Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-26332
EN BANC
October 26, 1968
THE SWEDISH EAST ASIA CO., LTD., petitioner,
vs.
MANILA PORT SERVICE AND/OR MANILA RAILROAD COMPANY, respondents.
Ross, Selph, Salcedo, Del Rosario, Bito & Misa for petitioner.
Government Corporate Counsel D. F. Macaranas for respondents.
CASTRO, J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R. 34279-R, entitled
"The Swedish East Asia Co., Ltd. vs. Manila Port Service, et al." The petitioner, The Swedish
East Asia Co., Ltd., a corporation duly organized and existing under the laws of Sweden with
principal offices at Gothenburg, Sweden, is admittedly not licensed to do business in the
Philippines.
On December 3, 1967 the MS "SUDAN", owned and operated by the petitioner, arrived at the
port of Manila and discharged cargo destined thereto unto the custody of the respondent Manila
Port Service, a subsidiary of the respondent Manila Railroad Company, contractor and operator
of the arrastre service of the port of Manila. By mistake, cargo destined for Hongkong consisting
of sixteen bundles of "lifts of mild steel tees window sections" covering which the petitioner had
issued a bill of lading in the name of S.A. Citals Lodelinsart, as shipper, and of Welcome Trading
Co. of Hongkong, as consignee, were also landed at Manila. The erroneous discharge was
obviously engendered by the fact that the same ship on the same day discharged forty similar
bundles destined for consignees in the Philippines.
Vicente Pacheco, claims manager of the International Harvester McCleod and Company, the
petitioner's agent in Manila, upon being notified by letter from Hongkong of the erroneous
discharge, sent the company's customs men to investigate, who found the sixteen bundles at
the customs piers. Pacheco then instructed their customs men to arrange for the reshipment of
the sixteen bundles to Hongkong and accomplish all necessary papers for payment of customs,
arrastre and storage charges due on the goods, which charges were as a matter of fact paid by
the petitioner. However, the reshipment of all the sixteen bundles was not effected, because
only eight of these were available at the time that all were scheduled to be loaded on board the
M.S. "Minikoi" bound for Hongkong, as the remaining eight could not be found. After an
exchange of letters between Pacheco and the Manila Port Service, in the last of which the latter
advised the International Harvester of its inability to locate the eight missing bundles, the
petitioner, on January 10, 1958, presented a formal claim for the value of the missing cargo to
the Manila Port Service in the sum of P2,349.62. On March 8, 1960 the petitioner received a
letter from the respondents rejecting the claim.
On March 13, 1961 the petitioner filed a complaint in the Court of First Instance of Manila, for
recovery of the amount of P2,349.62, the value of the missing goods, which sum it had paid to
the consignee in Hongkong, as well as the amount of P2,000 in moral damages and P1,000 as
attorney's fees, and costs.
On April 29, 1964, after due trial, the lower court rendered judgment ordering the respondents,
jointly and severally, to pay the petitioner the sum of P2,349.62, with interest thereon at the rate
of 6% per annum from March 13, 1961, the date of the filing of the complaint, and the sum of
P600 in attorney's fees, plus costs.
From this judgment, the respondents interposed an appeal to the Court of Appeals, which on
April 30, 1966 promulgated its decision reversing that of the lower court and absolving the
respondents.
Hence, the present recourse.
The petitioner contends in this appeal that the Court of Appeals erred "(1) in holding that the
obligation of the Manila Port Service to a non-resident consignee of cargo not destined for
Manila but mistakenly discharged at Manila is governed by its management contract with the
Bureau of Customs and not by article 2154 of the Civil Code of the Philippines; (2) assuming
arguendo that the management contract of the Manila Port Service with the Bureau of Customs
governs the obligations of respondents and is binding on petitioner, in holding that a claim filed
thirty-eight days after the discharge of the cargo but within fifteen days from the time the cargo
was placed at the disposal of the consignee is time-barred; and (3) in not holding that suit
against the Manila Port Service for loss of cargo may be filed within one year from notice of the
rejection of consignee's claim."
The Court of Appeals held that the petitioner's action in the lower court was time-barred, its
claim having been filed only on January 10, 1958, or thirty-eight days from December 3, 1957,
when the cargo in question was landed at the port of Manila, and court action having been
commenced only on March 13, 1961, or more than three years thereafter, in violation of the
provisions of the management contract between the Manila Port Service and the Bureau of
Customs, which, in part, reads:
... in any event the CONTRACTOR shall be relieved and released of any and all
responsibility or liability for loss, damage, misdelivery and/or non-delivery of goods
unless suit in the court of proper jurisdiction is brought within a period one (1) year from
the date of the discharge of the goods, or from the date when the claim for the value of
such goods have [sic] been rejected or denied by the CONTRACTOR, provided that
such claim shall have been filed with the contractor within 15 days from the date of
discharge of the last package from the carrying vessel ...
The petitioner argues that the cases cited by the Court of Appeals, on the basis of which it
absolved the respondents from liability, are not applicable to the case at bar, because the said
cases involved cargo destined for the Philippines, and the consignees are residents of the
Philippines who availed themselves of the services of the customs arrastre operator. These
conditions, the petitioner states, do not exist in the present case as (1) the cargo herein involved
was destined not for Manila but for Hongkong, (2) the consignee is not a resident of the
Philippines, (3) the cargo was mistakenly discharged at Manila unto the custody of the arrastre
operator, and (4) the consignee cannot be said to have availed itself of the services of the
arrastre operator.
Admitting that the Hongkong consignee of the cargo involved is not bound by the management
contract, for the reason that it was not charged with notice of the provisions thereof, the
respondents nonetheless maintain that the petitioner is bound thereby, because the petitioner
had been transacting business with the respondents regularly in the past and is charged with
knowledge of the provisions of the management contract. They further argue that since it was
the petitioner, and not the consignee, which had mistakenly delivered the goods, there could be
no subrogation in favor of the petitioner entitling it to invoke in its favor the non-applicability of
the management contract to the consignee.
It is our view that the position taken by the petitioner is correct. True it is that this Court has held
in a number of cases that it is not only the parties to a management contract that are bound
thereby, but also third parties who have availed themselves of the services of the arrastre
operator, taking delivery therefrom in pursuance of a permit and a pass issued by the latter.1
The disparate facts of the present case, however, do not warrant application of this doctrine. For
it is not disputed that the petitioner had no intention of availing itself of the services of the Manila
Port Service, nor did it seek to derive benefit therefrom, in so far as the cargo in question is
concerned. On the contrary, its intention was to have the sixteen bundles discharged in
Hongkong, pursuant to its contract with the consignee, the Welmore Trading Co., to deliver the
cargo to that place. Discharge of the good in Manila was made through mistake, in good faith.
The petitioner not being bound by the management contract either as a party thereto or as one
who has taken advantage of the provisions thereof, it follows that its right to bring an action to
recover the value of the missing goods can not be limited by the pre-conditions as to time set
forth in the said management contract.
The respondents who had no right to the sixteen bundles delivered to them by mistake, had
actually received them, thereby giving rise to an obligation on their part to return them to the one
who delivered them by mistake, which, by virtue of this circumstance, acquired the character of
creditor of the receiver, remaining at the same time answerable to the consignee thereof.2 It
results that the petitioner having acquired the right to demand in its own capacity the return of
the shipment delivered by mistake to the respondents, this Court may grant relief to it not as
subrogee of the consignee, but as creditor in its own right, in which capacity the petitioner has
brought this action as shown by the allegations of the complaint considered as a whole.
In the case at bar, there is no question that the defendants received the sixteen bundles which
were mistakenly discharged in Manila as in fact they were located at the piers, and that the
charges for their storage were paid by the petitioner. There was therefore an obligation on the
part of the respondents to return them to the petitioner.
The defense that the agents of the shipper were negligent in allowing the landing of the cargo at
Manila by mistake, will not exempt the respondents from liability, because the obligation of one
who has erroneously received a thing to return the same to the one who delivered it by mistake
remains unaffected by such circumstance. And this holds true even where, as in this case, the
one who wrongfully delivered the thing, pays its value to the rightful owner thereof.
The foregoing disquisition dispenses with the need of passing upon the other two assignments
of error.
The complaint having been filed on March 13, 1961, less than four years from the date the
petitioner's right of action accrued, that is, from December 3, 1957, when the missing cargo was
admittedly landed unto the custody of the defendants, the action of the petitioner has not
prescribed, whether we apply article 1146 of the new Civil Code which provides for a
prescriptive period of four years for an action "upon an injury to the rights of the plaintiff," or
article 1149 of the same Code which provides that "all other actions whose periods are not fixed
in this Code or in other laws must be brought within five years from the time the right of action
accrues."
The respondents challenge the petitioner's capacity to sue, it being admittedly a foreign
corporation without license to engage in business in the Philippines, citing section 69 of the
Corporation Law. It must be stated however that this section is not applicable to a foreign
corporation performing single acts or "isolated transactions."3 There is nothing in the record to
show that the petitioner has been in the Philippines engaged in continuing business or
enterprise for which it was organized, when the sixteen bundles were erroneously discharged in
Manila, for it to be cosidered as transacting business in the Philippines. The fact is that the
bundles, the value of which is sought to be recovered, were landed not as a result of a business
transaction, "isolated" or otherwise, but due to a mistaken belief that they were part of the
shipment of forty similar bundles consigned to persons or entities in the Philippines. There is no
justification, therefore, for invoking the provisions of section 69 of the Corporation Law.
ACCORDINGLY, the judgment of the Court of Appeals is reversed, and another judgment is
hereby rendered ordering the respondents, jointly and severally, to pay the petitioner the sum of
P2,349.62 with interest thereon at the rate of 6% per annum from March 13, 1961, the date of
the filing of the complaint, until the amount shall have been fully paid, and the sum of P600 as
attorney's fees. Costs against the respondents.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles, Fernando and
Capistrano, JJ., concur.
Zaldivar, J., is on leave.
Footnotes
¹ Northern Motors, Inc. vs. Prince Line, et al., L-13884, February 29, 1960; Mendoza vs. Phil. Air
Lines, Inc., L-3678, February 29, 1952; Freixas & Co. vs. Pacific Mail Steamship Co., 42 Phil.
199: GSIS vs. MRR, et al., L-13276, February 25, 1961.
² "In its broad sense, 'implied contract' has been defined as contract which arises by legal
inference and upon principles of reason and justice from certain facts, ...[A]n implied contract
must depend on substance for its existence, and it cannot arise from nothing, such as a
conjecture or a possibility; in other words, there must be some act or conduct of the party
sought to be bound, from which an implied contract arises, the implication arising only from
something which the party sought to be bound says or does. They are created by
circumstances. An implied contract, in the proper sense, arises where the intention of the
parties is not expresed, but an agreement in fact, creating an obligation, is implied or presumed
from their acts, or, as it has been otherwise stated, where there are circumstances which,
according to the ordinary course of dealing and the common understanding of men, show a
mutual intent to contract." (17 C.J.S. pp. 556-557) Cf. Aquino vs. Deala, 63 Phil. 582: Pomar vs
Perez, 2 Phil. 682.
³ Marshall Wells Co. vs. Elser, 46 Phil. 70; Central Republic Bank, et al. vs. Bustamante, 71 Phil.
359.
G.R. No. 34840
EN BANC
September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez.
San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a
result of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both
sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality
of Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and
was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together will
several other members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo,
Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso
Gutierrez suffering a fracture right leg which required medical attendance for a considerable
period of time, and which even at the date of the trial appears not to have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The difference
between the parties is that, while the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile, and the owner of the automobile, in turn, blames the
truck. We have given close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on all controversial
questions of fact find sufficient support in the record, and so should be maintained. With this
general statement set down, we turn to consider the respective legal obligations of the
defendants.
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it
may be explained that the youth Bonifacio was in 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 article 1903 of the Civil
Code, the father alone and not the minor or the mother, would be liable for the damages caused
by the minor.
We are dealing with the civil law liability of parties for obligations which arise from fault or
negligence. At the same time, we believe that, as has been done in other cases, we can take
cognizance of the common law rule on the same subject. 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. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes
[1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of contract which, we think,
has been sufficiently demonstrated by the allegations of the complaint, not controverted, and the
evidence. The reason for this conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine, and the lack of care
employed by the chauffeur. While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the
trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge
from opposite directions, with neither being willing to slow up and give the right of way to the
other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed contributory negligence
on the part of the plaintiff, consisting principally of his keeping his foot outside the truck, which
occasioned his injury. In this connection, it is sufficient to state that, aside from the fact that the
defense of contributory negligence was not pleaded, the evidence bearing out this theory of the
case is contradictory in the extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The appellee suggests
that the amount could justly be raised to P16,517, but naturally is not serious in asking for this
sum, since no appeal was taken by him from the judgment. The other parties unite in
challenging the award of P10,000, as excessive. All facts considered, including actual
expenditures and damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court, lead us to conclude
that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in
approximating the damages by monetary compensation is well elucidated by the divergence of
opinion among the members of the court, three of whom have inclined to the view that P3,000
would be amply sufficient, while a fourth member has argued that P7,500 would be none too
much.
In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo
Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of
both instances.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.
VILLA-REAL, J.:
I vote for an indemnity of P7,500.
G.R. No. 147561
FIRST DIVISION
June 22, 2006
STRONGHOLD INSURANCE COMPANY, INC., Petitioner,
vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
DECISION
PANGANIBAN, CJ:
Asurety company’s liability under the performance bond it issues is solidary. The death of the
principal obligor does not, as a rule, extinguish the obligation and the solidary nature of that
liability.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the
March 13, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed
Decision disposed as follows:
"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and
SET ASIDE. Let the records of the instant case be REMANDED to the lower court for the
reception of evidence of all parties."3
The Facts
The facts of the case are narrated by the CA in this wise:
"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered
into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the
construction of roadways and a drainage system in Republic-Asahi’s compound in Barrio
Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS five million three hundred
thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which was
supposed to be completed within a period of two hundred forty (240) days beginning May 8,
1989. In order ‘to guarantee the faithful and satisfactory performance of its undertakings’ x x x
JDS, shall post a performance bond of seven hundred ninety five thousand pesos
(P795,000.00). x x x JDS executed, jointly and severally with [petitioner] Stronghold Insurance
Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.
"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos
(P795,000.00) by way of downpayment.
"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of
two hundred seventy four thousand six hundred twenty one pesos and one centavo
(P274,621.01) were submitted by x x x JDS to [respondent], which the latter paid. According to
[respondent], these two progress billings accounted for only 7.301% of the work supposed to be
undertaken by x x x JDS under the terms of the contract.
"Several times prior to November of 1989, [respondent’s] engineers called the attention of x x x
JDS to the alleged alarmingly slow pace of the construction, which resulted in the fear that the
construction will not be finished within the stipulated 240-day period. However, said reminders
went unheeded by x x x JDS.
"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS,
[respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said
contract, and wrote a letter to x x x JDS informing the latter of such rescission. Such rescission,
according to Article XV of the contract shall not be construed as a waiver of [respondent’s] right
to recover damages from x x x JDS and the latter’s sureties.
"[Respondent] alleged that, as a result of x x x JDS’s failure to comply with the provisions of the
contract, which resulted in the said contract’s rescission, it had to hire another contractor to
finish the project, for which it incurred an additional expense of three million two hundred fifty six
thousand, eight hundred seventy four pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond
for not less than P795,000.00. On March 22, 1991, [respondent] again sent another letter
reiterating its demand for payment under the aforementioned bond. Both letters allegedly went
unheeded.
"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS
payment of P3,256,874.00 representing the additional expenses incurred by [respondent] for the
completion of the project using another contractor, and from x x x JDS and SICI, jointly and
severally, payment of P750,000.00 as damages in accordance with the performance bond;
exemplary damages in the amount of P100,000.00 and attorney’s fees in the amount of at least
P100,000.00.
"According to the Sheriff’s Return dated June 14, 1991, submitted to the lower court by Deputy
Sheriff Rene R. Salvador, summons were duly served on defendant-appellee SICI. However, x x
x Jose D. Santos, Jr. died the previous year (1990), and x x x JDS Construction was no longer
at its address at 2nd Floor, Room 208-A, San Buena Bldg. Cor. Pioneer St., Pasig, Metro
Manila, and its whereabouts were unknown.
"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondent’s] money
claims against [petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr.
Even if this were not the case, [petitioner] SICI had been released from its liability under the
performance bond because there was no liquidation, with the active participation and/or
involvement, pursuant to procedural due process, of herein surety and contractor Jose D.
Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of Santos and
SICI under the performance bond. At this point in time, said liquidation was impossible because
of the death of Santos, who as such can no longer participate in any liquidation. The unilateral
liquidation on the party (sic) of [respondent] of the work accomplishments did not bind SICI for
being violative of procedural due process. The claim of [respondent] for the forfeiture of the
performance bond in the amount of P795,000.00 had no factual and legal basis, as payment of
said bond was conditioned on the payment of damages which [respondent] may sustain in the
event x x x JDS failed to complete the contracted works. [Respondent] can no longer prove its
claim for damages in view of the death of Santos. SICI was not informed by [respondent] of the
death of Santos. SICI was not informed by [respondent] of the unilateral rescission of its
contract with JDS, thus SICI was deprived of its right to protect its interests as surety under the
performance bond, and therefore it was released from all liability. SICI was likewise denied due
process when it was not notified of plaintiff-appellant’s process of determining and fixing the
amount to be spent in the completion of the unfinished project. The procedure contained in
Article XV of the contract is against public policy in that it denies SICI the right to procedural due
process. Finally, SICI alleged that [respondent] deviated from the terms and conditions of the
contract without the written consent of SICI, thus the latter was released from all liability. SICI
also prayed for the award of P59,750.00 as attorney’s fees, and P5,000.00 as litigation
expenses.
"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent]
against x x x JDS and SICI, on the ground that the claim against JDS did not survive the death
of its sole proprietor, Jose D. Santos, Jr. The dispositive portion of the [O]rder reads as follows:
‘ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business
under trade and style, ‘JDS Construction’ and Stronghold Insurance Company, Inc. is ordered
DISMISSED.
‘SO ORDERED.’
"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking
reconsideration of the lower court’s August 16, 1991 order dismissing its complaint. [Petitioner]
SICI field its ‘Comment and/or Opposition to the Motion for Reconsideration.’ On October 15,
1991, the lower court issued an Order, the dispositive portion of which reads as follows:
‘WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due
course. The Order dated 16 August 1991 for the dismissal of the case against Stronghold
Insurance Company, Inc., is reconsidered and hereby reinstated (sic). However, the case
against defendant Jose D. Santos, Jr. (deceased) remains undisturbed.
‘Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance
Company Inc., are set for hearing on November 7, 1991 at 2:00 o’clock in the afternoon.
‘SO ORDERED.’
"On June 4, 1992, [petitioner] SICI filed its ‘Memorandum for Bondsman/Defendant SICI (Re:
Effect of Death of defendant Jose D. Santos, Jr.)’ reiterating its prayer for the dismissal of
[respondent’s] complaint.
"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated
October 15, 1991, and ordered the case, insofar as SICI is concerned, dismissed. [Respondent]
filed its motion for reconsideration which was opposed by [petitioner] SICI. On April 16, 1993,
the lower court denied [respondent’s] motion for reconsideration. x x x."4
Ruling of the Court of Appeals
The CA ruled that SICI’s obligation under the surety agreement was not extinguished by the
death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.
The appellate court also found that the lower court had erred in pronouncing that the
performance of the Contract in question had become impossible by respondent’s act of
rescission. The Contract was rescinded because of the dissatisfaction of respondent with the
slow pace of work and pursuant to Article XIII of its Contract with JDS.
The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of
[respondent’s] fault, but because of the fault of JDS Construction and Jose D. Santos, Jr. for
failure on their part to make satisfactory progress on the project, which amounted to
non-performance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable for the
non-performance of said [C]ontract on the part of JDS Construction."5
Hence, this Petition.6
Issue
Petitioner states the issue for the Court’s consideration in the following manner:
"Death is a defense of Santos’ heirs which Stronghold could also adopt as its defense against
obligee’s claim."7
More precisely, the issue is whether petitioner’s liability under the performance bond was
automatically extinguished by the death of Santos, the principal.
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Surety’s Liability
Petitioner contends that the death of Santos, the bond principal, extinguished his liability under
the surety bond. Consequently, it says, it is automatically released from any liability under the
bond.
As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation.8 Obligations are transmissible to the heirs, except when the transmission is
prevented by the law, the stipulations of the parties, or the nature of the obligation.9 Only
obligations that are personal10 or are identified with the persons themselves are extinguished
by death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims
arising from a contract against the estate of a deceased debtor. Evidently, those claims are not
actually extinguished.13 What is extinguished is only the obligee’s action or suit filed before the
court, which is not then acting as a probate court.14
In the present case, whatever monetary liabilities or obligations Santos had under his contracts
with respondent were not intransmissible by their nature, by stipulation, or by provision of law.
Hence, his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate.15 Death is not a defense that he or his estate can set up to
wipe out the obligations under the performance bond. Consequently, petitioner as surety cannot
use his death to escape its monetary obligation under its performance bond.
The liability of petitioner is contractual in nature, because it executed a performance bond
worded as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw
Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE
COMPANY, INC. a corporation duly organized and existing under and by virtue of the
laws of the Philippines with head office at Makati, as Surety, are held and firmly bound
unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm,
partnership, corporation or association supplying the principal with labor or materials in
the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00),
Philippine Currency, for the payment of which sum, well and truly to be made, we bind
ourselves, our heirs, executors, administrators, successors and assigns, jointly and
severally, firmly by these presents.
"The CONDITIONS OF THIS OBLIGATION are as follows;
"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered
into a contract with the REPUBLIC ASAHI GLASS CORPORATION represented by
_________________, to fully and faithfully. Comply with the site preparation works road
and drainage system of Philippine Float Plant at Pinagbuhatan, Pasig, Metro Manila.
"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed
the sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00)
Philippine Currency, inclusive of interest, attorney’s fee, and other damages, and shall
not be liable for any advances of the obligee to the principal.
"WHEREAS, said contract requires the said principal to give a good and sufficient bond
in the above-stated sum to secure the full and faithfull performance on its part of said
contract, and the satisfaction of obligations for materials used and labor employed upon
the work;
"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of said contract during the
original term of said contract and any extension thereof that may be granted by the
obligee, with notice to the surety and during the life of any guaranty required under the
contract, and shall also perform well and truly and fulfill all the undertakings, covenants,
terms, conditions, and agreements of any and all duly authorized modifications of said
contract that may hereinafter be made, without notice to the surety except when such
modifications increase the contract price; and such principal contractor or his or its
sub-contractors shall promptly make payment to any individual, firm, partnership,
corporation or association supplying the principal of its sub-contractors with labor and
materials in the prosecution of the work provided for in the said contract, then, this
obligation shall be null and void; otherwise it shall remain in full force and effect. Any
extension of the period of time which may be granted by the obligee to the contractor
shall be considered as given, and any modifications of said contract shall be considered
as authorized, with the express consent of the Surety.
"The right of any individual, firm, partnership, corporation or association supplying the contractor
with labor or materials for the prosecution of the work hereinbefore stated, to institute action on
the penal bond, pursuant to the provision of Act No. 3688, is hereby acknowledge and
confirmed."16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which
provides as follows:
"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of Section 4,17
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship."
xxxxxxxxx
"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected."
Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 stated thus:
"x x x. The surety’s obligation is not an original and direct one for the performance of his own
act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal. x x x."19
Under the law and jurisprudence, respondent may sue, separately or together, the principal
debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the
principal debtor will not work to convert, decrease or nullify the substantive right of the solidary
creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner
alone, in accordance with the solidary nature of the latter’s liability under the performance bond.
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Chief Justice
Chairman, First Division
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
ROMEO J. CALLEJO, SR.
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
C E RTI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1 Rollo, pp. 9-20.
2 Id. at 23-37. Seventeenth Division. Penned by Justice Remedios A. Salazar-Fernando, with
the concurrence of Justices Romeo A. Brawner (Division chair) and Juan Q. Enriquez Jr.
(member).
3 Assailed CA Decision, p. 14; rollo, p. 36.
4 Id. at 2-5; id. at 24-27.
5 Id. at 13-14; id. at 35-36.
6 To resolve old cases, the Court created the Committee on Zero Backlog of Cases on January
26, 2006. Consequently, the Court resolved to prioritize the adjudication of long-pending cases
by redistributing them among all the justices. This case was recently raffled and assigned to the
undersigned ponente for study and report.
7 Petitioner’s Memorandum, p. 6; rollo, p. 172. Original in uppercase.
8 A. Tolentino, Commentaries And Jurisprudence On The Civil Code 272, Vol. IV (1991).
9 Id. See also the Civil Code, Art. 1311, which states:
"Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except
in case where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent."
10 Examples of purely personal actions are those for support, divorce, annulment of marriage,
legal separation (Lapuz Sy v. Eufemio, 43 SCRA 177, January 31, 1972). See also Javier
Security Special Watchman Agency v. Shell-Craft & Button Corp., 117 Phil. 218, January 31,
1963, for an illustration of a contract that is not transmissible by its nature, as when the special
or personal qualification of the obligor constitutes one of the principal motives of the contract.
11 A. Tolentino, Commentaries And Jurisprudence On The Civil Code, supra note 8.
12 "SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions.--All
claims for money against the decedent, arising from contract, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within
the time limited in the notice; otherwise they are barred forever, except that they may be set
forth as counterclaims in any action that the executor or administrator may bring against the
claimants. x x x."
13 E. Paras, Rules Of Court Annotated 125, Vol. 1 (1989).
14 Id.
15 See Limjoco v. Intestate of Fragante, 80 Phil. 776, April 27, 1948; Suiliong &Co. v.
Chio-Taysan, 12 Phil. 13, November 11, 1908; Pavia v. De La Rosa, 8 Phil. 70, March 18, 1907.
16 Performance Bond; rollo, p. 69.
17 This refers to the Civil Code, Arts. 1207 to 1222.
18 191 SCRA 493, November 20, 1990. See also International Finance Corporation v. Imperial
Textile Mills, Inc., GR 160324, November 15, 2005.
19 Id. at 495-496, per Cruz, J.
EN BANC
G.R. No. L-12219
March 15, 1918
AMADO PICART, plaintiff-appellant,
vs.
FRANK SMITH, JR., defendant-appellee.
Alejo Mabanag for appellant.
G. E. Campbell for appellee.
STREET, J.:
In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the
sum of P31,000, as damages alleged to have been caused by an automobile driven by the
defendant. From a judgment of the Court of First Instance of the Province of La Union absolving
the defendant from liability the plaintiff has appealed.
The occurrence which gave rise to the institution of this action took place on December 12,
1912, on the Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in
question the plaintiff was riding on his pony over said bridge. Before he had gotten half way
across, the defendant approached from the opposite direction in an automobile, going at the
rate of about ten or twelve miles per hour. As the defendant neared the bridge he saw a
horseman on it and blew his horn to give warning of his approach. He continued his course and
after he had taken the bridge he gave two more successive blasts, as it appeared to him that
the man on horseback before him was not observing the rule of the road.
The plaintiff, it appears, saw the automobile coming and heard the warning signals. However,
being perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the
pony closely up against the railing on the right side of the bridge instead of going to the left. He
says that the reason he did this was that he thought he did not have sufficient time to get over to
the other side. The bridge is shown to have a length of about 75 meters and a width of 4.80
meters. As the automobile approached, the defendant guided it toward his left, that being the
proper side of the road for the machine. In so doing the defendant assumed that the horseman
would move to the other side. The pony had not as yet exhibited fright, and the rider had made
no sign for the automobile to stop. Seeing that the pony was apparently quiet, the defendant,
instead of veering to the right while yet some distance away or slowing down, continued to
approach directly toward the horse without diminution of speed. When he had gotten quite near,
there being then no possibility of the horse getting across to the other side, the defendant
quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing
where it as then standing; but in so doing the automobile passed in such close proximity to the
animal that it became frightened and turned its body across the bridge with its head toward the
railing. In so doing, it as struck on the hock of the left hind leg by the flange of the car and the
limb was broken. The horse fell and its rider was thrown off with some violence. From the
evidence adduced in the case we believe that when the accident occurred the free space where
the pony stood between the automobile and the railing of the bridge was probably less than one
and one half meters. As a result of its injuries the horse died. The plaintiff received contusions
which caused temporary unconsciousness and required medical attention for several days.
The question presented for decision is whether or not the defendant in maneuvering his car in
the manner above described was guilty of negligence such as gives rise to a civil obligation to
repair the damage done; and we are of the opinion that he is so liable. As the defendant started
across the bridge, he had the right to assume that the horse and the rider would pass over to
the proper side; but as he moved toward the center of the bridge it was demonstrated to his
eyes that this would not be done; and he must in a moment have perceived that it was too late
for the horse to cross with safety in front of the moving vehicle. In the nature of things this
change of situation occurred while the automobile was yet some distance away; and from this
moment it was not longer within the power of the plaintiff to escape being run down by going to
a place of greater safety. The control of the situation had then passed entirely to the defendant;
and it was his duty either to bring his car to an immediate stop or, seeing that there were no
other persons on the bridge, to take the other side and pass sufficiently far away from the horse
to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was
almost upon the horse. He was, we think, deceived into doing this by the fact that the horse had
not yet exhibited fright. But in view of the known nature of horses, there was an appreciable risk
that, if the animal in question was unacquainted with automobiles, he might get exited and jump
under the conditions which here confronted him. When the defendant exposed the horse and
rider to this danger he was, in our opinion, negligent in the eye of the law.
The test by which to determine the existence of negligence in a particular case may be stated
as follows: Did the defendant in doing the alleged negligent act use that person would have
used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts
the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of
the Roman law. The existence of negligence in a given case is not determined by reference to
the personal judgment of the actor in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must
of course be always determined in the light of human experience and in view of the facts
involved in the particular case. Abstract speculations cannot here be of much value but this
much can be profitably said: Reasonable men govern their conduct by the circumstances which
are before them or known to them. They are not, and are not supposed to be, omniscient of the
future. Hence they can be expected to take care only when there is something before them to
suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm
as a result of the course actually pursued? If so, it was the duty of the actor to take precautions
to guard against that harm. Reasonable foresight of harm, followed by ignoring of the
suggestion born of this prevision, is always necessary before negligence can be held to exist.
Stated in these terms, the proper criterion for determining the existence of negligence in a given
case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor
would have foreseen that an effect harmful to another was sufficiently probable to warrant his
foregoing conduct or guarding against its consequences.
Applying this test to the conduct of the defendant in the present case we think that negligence is
clearly established. A prudent man, placed in the position of the defendant, would in our opinion,
have recognized that the course which he was pursuing was fraught with risk, and would
therefore have foreseen harm to the horse and the rider as reasonable consequence of that
course. Under these circumstances the law imposed on the defendant the duty to guard against
the threatened harm.
It goes without saying that the plaintiff himself was not free from fault, for he was guilty of
antecedent negligence in planting himself on the wrong side of the road. But as we have already
stated, the defendant was also negligent; and in such case the problem always is to discover
which agent is immediately and directly responsible. It will be noted that the negligent acts of the
two parties were not contemporaneous, since the negligence of the defendant succeeded the
negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that
the person who has the last fair chance to avoid the impending harm and fails to do so is
chargeable with the consequences, without reference to the prior negligence of the other party.
The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7 Phil. Rep., 359) should
perhaps be mentioned in this connection. This Court there held that while contributory
negligence on the part of the person injured did not constitute a bar to recovery, it could be
received in evidence to reduce the damages which would otherwise have been assessed wholly
against the other party. The defendant company had there employed the plaintiff, as a laborer,
to assist in transporting iron rails from a barge in Manila harbor to the company's yards located
not far away. The rails were conveyed upon cars which were hauled along a narrow track. At
certain spot near the water's edge the track gave way by reason of the combined effect of the
weight of the car and the insecurity of the road bed. The car was in consequence upset; the rails
slid off; and the plaintiff's leg was caught and broken. It appeared in evidence that the accident
was due to the effects of the typhoon which had dislodged one of the supports of the track. The
court found that the defendant company was negligent in having failed to repair the bed of the
track and also that the plaintiff was, at the moment of the accident, guilty of contributory
negligence in walking at the side of the car instead of being in front or behind. It was held that
while the defendant was liable to the plaintiff by reason of its negligence in having failed to keep
the track in proper repair nevertheless the amount of the damages should be reduced on
account of the contributory negligence in the plaintiff. As will be seen the defendant's negligence
in that case consisted in an omission only. The liability of the company arose from its
responsibility for the dangerous condition of its track. In a case like the one now before us,
where the defendant was actually present and operating the automobile which caused the
damage, we do not feel constrained to attempt to weigh the negligence of the respective parties
in order to apportion the damage according to the degree of their relative fault. It is enough to
say that the negligence of the defendant was in this case the immediate and determining cause
of the accident and that the antecedent negligence of the plaintiff was a more remote factor in
the case.
A point of minor importance in the case is indicated in the special defense pleaded in the
defendant's answer, to the effect that the subject matter of the action had been previously
adjudicated in the court of a justice of the peace. In this connection it appears that soon after the
accident in question occurred, the plaintiff caused criminal proceedings to be instituted before a
justice of the peace charging the defendant with the infliction of serious injuries (lesiones
graves). At the preliminary investigation the defendant was discharged by the magistrate and
the proceedings were dismissed. Conceding that the acquittal of the defendant at the trial upon
the merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the
question of his civil liability arising from negligence -- a point upon which it is unnecessary to
express an opinion -- the action of the justice of the peace in dismissing the criminal proceeding
upon the preliminary hearing can have no effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil.
Rep., 564.)
From what has been said it results that the judgment of the lower court must be reversed, and
judgment is her rendered that the plaintiff recover of the defendant the sum of two hundred
pesos (P200), with costs of other instances. The sum here awarded is estimated to include the
value of the horse, medical expenses of the plaintiff, the loss or damage occasioned to articles
of his apparel, and lawful interest on the whole to the date of this recovery. The other damages
claimed by the plaintiff are remote or otherwise of such character as not to be recoverable. So
ordered.
Arellano, C.J., Torres, Carson, Araullo, Avanceña, and Fisher, JJ., concur.
Johnson, J., reserves his vote.
Separate Opinions
MALCOLM, J., concurring:
After mature deliberation, I have finally decided to concur with the judgment in this case. I do so
because of my understanding of the "last clear chance" rule of the law of negligence as
particularly applied to automobile accidents. This rule cannot be invoked where the negligence
of the plaintiff is concurrent with that of the defendant. Again, if a traveler when he reaches the
point of collision is in a situation to extricate himself and avoid injury, his negligence at that point
will prevent a recovery. But Justice Street finds as a fact that the negligent act of the interval of
time, and that at the moment the plaintiff had no opportunity to avoid the accident.
Consequently, the "last clear chance" rule is applicable. In other words, when a traveler has
reached a point where he cannot extricate himself and vigilance on his part will not avert the
injury, his negligence in reaching that position becomes the condition and not the proximate
cause of the injury and will not preclude a recovery. (Note especially Aiken vs. Metcalf [1917],
102 Atl., 330.)
THIRD DIVISION
G.R. No. 101762 July 6, 1993
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.
Ramon P. Gutierrez for petitioner.
Adriano Velasco for private respondent.
BIDIN, J.:
Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730,
which set aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case
No. Q-45232. The dispositive portion of the assailed decision reads as follows:
WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the
"Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of
the Vermen Pines Condominium should be returned by plaintiff-appellant to
defendant-appellee upon payment by the latter of the sum of P330,855.25 to the former,
plus damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of
Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402 during the
Holy Week of 1982, respectively. In addition, defendant-appellee is hereby ordered to
pay plaintiff-appellant, who was compelled to litigate and hire the services of counsel to
protect its interests against defendant-appellee's violation of their Offsetting Agreement,
the sum of P10,000.00 as an award for attorney's fee (sic) and other expenses of
litigation. The claim for unrealized profits in a sum equivalent to 10% to 20% percent or
P522,000.00 not having been duly proved, is therefore DENIED. No costs. (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and
private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract
denominated as "Offsetting Agreement". The said agreement contained the following
stipulations:
1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM
located at Bakakeng Road, Baguio City;
2. That the SECOND PARTY is in business of construction materials and other hardware
items;
3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential
condominium units, studio type, with a total floor area of 76.22 square meter (sic) more
or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS only;
4. That the FIRST PARTY desires to but from the SECOND PARTY construction
materials mostly steel bars, electrical materials and other related items worth FIVE
HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;
5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY
SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction
materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00)
PESOS shall be paid in the form of two (2) residential condominium units, studio type,
with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00;
6. That, for every staggered delivery of construction materials, fifty percent (50%) shall
be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%)
shall be credited to the said condominium unit in favor of the SECOND PARTY;
7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction
materials under the agreed price and conditions stated in the price quotation approved
by both parties and made an integral part of this document;
8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items
in the purchase order seven (7) days from receipt of said purchase order until such time
that the whole amount of P552,000.00 is settled;
9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road,
Baguio City;
10. That the freight cost of said materials shall be borne fifty percent (50%) by the FIRST
PARTY and fifty percent (50%) by the SECOND PARTY;
11. That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM
PHASE II which is the subject of this contract, shall deliver to the SECOND PARTY the
possession of residential condominium, Phase I, Unit Nos. 601 and 602, studio type with
a total area of 76.22 square meters or less, worth P276,000.00;
12. That after the completion of Vermen Pines Condominium Phase II, the SECOND
PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I to
Phase II under the same price, terms and conditions. (Rollo, pp. 26-28).
As found by the appellate court and admitted by both parties, private respondent had paid
petitioner the amount of P110,151.75, and at the same time delivered construction materials
worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums,
petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines
Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence
of the repossession, the officers of the private respondent corporation had to rent another unit
for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the
private respondent corporation requested for a clarification of the petitioner's action of
preventing them and their families from occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to
another tenant because private respondent corporation had not paid anything for purchase of
the condominium unit. Petitioner corporation demanded payment of P27,848.25 representing
the balance of the purchase price of Room 601.
In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II
was denied. Consequently, construction of the condominium project stopped and has not been
resumed since then.
On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon
City (Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint,
private respondent alleged that petitioner Vermen Realty Corporation had stopped issuing
purchase orders of construction materials after April, 1982, without valid reason, thus resulting
in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation
of the Offsetting Agreement.
In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private
respondent (plaintiff therein): although petitioner issued purchase orders, it was private
respondent who could not deliver the supplies ordered, alleging that they were out of stock.
(However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation, when
asked where the purchase orders were, alleged that she was going to produce the same in
court, but the same was never produced (Rollo, p. 30). Moreover, private respondent quoted
higher prices for the construction materials which were available. Thus, petitioner had to resort
to its other suppliers. Anent the query as to why Unit 602 was leased to another tenant,
petitioner averred that this was done because private respondent had not paid anything for it.
As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made
deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25
representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit
was P138,000.00.
After conducting hearings, the trial court rendered a decision dismissing the complaint and
ordering the plaintiff (private respondent in this petition) to pay defendant (petitioner in this
petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the
purchase price of condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.
Petitioner now comes before us with the following assignment of errors:
I
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY
TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S CONCLUSIONS THAT
PETITIONER DID NOT VIOLATE THE "OFFSETTING AGREEMENT" IT ENTERED
INTO WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY BASELESS
"PERCEPTION" THAT IT WAS PETITIONER WHICH DISCONTINUED TO ISSUE
PURCHASE ORDERS DUE TO THE STOPPAGE OF THE CONSTRUCTION OF
PHASE II OF THE CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID
PROJECT WAS STOPPED.
II
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS
PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT" BECAUSE IT
DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT AND
DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT
DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WAS
FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT IN ITS
DECISION.
III
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS
PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT" DESPITE THE
ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS THAT
PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE
CONSTRUCTION MATERIAL (SIC) FROM THE FORMER. (Rollo, p. )
The issue presented before the Court is whether or not the circumstances of the case warrant
rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted
the case before the trial court.
We rule in favor of private respondent. There is no controversy that the provisions of the
Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or
established at the same time, out of the same cause, and which results in a mutual relationship
of creditor and debtor between parties. In reciprocal obligations, the performance of one is
conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum
Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to
petitioner construction materials worth P552,000.00 under the conditions set forth in the
Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay
private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602,
Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent;
upon completion of Vermen Pines Condominiums Phase II, private respondent shall be given
option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term
is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with
that is incumbent upon him.
The general rule is that rescission of a contract will not be permitted for a slight or causal
breach, but only for such substantial and fundamental breach as would defeat the very object of
the parties in executing the agreement. The question of whether a breach of contract is
substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of
Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private respondent who failed to perform its
obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the
mere stoppage of the loan for the construction of Phase II of the Vermen Pines Condominiums
should not have had any effect on the fulfillment of the obligations set forth in the Offsetting
Agreement. Petitioner moreover stresses that contrary to private respondent's averments,
purchase orders were sent, but there was failure to deliver the materials ordered because they
were allegedly out of stock. Petitioner points out that, as admitted by private respondent's
witness, petitioner had the discretion to order or not to order constructions materials, and that it
was only after petitioner approved the price, after making a canvass from other suppliers, that
the latter would issue a purchase order. Petitioner argues that this was the agreement, and
therefore the law between the parties, hence, when no purchase orders were issued, no
provision of the agreement was violated.
Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is
Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the
Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for
rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the
condominium units to it.
It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in
the Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner
stemmed from the failure of petitioner to send purchase orders to private respondent. The
allegation that petitioner had been sending purchase orders to private respondent, which the
latter could not fill, cannot be given credence. Perhaps in the beginning, it would send purchase
orders to private respondent (as evidenced by the purchase orders presented in court), and the
latter would deliver the construction materials ordered. However, according to private
respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to
refute this allegation. When petitioner's witness, Treasurer of the petitioner corporation, was
asked to produce the purchase orders in court, the latter promised to do so, but this was never
complied with.
On the other hand, petitioner would never able to fulfill its obligation in allowing private
respondent to exercise the option to transfer from Phase I to Phase II, as the construction of
Phase II has ceased and the subject condominium units will never be available.
The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of
the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes
substantial breach of the Offsetting Agreement. The possibility of exercising the option of
whether or not to transfer to condominium units in Phase II was one of the factors which were
considered by private respondent when it entered into the agreement. Since the construction of
the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to
perform its obligation to give private respondent the option to transfer to Phase II. It would be
the height of injustice to make private respondent wait for something that may never come.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
Feliciano, Davide, Jr., Romero and Melo, JJ., concur.