued that respondents’ press statement constitutes a form of impermissible
prior restraint, a closer scrutiny of this principle is in order, as well as its sub-specie of content-based (as
distinguished from content-neutral) regulations.
Prior restraint refers to official governmental restrictions on the press or other forms of expression in
advance of actual publication or dissemination. Freedom from prior restraint is largely freedom from
government censorship of publications, whatever the form of censorship, and regardless of whether it is
wielded by the executive, legislative or judicial branch of the government. Given that deeply ensconced in
our fundamental law is the hostility against all prior restraints on speech, and any act that restrains speech
is presumed invalid, and "any act that restrains speech is hobbled by the presumption of invalidity and
should be greeted with furrowed brows," it is important to stress not all prior restraints on speech are invalid.
Certain previous restraints may be permitted by the Constitution, but determined only upon a careful
evaluation of the challenged act as against the appropriate test by which it should be measured against.
Thus, it is necessary to make a distinction whether the restraint is
(1) a content neutral regulation, i.e., merely concerned with the incidents of the speech, or one that merely
controls the time, place or manner, and under well-defined standards; or (2) a content-based restraint or
censorship, i.e., the restriction is based on the subject matter of the utterance or speech. When the speech
restraints take the form of a content-neutral regulation, only a substantial governmental interest is
required for its validity. Because regulations of this type are not designed to suppress any particular
message, they are not subject to the strictest form of judicial scrutiny but an intermediate approach—
somewhere between the mere rationality that is required of any other law and the compelling interest
standard applied to content-based restrictions. On the other hand, a governmental action that restricts
freedom of speech or of the press based on content is given the strictest scrutiny in light of its inherent
and invasive impact. Only when the challenged act has overcome the clear and present danger rule will
it pass constitutional muster, with the government having the burden of overcoming the presumed
unconstitutionality. Unless the government can overthrow this presumption, the content-based restraint
will be struck down. With respect to content-based restrictions, the government must also show the type
of harm the speech sought to be restrained would bring about—especially the gravity and the imminence
of the threatened harm – otherwise the prior restraint will be invalid. Also, that is so broad that it covers
more than what is required to satisfy the governmental interest will be held invalid.
The regulation must be reasonable and narrowly drawn to fit the regulatory purpose, with the least
restrictive means undertaken.
Applying the foregoing, it is clear that the challenged acts in the case at bar need to be subjected to the
clear and present danger rule, as they are content-based restrictions. The acts of respondents focused
solely on but one object—a specific content— fixed as these were on the alleged taped conversations
between the President and a COMELEC official. Undoubtedly these did not merely provide regulations as
to the time, place or manner of the dissemination of speech or expression.
Finally, comes respondents’ argument that the challenged act is valid on the ground that broadcast media
enjoys free speech rights that are lesser in scope to that of print media. Our cases show two distinct features
of this dichotomy. First, the difference in treatment, in the main, is in the regulatory scheme applied to
broadcast media that is not imposed on traditional print media, and narrowly confined to unprotected speech
(e.g., obscenity, pornography, seditious and inciting speech), or is based on a compelling government
interest that also has constitutional protection, such as national security or the electoral process. Second,
regardless of the regulatory schemes that broadcast media is subjected to, the Court has consistently held
that the clear and present danger test applies to content-based restrictions on media, without making a
distinction as to traditional print or broadcast media.
The distinction between broadcast and traditional print media was first enunciated in Eastern Broadcasting
Corporation (DYRE) v. Dans, wherein it was held that "All forms of media, whether print or broadcast, are
entitled to the broad protection of the freedom of speech and expression clause. The test for limitations on
freedom of expression continues to be the clear and present danger rule. It is interesting to note that the
Court in Dans adopted the arguments found in U.S. jurisprudence to justify differentiation of treatment
(i.e., the scarcity, pervasiveness and accessibility to children), but only after categorically declaring that
"the test for limitations on freedom of expression continues to be the clear and present danger rule,"
for all forms of media, whether print or broadcast. The differentiation that the Court in Dans referred
to was narrowly restricted to what is otherwise deemed as "unprotected speech" (e.g., obscenity, national
security, seditious and inciting speech), or to validate a licensing or regulatory scheme necessary to allocate
the limited broadcast frequencies, which is absent in print media. Thus, when this Court declared in Dans
that the freedom given to broadcast media was "somewhat lesser in scope than the freedom accorded to
newspaper and print media," it was not as to what test should be applied, but the context by which
requirements of licensing, allocation of airwaves, and application of norms to unprotected speech.
B. Discussing the Case at Bar
In sum, a governmental action that restricts freedom of speech or of the press based on content is given the
strictest scrutiny, with the government having the burden of overcoming the presumed
unconstitutionality by the clear and present danger rule. This rule applies equally to all kinds of media,
including broadcast media.
Judging from the records of the case at bar, the respondents, who have the burden to show that their acts do
not abridge freedom of speech and of the press, failed to hurdle the clear and present danger test. It
appears that the great evil which government wants to prevent is the airing of a tape recording in alleged
violation of the anti-wiretapping law. The pieces of evidence and records, however, are confused and
confusing which fell short of satisfying the clear and present danger test.
Firstly, the various statements of the Press Secretary obfuscate the identity of the voices in the tape
recording.
Secondly, the integrity of the taped conversation is also suspect. The Press Secretary showed to the public
two versions, one supposed to be a "complete" version and the other, an "altered" version.
Thirdly, the evidence of the respondents on the who’s and the how’s of the wiretapping act is ambivalent,
especially considering the tape’s different versions. The identity of the wire-tappers, the manner of its
commission and other related and relevant proofs are some of the invisibles of this case.
Fourthly, given all these unsettled facets of the tape, it is even arguable whether its airing would violate
the anti-wiretapping law.
Not every violation of a law will justify straitjacketing the exercise of freedom of speech and of the
press. The laws are of different kinds and doubtless, some of them provide norms of conduct which even
if violated have only an adverse effect on a person’s private comfort but does not endanger national security.
There are laws of great significance but their violation, by itself and without more, cannot support
suppression of free speech and free press. In fine, violation of law is just a factor, a vital one to be sure,
which should be weighed in adjudging whether to restrain freedom of speech and of the press. The totality
of the injurious effects of the violation to private and public interest must be calibrated in light of the
preferred status accorded by the Constitution and by related international covenants protecting freedom of
speech and of the press. In calling for a careful and calibrated measurement of the circumference of all these
factors to determine compliance with the clear and present danger test, the Court should not be
misinterpreted as devaluing violations of law. By all means, violations of law should be vigorously
prosecuted by the State for they breed their own evil consequence. But to repeat, the need to prevent their
violation cannot per se trump the exercise of free speech and free press, a preferred right whose
breach can lead to greater evils. For this failure of the respondents alone to offer proof to satisfy the clear
and present danger test, the Court has no option but to uphold the exercise of free speech and free press.
There is no showing that the feared violation of the anti-wiretapping law clearly endangers the national
security of the State.
On the issue of whether the mere press statements of the Secretary of Justice and of the NTC in question
constitute a form of content-based prior restraint that has transgressed the Constitution, that it is not
decisive that the press statements made by respondents were not reduced in or followed up with
formal orders or circulars. It is sufficient that the press statements were made by respondents while
in the exercise of their official functions. Undoubtedly, respondent Gonzales made his statements as
Secretary of Justice, while the NTC issued its statement as the regulatory body of media. Any act done,
such as a speech uttered, for and on behalf of the government in an official capacity is covered by the
rule on prior restraint. The concept of an "act" does not
limit itself to acts already converted to a formal order or official circular. Otherwise, the nonformalization of an act into an official order or circular will result in the easy circumvention of the
prohibition on prior restraint. Hence, these orders or warnings are to be struck down for they are
impermissible prior restraints on the freedom of speech and of the press.
There is enough evidence of chilling effect of the complained acts on record. The warnings given to media
came from no less the NTC, a regulatory agency that can cancel the Certificate of Authority of the radio
and broadcast media. They also came from the Secretary of Justice, the alter ego of the Executive, who
wields the awesome power to prosecute those perceived to be violating the laws of the land. After the
warnings, the KBP inexplicably joined the NTC in issuing an ambivalent Joint Press Statement. After the
warnings, petitioner Chavez was left alone to fight this battle for freedom of speech and of the press.
This silence on the sidelines on the part of some media practitioners is too deafening to be the subject of
misinterpretation.
DISPOSITIVE
In VIEW WHEREOF, the petition is GRANTED. The writs of certiorari and prohibition are hereby
issued, nullifying the official statements made by respondents on June 8, and 11, 2005 warning the media
on airing the alleged wiretapped conversation between the President and other personalities, for constituting
unconstitutional prior restraint on the exercise of freedom of speech and of the press.
CARPIO, CONCURRING.
The rule is that expression is not subject to any prior restraint or censorship because the Constitution
commands that freedom of expression shall not be abridged. Over time, however, courts have carved out
narrow and well-defined exceptions to this rule out of necessity.
The exceptions, when expression may be subject to prior restraint, apply in this jurisdiction to only four
categories of expression, namely: pornography, false or misleading advertisement, advocacy of imminent
lawless action, and danger to national security. All other expression is not subject to prior restraint. As
stated in Turner Broadcasting System v. Federal Communication Commission, "The First Amendment
(Free Speech Clause), subject only to narrow and well-understood exceptions, does not countenance
governmental control over the content of messages expressed by private individuals."
Expression not subject to prior restraint is protected expression or high-value expression. Any contentbased prior restraint on protected expression is unconstitutional without exception. A protected
expression means what it says – it is absolutely protected from censorship. Thus, there can be no prior
restraint on public debates on the amendment or repeal of existing laws, on the ratification of treaties, on
the imposition of new tax measures, or on proposed amendments to the Constitution.
Prior restraint on expression is content-based if the restraint is aimed at the message or idea of the
expression. Courts will subject to strict scrutiny content-based restraint. If the content-based prior restraint
is directed at protected expression, courts will strike down the restraint as unconstitutional because there
can be no content-based prior restraint on protected expression. The analysis thus turns on whether the prior
restraint is content-based, and if so, whether such restraint is directed at protected expression, that is, those
not falling under any of the recognized categories of unprotected expression.
If the prior restraint is not aimed at the message or idea of the expression, it is content-neutral even if it
burdens expression. A content-neutral restraint is a restraint which regulates the time, place or manner of
the expression in public places without any restraint on the content of the expression. Courts will subject
content-neutral restraints to intermediate scrutiny.
Expression that may be subject to prior restraint is unprotected expression or low-value expression. By
definition, prior restraint on unprotected expression is content-based since the restraint is imposed because
of the content itself. In this jurisdiction, there are currently only four categories of unprotected expression
that may be subject to prior restraint.
Only unprotected expression may be subject to prior restraint. However, any such prior restraint on
unprotected expression must hurdle a high barrier. First, such prior restraint is presumed unconstitutional.
Second, the government bears a heavy burden of proving the constitutionality of the prior restraint.
Courts will subject to strict scrutiny any government action imposing prior restraint on unprotected
expression. The government action will be sustained if there is a compelling State interest, and prior
restraint is necessary to protect such State interest. In such a case, the prior restraint shall be narrowly
drawn - only to the extent necessary to protect or attain the compelling State interest.
The prevailing test in this jurisdiction to determine the constitutionality of government action imposing
prior restraint on three categories of unprotected expression – pornography, advocacy of imminent lawless
action, and danger to national security - is the clear and present danger test. The expression restrained must
present a clear and present danger of bringing about a substantive evil that the State has a right and duty to
prevent, and such danger must be grave and imminent.
Prior restraint on unprotected expression takes many forms - it may be a law, administrative regulation, or
impermissible pressures like threats of revoking licenses or withholding of benefits. The impermissible
pressures need not be embodied in a government agency regulation, but may emanate from policies,
advisories or conduct of officials of government agencies.
The NTC does not claim that the public airing of the Garci Tapes constitutes unprotected expression that
may be subject to prior restraint. The NTC does not specify what substantive evil the State seeks to prevent
in imposing prior restraint on the airing of the Garci Tapes. The NTC does not claim that the public airing
of the Garci Tapes constitutes a clear and present danger of a substantive evil, of grave and imminent
character, that the State has a right and duty to prevent.
The NTC did not conduct any hearing in reaching its conclusion that the airing of the Garci Tapes
constitutes a continuing violation of the Anti-Wiretapping Law. At the time of issuance of the NTC press
release, and even up to now, the parties to the conversations in the Garci Tapes have not complained that
the wire-tapping was without their consent, an essential element for violation of the Anti-Wiretapping Law.
It was even the Office of the President, through the Press Secretary, that played and released to media the
Garci Tapes containing the alleged "spliced" conversation between President Arroyo and Commissioner
Garcillano. There is also the issue of whether a wireless cellular phone conversation is covered by the AntiWiretapping Law.
Clearly, the NTC has no factual or legal basis in claiming that the airing of the Garci Tapes constitutes a
violation of the Anti-Wiretapping Law. The radio and television stations were not even given an opportunity
to be heard by the NTC. The NTC did not observe basic due process as mandated in Ang Tibay v. Court of
Industrial Relations.
The NTC claims that the Garci Tapes, "after a prosecution or the appropriate investigation," may constitute
"false information and/or willful misrepresentation." However, the NTC does not claim that such possible
false information or willful misrepresentation constitutes misleading commercial advertisement. In the
United States, false or deceptive commercial speech is categorized as unprotected expression that may be
subject to prior restraint. Recently, this Court upheld the constitutionality of Section 6 of the Milk Code
requiring the submission to a government screening committee of advertising materials for infant formula
milk to prevent false or deceptive claims to the public. There is, however, no claim here by respondents
that the Garci Tapes constitute false or misleading commercial advertisement.
The NTC concedes that the Garci Tapes have not been authenticated as accurate or truthful. The NTC also
concedes that only "after a prosecution or appropriate investigation" can it be established that the Garci
Tapes constitute "false information and/or willful misrepresentation." Clearly, the NTC admits that it does
not even know if the Garci Tapes contain false information or willful misrepresentation.
The public airing of the Garci Tapes is a protected expression because it does not fall under any of the
four existing categories of unprotected expression recognized in this jurisdiction. The airing of the Garci
Tapes is essentially a political expression because it exposes that a presidential candidate had allegedly
improper conversations with a COMELEC Commissioner right after the close of voting in the last
presidential elections.
Obviously, the content of the Garci Tapes affects gravely the sanctity of the ballot. Public discussion on
the sanctity of the ballot is indisputably a protected expression that cannot be subject to prior restraint.
Public discussion on the credibility of the electoral process is one of the highest political expressions of any
electorate, and thus deserves the utmost protection. If ever there is a hierarchy of protected expressions,
political expression would occupy the highest rank, and among different kinds of political expression, the
subject of fair and honest elections would be at the top. In any event, public discussion on all political issues
should always remain uninhibited, robust and wide open.
The rule, which recognizes no exception, is that there can be no content-based prior restraint on
protected expression. On this ground alone, the NTC press release is unconstitutional.
Of course, if the courts determine that the subject matter of a wiretapping, illegal or not, endangers the
security of the State, the public airing of the tape becomes unprotected expression that may be subject to
prior restraint. However, there is no claim here by respondents that the subject matter of the Garci Tapes
involves national security and publicly airing the tapes would endanger the security of the State.
Respondents did not invoke any compelling State interest to impose prior restraint on the public airing of
the Garci Tapes. The respondents claim that they merely "fairly warned" radio and television stations to
observe the Anti-Wiretapping Law and pertinent NTC circulars on program standards. Respondents have
not explained how and why the observance by radio and television stations of the Anti-Wiretapping Law
and pertinent NTC circulars constitutes a compelling State interest justifying prior restraint on the public
airing of the Garci Tapes.
Violation of the Anti-Wiretapping Law, like the violation of any criminal statute, can always be subject to
criminal prosecution after the violation is committed. Respondents have not explained why there is a need
in the present case to impose prior restraint just to prevent a possible future violation of the AntiWiretapping Law. Respondents have not explained how the violation of the Anti-Wiretapping Law, or of
the pertinent NTC circulars, can incite imminent lawless behavior or endanger the security of the State. To
allow such restraint is to allow prior restraint on all future broadcasts that may possibly violate any of the
existing criminal statutes. That would be the dawn of sweeping and endless censorship on broadcast media.
NACHURA, DISSENTING.
In the Philippines, it is the respondent NTC that has regulatory powers over telecommunications networks.
In Republic Act No. 7925, the NTC is denominated as its principal administrator, and as such shall take the
necessary measures to implement the policies and objectives set forth in the Act. Under Executive Order
546, the NTC is mandated, among others, to establish and prescribe rules, regulations, standards and
specifications in all cases related to the issued Certificate of Public Convenience, promulgate rules and
regulations as public safety and interest may require, and supervise and inspect the operation of radio
stations and telecommunications facilities. The NTC exercises quasi-judicial powers.
The issuance of the press release by NTC was well within the scope of its regulatory and supervision
functions, part of which is to ensure that the radio and television stations comply with the law and the terms
of their respective authority. Thus, it was not improper for the NTC to warn the broadcast media that the
airing of taped materials, if subsequently shown to be false, would be a violation of law and of the terms of
their certificate of authority, and could lead, after appropriate investigation, to the cancellation or revocation
of their license.
A survey of free speech cases in our jurisdiction reveals the same disposition: there is prior restraint when
the government act forbids speech, prohibits the expression of a message, or imposes onerous requirements
or restrictions for the publication or dissemination of ideas.
Thus, in Primicias v. Fugoso and in Reyes v. Bagatsing, the refusal, without valid cause, of the City Mayor
of Manila to issue a permit for a public assembly was held to have infringed freedom of expression.
In Burgos v. Chief of Staff and in Eastern Broadcasting v. Dans, the closure of the printing office of the
newspapers, We Forum and Metropolitan Mail, and of radio station DYRE in Cebu, respectively, was ruled
as violation of freedom of the press.
On election-related restrictions, Mutuc v. COMELEC invalidated the respondent’s prohibition against the
use of taped jingles in mobile units of candidates; Adiong v. COMELEC struck down the COMELEC’s
resolution limiting the posting of candidates’ decals and stickers only in designated areas and not allowing
them in private or public vehicles; Sanidad v. COMELEC declared as unconstitutional the COMELEC
prohibition on newspaper columnists and radio commentators to use their columns or programs to campaign
for or against the ratification of the organic act establishing the Cordillera Autonomous Region; ABS-CBN
Broadcasting Corporation v. COMELEC annulled the COMELEC resolution prohibiting the conduct of
exit polls; and Social Weather Stations v. COMELEC nullified Section 5.4 of Republic Act No. 9006 and
Section 24(h) of COMELEC Resolution 3636 which prohibited the publication of pre-election survey
results within specified periods.
On movies and television, the injunctive writs issued by lower courts against the movie producers in Ayer
Productions Pty. Ltd. v. Capulong and in Viva Productions v. Court of Appeals were invalidated, while in
Iglesia ni Cristo v. Court of Appeals, the X-rating given by MTRCB to the television show was ruled as
grave abuse of discretion.
But there is no parity between these cases and the case at bench. Unlike the government acts in the abovecited cases, what we have before us now is merely a press release—not an order or a circular— warning
broadcast media on the airing of an alleged taped conversation, with the caveat that should its falsity be
subsequently established, the act could lead to the revocation or cancellation of their licenses, after
appropriate investigation.
The warnings on possible license revocation and criminal prosecution are simply what they are, mere
warnings. They have no compulsive effect, as they do not impose a limit on speech or other forms of
expression nor do they prevent the expression of a message.
The judicial angle of vision in testing the validity of the assailed press release against the prior restraint
standard is its operation and substance. The phrase "prior restraint" is not a self-wielding sword, nor should
it serve as a talismanic test. What is needed is a practical assessment of its operation in specific or particular
circumstances.
In the instant case, the issuance of the press release was simply part of the duties of the NTC in the
enforcement and administration of the laws which it is tasked to implement. The press release did not
actually or directly prevent the expression of a message. The respondents never issued instructions
prohibiting or stopping the publication of the alleged wiretapped conversation. The warning or advisory in
question did not constitute suppression, and the possible in terrorem effect, if any, is not prior restraint. It
is not prior restraint because, if at all, the feared license revocation and criminal prosecution come after the
publication, not before it, and only after a determination by the proper authorities that there was, indeed, a
violation of law.
The press release does not have a "chilling effect" because even without the press release, existing
laws—and rules and regulations—authorize the revocation of licenses of broadcast stations if they
are found to have violated penal laws or the terms of their authority. The majority opinion emphasizes
the chilling effect of the challenged press releases—the fear of prosecution, cancellation or revocation of
license by virtue of the said press statements. The majority loses sight of the fact that the press statements
are not a prerequisite to prosecution, neither does the petition demonstrate that prosecution is any more
likely because of them.
The "clear and present danger rule"—the universally-accepted norm for testing the validity of governmental
intervention in free speech—finds no application in this case precisely because there is no prior restraint.
Pursuant to its regulatory authority, the NTC has issued memorandum circulars covering Program
Standards to be followed by radio stations and television networks, a common provision of which reads:
All radio broadcasting and television stations shall provide adequate public service time, shall conform to
the ethics of honest enterprise; and shall not use its stations for the broadcasting or telecasting of obscene
or indecent language, speech and/or scene, or for the dissemination of false information or willful
misrepresentation, or to the detriment of the public health or to incite, encourage or assist in subversive
or treasonable acts.
Undoubtedly, this is a reasonable standard of conduct demanded of the media outlets. The sanction that
may be imposed for breach thereof—suspension, cancellation or revocation of the station’s license after an
appropriate investigation has sufficiently established that there was a breach—is also reasonable. It cannot
be characterized as impermissible punishment which violates freedom of expression.
CASE 24
TELEFAST v. CASTRO
GR no. 73867 / February 29, 1988
J. Padilla
RELEVANT TOPIC: Modes of Breach – Contravention of Tenor (Article 1172)
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC. vs. CASTRO
G.R. No. 73867, February 29, 1988
FACTS:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the
other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who
was then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda,
Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram was accepted by the
defendant in its Dagupan office, for transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in
attendance. Neither the husband nor any of the other children of the deceased, then all residing in the United
States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused the defendant to
send, had not been received. She and the other plaintiffs thereupon brought action for damages arising from
defendant's breach of contract. The case was filed in the Court of First Instance of Pangasinan and docketed
therein as Civil Case No. 15356. The only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control." No evidence appears on record
that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit
the telegram.
ISSUE:
•
W/N the defendant is liable for damages.
RULING:
Yes, Telefast Communications is liable for damages.
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for
damages." Art. 2176 also provides 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.
This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this
regard would result in an iniquitous situation where petitioner will only be held liable for the actual cost of
a telegram fixed thirty (30) years ago.
CASE 25
ARRIETA v. NARIC
GR no. L – 15645 / January 31, 1964
J. Regala
Petitioner: Paz Arrieta
Respondents: National Rice and Corn Corporation and Manila Underwriters Insurance Co., Inc.
Topic: Breach
FACTS:
On May 19, 1952, NARIC conducted a public bidding for 20,000 metric tons (MT) of Burmese rice. With
her bid of $203.00 per MT as the lowest, Arrieta was awarded the contract. Accordingly, both parties
entered into a Contract of Sale of Rice, under which Arrieta obligated herself to deliver to NARIC 20,000
MT of Burmese Rice at $208.00 per MT, CIF Manila. In turn, NARIC committed itself to pay for the
imported rice "by means of an irrevocable, confirmed and assignable letter of credit (LC) in U.S. currency
in favor of the plaintiff-appellee (Arrieta) and/or supplier in Burma, immediately."
However, upon its filing for application for commercial LC a month later (July 30, 1952) with PNB, NARIC
indicated that because it “did not have sufficient deposit to cover the amount required to be deposited as a
condition for the opening of LCs, we will appreciate it if this application could be considered a special
case,” and cited Arrieta’s deadline on August 4, 1952.
On the same day, Arrieta also advised NARIC that “in compliance with the regulations in Rangoon [the
5% of the FOB price of 20,000 tons at $180.70] will be confiscated if the required LC is not received by
them before August 4, 1952.”
On August 4, 1952, PNB informed NARIC that its Board agreed to issue the LC for $3,614,000.00 in favor
of Thiri Setkya only upon the deposit of half of the total sum requested as marginal cash deposit.
NARIC informed Arrieta that it was not in any financial position to meet PNB’s condition.
The credit instrument applied for was opened only on September 8, 1952.
As a result of the delay, the allocation of Arrieta's supplier in Rangoon was cancelled and the deposit of
524,000 kyats or approximately P200,000.00 was forfeited.
When the futility of restoring the cancelled Burmese rice allocation became clear, Arrieta offered to provide
the NARIC with Thai rice instead.
NARIC rejected the offer and later contended that it amounted to a waiver of rights with regard to the
breach of contract.
Arrieta sent a letter to NARIC, demanding compensation for the damages caused her in the sum of
$286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected, she instituted
this case.
NARIC filed a counterclaim, asserting that it has suffered, likewise by way of unrealized profit, damages
of $406,000 from the failure of the projected contract to materialize. It also sued the Manila Underwriters
Insurance Company as third party defendant to hold it liable on the performance bond it executed in favor
of Arrieta.
The trial court awarded Arrieta $286,000.00 as damages for breach of contract and dismissed the
counterclaim and third party complaint of NARIC. Hence, this appeal to SC (no CA).
ISSUE/S:
•
W/N NARIC’s failure to open immediately the LC amounted to a breach of the contract for which
it may be held liable in damages. YES.
RULING:
NARIC contends that the LC was not promptly secured because Arrieta failed to seasonably furnish the
necessary and required data, namely, " (1) the amount of the LC, (2) the person, company or corporation in
whose favor it is to be opened, and (3) the place and bank where it may be negotiated."
This is a question of fact that the trial judge already ruled on: NARIC failed to present Mr. Gabriel
Belmonte, its General Manager, to testify or refute Arrieta’s testimony that these facts were known to
NARIC even before the contract was executed because these facts were necessary before she could qualify
as a bidder and that she had given the necessary data to Mr. Belmonte immediately after the execution of
the contract.
o From the correspondence and communications which form part of the record of this case, it is clear that
what singularly delayed the opening of the LC and which, in turn, caused the cancellation of the allocation
in Burma, was the inability of NARIC to meet the condition imposed by PNB for granting the same.
o The liability of NARIC, however, stems not alone from this failure; or inability to satisfy the requirements
of PNB. Its culpability arises from its willful and deliberate assumption of contractual obligations
even as it was well aware of its financial incapacity to undertake the presentation, as it admitted to
PNB in its application.
o A number of logical inferences may be drawn from the admission. First, that NARIC knew the bank
requirements for opening LCs; second, that NARIC also knew it could not meet those requirements. When,
therefore, despite this awareness that it was financially incompetent to open a LC immediately, NARIC
agreed in the contract to pay immediately "by means of an irrevocable, confirmed and assignable LC," it
must be similarly be held to have bound itself to answer for every consequence that would result from the
representation.
o Under Art. 1170, in general, every debtor who fails in the performance of his obligations is bound to
indemnify for the losses and damages caused thereby. The phrase "in any manner contravene the tenor" of
the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or
every kind of defective performance. (Tolentino).
NOTES:
A minor modification must take effect in the dispositive portion of the decision appealed from insofar as it
expresses the amount of damages in U.S. currency and not in PHP. Republic Act 529 specifically requires
the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for
public and private debts." In view of that law, therefore, the award should be converted into and expressed
in PHP.
o Citing Eastboard Navigation, Ltd., vs. Juan Ysmael & Co., Inc., if there is any agreement to pay an
obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public
policy (Republic Act 529), and the most that could be demanded is to pay said obligation in Philippine
currency "to be measured in the prevailing rate of exchange at the time the obligation was incurred (Sec.
1, Idem.)." (in this case, on July 1, 1952 when the contract was executed)
END
February 12, 2021
11:14 pm
To God be all the glory!