CASE DIGESTS — Obligations and Contracts
Case Title(s) and
citation
Legal Question/
Problem/Issue
Presented by the
Case(s)
Why is this a Problem?
Legal Provision/Legal
Principles or Rules
Involved, Applied or
Interpreted
Conclusion
Yobido v. CA
G.R. No. 113003
Whether or not the
explosion of a newly
installed tire of the
commuting bus is a
fortuitous event,
exempting the
carrier from liability
for the death of a
passenger?
A passenger bus, being a
common carrier, is
supposed to exercise
extraordinary diligence
when transporting
passengers to their place
of destination. However, in
this case, a Yobido Liner
bus bound for Davao City
fell into a ravine along
Picop Road due to the
explosion of the left front
tire. The incident resulted
in the death of Tito
Tumboy, and physical
injuries to other
passengers.
Fortuitous events,
Extraordinary diligence
of a common carrier
When a passenger is
injured or dies while
traveling in a passenger
bus, the law presumes
that the common carrier
is negligent until proven
that they observed
extraordinary diligence.
The bus mounting a
“brand new tire” is
insufficient to prove
extraordinary diligence.
Also, the exemption of
liability due to a
fortuitous event cannot
prosper in this case as
there are human factors
involved in the
“explosion of tires”.
Petitioners should have
shown that it undertook
extraordinary diligence
in the care of its carrier,
such as daily routinary
check-ups of the vehicle
parts.
Spouses Jose S.
Dychiao and Tiu
Oh Yan, et. al v.
Allied Bank
Corporation
Whether or not the
failure of the
petitioners to pay
their loan obligations
to Allied Bank can
be excused due to a
fortuitous event?
The petitioners, who are
officers Metro Concast,
obtained several loans
from Allied Bank which
were respectively insured
by a promissory note and
trust receipts. However,
due to economic reverses
and devaluation of the
currency in the Philippines,
the petitioners failed to pay
their debts despite the
demand letters.
Art. 1231 of the Civil
Code states that
obligations are
extinguished either by
payment or
performance, the loss of
the thing due, the
condonation or
remission of the debt,
the confusion or merger
of the rights of creditor
and debtor,
compensation or
novation.
The petitioner and
Peakstar entered into a
Fortuitous event.
Memorandum of
Agreement (MoA) for the
selling of the former’s asset
to the latter. Unfortunately,
Peakstar reneged on all its
obligations under the MoA.
In this regard, the petitioner
regards their failure to pay
their outstanding loan
obligations to Allied Bank
must be considered as
force majeure.
Bernales v.
Northwest Airlines
Should the petitioner
be awarded moral
The petitioner hopped on
the Northwest Airlines
Culpa Contractual,
Fortuitous events
While Peakstar’s breach
of the MoA was
unforeseen by
petitioners, it was not
“impossible” to foresee
or even independent of
the human will. The
breach was also not
proven to have
rendered it impossible
for petitioners to pay
their loan obligations to
Allied Bank, negating
the “force majeure”
theory altogether.
Furthermore, the
performance or breach
of the MoA bears no
relation to the
performance or breach
of the subject loan
transactions, they being
separate and distinct
sources of obligations.
Moral damages cannot
be awarded in breaches
damages due to the
delayed flight
caused by the
typhoon, which
constitutes a breach
of carrier contract?
(NWA) Flight No. 10 bound
to Honolulu, Hawaii via
Narita, Japan. However,
Typhoon Higos hit Japan,
causing all flights to be
delayed.
of contracts of carriage
except in cases of the
death of a passenger or
when the common
carrier acted in bad
faith. Since the primary
cause of NWA’s delay
was the strong typhoon,
the Court cannot
attribute bad faith or ill
motives to the airline for
canceling the flight. All
the stranded
passengers suffered the
same experience
because of Typhoon
Higos, proving that
NWA did not single the
petitioner out.
While waiting for the next
flight, Bernales, the
petitioner, was rudely
treated by an NWA staff
member at the airport. He
also experienced
humiliation and was made
to sleep on the terminal
floor “akin to the beggars of
Quiapo and Baclaran”.
Because of this, the
petitioner prayed for moral
damages from the breach
of carrier contract, causing
him immense mental
anguish and moral shock.
Alvarez V IAC
Whether or not
liabilities arising from
Rosendo Alvarez
arising from the sale
of Lots Nos. 773-A
and 773-B could be
legally transmitted to
his heirs?
During the pendency of the
case contending the
possession of Lots 773-A
and 773-B,
Rosendo Alvarez sold the
said properties, along with
another lot, to Rodolfo
Siason without the court’s
Since the typhoon was
an extraordinary and
unavoidable event,
NWA is not held liable
for a breach of contract
resulting from a
fortuitous event.
Transmissibility of rights
and obligations.
The general rule is that
a party’s contractual
rights and obligations
are transmissible to the
successors. Petitioners,
being the heirs of the
late Rosendo Alvarez,
cannot escape the legal
approval. However, the
buyer, Siason, was in good
faith and did not acquire
any knowledge of any lien
or encumbrances against
Lots Nos. 773-A and
773-B. Hence, Rosendo
Alvarez should be held
solely liable.
Project Builders, Inc v.
CA and Industrial
Finance Corportation
Was the accion
subragotoria made
by IFC, stepping into
the shoes of PBI,
valid?
In obtaining a credit line of
P5,000,000.00 from IFC,
PBI assigned twenty (20)
contracts to sell with
accounts receivable from
its condominium unit to the
former. IFC foreclosed the
mortgage due to PBI’s
alleged default in the
payment. A year later, the
foreclosed property was
redeemed. However, IFC
claims that there is still a
deficiency in the
redemption payment.
When IFC filed for a suit,
PBI contended that the
transaction was merely a
consequences of their
father’s transaction.
However, the petitioners
are liable only to the
extent of the value of
their inheritance.
Dr. Siason, being a
purchaser in good faith,
still sustains the
properties. The Alvarez
heirs, on the other hand,
should pay the Yaneses
the amount of P20,000
representing the actual
value of the subdivided
lots in dispute.
Accion subragotoria
Upon an assignment of
a contract to sell, the
assignee is effectively
subrogated in place of
the assignor and in a
position to enforce the
contract to the same
extent as the assignor
could. Furthermore, the
consent of the debtor is
not necessary in order
that assignment may
fully produce legal
effects; what the law
requires is a notice to
the assignor.
simple loan and the former
did subrogate in the shoes
of the seller.
Union Bank of
the Philippines v.
Santibañez
Genato v. Bayhon
Hongkong and
Can HSBC
Shanghai Banking Corp. immediately demand
v. Broqueza
payment of loans
acquired by Spouses
Broqueza despite
their termination of
employment?
The petitioners, who were
employees of HSBC, were
under a retirement plan
(HSBCL-SRP) established
by the latter. Both of them
applied for loans, paid
through automatic salary
deductions.
Art. 1179 of the Civil
Code
Since the Promissory
Notes did not indicate
the date of payment, it
“Every obligation whose is within their rights to
performance does not
demand immediate
depend upon a future or payment. As mentioned
uncertain event, or upon in pure obligations, the
a past event unknown to absence of a period
the parties is
within which to pay the
Then, HSBC and its
demandable at once.”
loan allows
employees participated in a
HSBCL-SRP to demand
labor dispute, causing
immediate payment.
termination of employment
to the majority of the latter,
Finally, the enforcement
among whom are the
of a loan agreement
petitioners. Because of the
involving debtor-creditor
dismissal, they were not
relations arising from
able to pay the monthly
the contract does not
amortizations of their
concern employee
respective loans. Thus,
relations and has no
HSBCL-SRP demanded
connection to the
the plaintiffs to pay their
ongoing labor dispute.
respective obligations, but
they failed.
Can the novation of
the loan agreement
between the
petitioner and
defendant be made
due and
demandable?
Both petitioner and
respondent entered into an
initial agreement with a
suspensive condition,
agreeing that the latter
should make payment of
loans to the former upon
the completion of the
apartment units.
However, during their
subsequent meeting with
some family members in
the house of their brother,
Genaro, both the petitioner
and respondent entered
into a new agreement
whereby the petitioner
should start making
monthly payments on her
loans.
Art. 1291 of the Civil
Code
Obligations may be
modified by:
(1) Changing their
object or principal
conditions;
(2) Substituting the
person of the debtor;
(3) Subrogating a third
person in the rights of
the creditor.
In the respondent's view,
there was a novation of the
original agreement which
made the petitioner's
obligation due and
demandable.
Insular v. Young
Were the petitioner
and respondent
obligated to fulfill
their respective
conditions stipulated
under the
Robert Young and Insular
Life entered into a
Memorandum of
Agreement (MOA)
regarding their respective
common shares. The MOA
The evidence clearly
shows that after the
completion of the
renovation of apartment
units, the petitioner and
respondent agreed that
the former shall already
start making monthly
payments on the loan
even if the renovation
was still pending.
The petitioner’s partial
of her obligation is
unmistakable proof that
indeed the original
agreement between her
and the respondent had
been novated by the
deletion of the condition
that payments shall be
made after completion
of renovations.
Therefore, the
petitioner’s obligation is
already due and
demandable.
Art. 1181 of the Civil
Code
"In conditional
obligations, the
acquisition of rights, as
The obligation of
petitioner Insular Life to
purchase, as well as the
concomitant obligation
of Young to convey to it
the shares, are subject
Memorandum of
Agreement (MOA)
even if there was a
breach by either
party?
Gonzales v. Thomas
Does the Contract of
Lease imply that the
petitioner must first
transfer the title to
the property in the
respondent’s name
before the latter
could exercise his
contained the “precedent
conditions” that need to be
fulfilled by both parties.
However, the petitioners
contend that the MOA was
not enforceable
considering that Robert
Young committed fraud,
misrepresented the
warranties, and failed to
comply with his obligations.
There are conflicting
interpretations of the
Contract of Lease,
specifically the ninth
provision, between the
Trial Court and the Court of
Appeals (CA).
well as the
extinguishments of loss
of those already
acquired, shall depend
upon the happening of
the event which
constitutes the
condition."
to the fulfillment of the
conditions contained in
the MOA.
On the other hand, in
the event that these
conditions are not met
or complied with, no
obligation on the part
of either party arises.
Hence, Insular Life
cannot be compelled to
pay the full amount or
purchase bank shares
since Young was unable
to infuse additional
capital into the Bank. It
would be absurd for
Insular Life to still buy
the total shares of the
Bank when its
resources were even at
the point of being
depleted.
Art. 1181 of the Civil
Code
"In conditional
obligations, the
acquisition of rights, as
well as the
extinguishments of loss
The Court held that
“when the obligation
assumed by a party to a
contract is expressly
subjected to a condition,
the obligation cannot be
enforced against him
unless the condition is
option to purchase?
The Trial Court held that
obtaining a Transfer
Certificate of Title in the
name of the lessee within
four years was a condition
precedent to the
petitioner’s purchase of the
property.
of those already
acquired, shall depend
upon the happening of
the event which
constitutes the
condition."
On the other hand, the CA
decided that there must
first be payment of the
agreed purchase price
before the transfer of title
to the respondent’s name
can be made.
Direct Funders v. Lavina
De Mistica v. Naguiat
Can Kambiak Chan
Jr. claim the subject
property by
presenting
conditional sale
agreement as his
only proof?
Kambiak Chan Jr. sought
the subject property by
presenting a conditional
sale agreement as his
proof. As a result, Judge
Laviña issued orders to
restore the possession to
Chan.
Art. 1181 of the Civil
Code
Does the contract
entered by the
Eulalio Mistica entered into
a contract with Bernardino
Art. 1182 of the Civil
Code
complied with.”
The condition of the
contract is to ensure
that the respondents
would have a valid title
over the specific portion
of land. Only after the
title is assured may the
obligation to buy the
land and pay the sums
stated in the contract be
enforced within the
period stipulated.
"In conditional
obligations, the
acquisition of rights, as
well as the
extinguishments of loss
of those already
acquired, shall depend
upon the happening of
the event which
constitutes the
condition."
The code prohibits
purely potestative,
petitioner and
defendant allow the
exclusive fulfillment
of conditions on the
debtor’s will?
Naguiat over a parcel of
land. Mistica gave a
downpayment and another
partial payment thereof but
failed to make any
payments thereafter.
Naguiat contended that the
failure and refusal to pay
the balance of the
purchase price constitutes
a violation of the contract
which entitles her to
rescind the same.
“When the fulfillment of
the condition depends
upon the sole will of the
debtor, the conditional
obligation shall be void.”
A condicion potestativa
“A condition suspensive
in nature and which
depends upon the sole
will of one of the
contracting parties.”
suspensive, conditional
obligations that are
exclusively dependent
on the debtor since
such obligations are
usually not meant to be
fulfilled, otherwise
known as illusory
obligations. This is not
allowed in the contract
entered by the petitioner
and defendant.
With this, the petitioner
does not have the right
to rescind the obligation
as the breach
committed by the
defendant was not
substantial and
fundamental to the
fulfillment of the
obligation.
The remedy was to
order the defendant to
pay the balance of the
purchase price, with 12
percent interest — as
mentioned in the
contract."
Far East v. Cayetano
Is the doctrine of
laches applicable in
the instant case?
The respondents sought
nullification of the real
estate mortgage and
extrajudicial foreclosure
Principle of laches
“Negligence or omission
to assert a right within a
Instead of impugning
the real estate mortgage
and opposing the
scheduled auction, the
sale, as well as the
cancellation of petitioner’s
title over the properties.
However, they only
questioned the loan and
mortgage transactions after
the lapse of more than five
years from the date of the
foreclosure sale.
reasonable time,
warranting a
presumption that the
party entitled to assert it
either has abandoned it
or declined to assert it.”
respondents’ lawyer
merely requested to
postpone the auction to
a later date.
Even after five years,
the respondents still
failed to oppose the
foreclosure. It was only
when the negotiations to
buy back the properties
failed that they filed the
instant case, Clearly,
the respondents slept
on their rights.