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MINDANAO TERMINAL vs. PHOENIX ASSURANCE VELASCO, JR.

May 8,2009

TINGA, J.:

FACTS:
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas
and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. Del Monte Produce insured the shipment under an open cargo policy with
private respondent Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private
respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix.

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of Davao
City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo was in bad
condition. In a survey report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the
pineapple shipment were so damaged that they no longer had commercial value.

Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. A check for the
recommended amount was sent to Del Monte Produce; the latter then issued a subrogation receipt to Phoenix and
McGee.

Phoenix and McGee instituted an action for damages against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City. After trial, the RTC held that Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and stowed them.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and
set aside the decision of the RTC. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. Mindanao Terminal filed a motion for reconsideration,which
the Court of Appeals denied.Hence, the present petition for review.

ISSUE: Whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the same extraordinary
degree of diligence in the conduct of its business as required by law for common carriers and warehousemen.

HELD: No.Mindanao Terminal was required to observe ordinary diligence only.


Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be
observed in the performance of an obligation then that which is expected of a good father of a family or ordinary
diligence shall be required. Mindanao Terminal, a stevedoring company which was charged with the loading and stowing
the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is
no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring company
or one who is charged only withthe loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of diligence than that
required of a good father of a family. We therefore conclude that following Article 1173, Mindanao Terminal was
required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce aboard M/V
Mistrau.
Jimenes vs. City of Manila

FACTS:
In the morning of August 15, 1974, petitioner together with his neighbors, went to Sta. Ana public market to buy
"bagoong" at the time when the public market was flooded with ankle deep rainwater. After purchasing the "bagoong"
he turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty
rainwater, causing a dirty and rusty four- inch nail, stuck inside the uncovered opening, to pierce the left leg of plaintiff-
petitioner penetrating to a depth of about one and a half inches. After administering first aid treatment at a nearby
drugstore, his companions helped him hobble home. He felt ill and developed fever and he had to be carried to Dr.
Juanita Mascardo. Despite the medicine administered to him by the latter, his left leg swelled with great pain. He was
then rushed to the Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and
severe pain.Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His injury
prevented him from attending to the school buses he is operating. As a result, he had to engage the services of one
Bienvenido Valdez to supervise his business for an aggregate compensation of nine hundred pesos (P900.00).

Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the
Sta. Ana Public Market had been placed by virtue of a Management and Operating Contract.
The lower court decided in favor of respondents. On appeal, the Intermediate Appellate Court held the Asiatic
Integrated Corporation liable for damages but absolved respondent City of Manila.
Hence this petition.

ISSUE: WON respondent City of Manila should be jointly and severally liable with Asiatic Integrated Corporation for the
injuries petitioner suffered.

HELD: Yes.Article 2189 of the Civil Code of the Philippines provides that:
Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by any person by
reason of defective conditions of roads, streets, bridges, public buildings and other public works under their control or
supervision.
Under Article 2189 of the Civil Code, it is not necessary for the liability therein established to attach, that the defective
public works belong to the province, city or municipality from which responsibility is exacted. What said article requires
is that the province, city or municipality has either "control or supervision" over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management and Operating Contract
between respondent City and Asiatic Integrated Corporation remained under the control of the former.
As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of a good father of a
family. (Art. 1173 of the Civil Code). There is no argument that it is the duty of the City of Manila to exercise reasonable
care to keep the public market reasonably safe for people frequenting the place for their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods, it must
however, be admitted that ordinary precautions could have been taken during good weather to minimize the dangers
tolife and limb under those difficult circumstances.For instance, the drainage hole could have been placed under the
stalls instead of on the passage ways. Even more important is the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already
uncovered, and five (5) months after the incident happened, the opening was still uncovered. Neither was it shown that
any sign had been placed thereabouts to warn passersby of the impending danger.

To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil
Code, respondent City having retained control and supervision over the Sta. Ana Public Market and as tort- feasor under
Article 2176 of the Civil Code on quasi-delicts.Petitioner had the right to assume that there were no openings in the
middle of the passageways and if any, that they were adequately covered. Had the opening been covered, petitioner
could not have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury suffered, the
City is therefore liable for the injury suffered by the petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article
2194 of the Civil Code.
Juan Nakpil & Sons vs. CA

FACTS:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided
to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on
the suggestion of Juan J. Carlos, the president and general manager of said corporation. The plans and specifications for
the building were prepared by the other third-party defendants Juan F. Nakpil & Sons.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in
question sustained major damage. The front columns of the building buckled, causing the building to tilt forward
dangerously.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial
collapse of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as
defendants. Plaintiff alleges that the collapse of the building was caused by defects in the construction, the failure of the
contractors to follow plans and specifications and violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications,
alleging in essence that the collapse of the building was due to the defects in the said plans and specifications.
The Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from
responsibility and not the defective construction, poor workmanship, deviations from plans and specifications and other
imperfections in the case of United Construction Co., Inc. or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils.

ISSUE: Whether or not an act of God-an unusually strong earthquake-which caused the failure of the building, exempts
from liability, parties who are otherwise liable because of their negligence.

HELD: No. The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil
Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and specifications for a building is liable for damages if
within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans
and specifications, or due to the defects in the ground. The contractor is likewise responsible for the damage if the
edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor xxxx

On the other hand, the general rule is that no person shall be responsible for events which could not be foreseen or
which though foreseen, were inevitable (Article 1174, New Civil Code).There is no dispute that the earthquake of August
2, 1968 is a fortuitous event or an act of God. To exempt the obligor from liability under Article 1174 of the Civil Code,
for a breach of an obligation due to an "act of God," the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c)
the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or aggravation of the injury to the creditor.

Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss
or damage may have been occasioned. The negligence of the defendant and the third-party defendants petitioners was
established beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations from the plans and specifications. and to have
failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of
supervision;while the third-party defendants were found to have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August
2, 1968. For this reason the defendant and third-party defendants cannot claim exemption from liability.
GILAT SATELLITE NETWORKS, LTD. vs. UCPB GENERAL INSURANCE CO., INC

FACTS:
On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment
(sic), accessories, spares, services and software, at a total purchase price of Two Million One Hundred Twenty Eight
Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual
promised to pay a portion thereof totalling US$1.2 Million in accordance with the payment schedule dated 22 November
1999. To ensure the prompt payment of this amount, it obtained defendant UCPB General Insurance Co., Inc.s surety
bond dated 3 December 1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual the
purchased products and equipment, as evidenced by airway bills/Bill of Lading . All of the equipment (including the
software components for which payment was secured by the surety bond, was shipped by GILAT and duly received by
One Virtual.
One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due date of May
30, 2000 in accordance with the payment schedule attached to the surety bond, prompting GILAT to write the surety
defendant UCPB on June 5, 2000, a demand letter for payment of the said amount of US$400,000.00. No part of the
amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual likewise
failed to pay on the succeeding payment instalment date of 30 November 2000 prompting GILAT to send a second
demand letter dated January 24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the
surety bond, plus interests and expenses and which letter was received by the defendant surety on January 25, 2001.
However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof,

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint against respondent UCPB General Insurance
Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests and expenses.petitioner alleges
that it deserves to be paid legal interest of 12% per annum from the time of its first demand on respondent on 5 June
2000 or at most, from the second demand on 24 January 2001 because of the latters delay in discharging its monetary
obligation. Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from the time it
demanded the fulfilment of respondents obligation under the suretyship contract. Significantly, respondent does not
contest this point, but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioners
last demand on 24 January 2001.

ISSUE:Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its
obligation under the Suretyship Agreement.

HELD: Yes.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the debtor
incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest."
Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the
obligation, and the latter fails to comply. Delay, as used in Article 1169, is synonymous with default or mora, which
means delay in the fulfilment of obligations. It is the nonfulfillment of an obligation with respect to time. In order for the
debtor (in this case, the surety) to be in default, it is necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.
Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying, its liability
becomes more than the principal obligation.The increased liability is not because of the contract, but because of the
default and the necessity of judicial collection.
Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement,
and that the extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree with the latter that interest must
start to run from the time petitioner sent its first demand letter (5 June 2000), because the obligation was already due
and demandable at that time.
Rivera vs. Sps. Chua

FACTS:
The parties were friends of long standing having known each other since 1973: Rivera and Salvador are kumpadres, the
former is the godfather of the Spouses Chuas son.

On 24 February 1995, Rivera obtained a loan from the Spouses Chua:


PROMISSORY NOTE

120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency ( 120,000.00) on December 31,
1995.

It is agreed and understood that failure on my part to pay the amount of ( 120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty percent (20%) of the total amount due and payable as and for attorneys fees which in no case shall
be less than 5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the proper Court of the City of Manila.

Manila, February 24, 1995[.]

In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as partial
payment for the loan, issued and delivered to the Spouses Chua, as payee, drawn against Riveras current account with
the Philippine Commercial International Bank (PCIB) in the amount of 25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise drawn against
Riveras PCIB current account. Upon presentment for payment, the two checks were dishonored for the reason account
closed.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because of Riveras
unjustified refusal to pay, the Spouses Chua were constrained to file a suit.

Rivera continues to deny that he executed the Promissory Note. He claims that given his friendship with the Spouses
Chua who were money lenders, he has been able to maintain a loan account with them. However, each of these loan
transactions was respectively secured by checks or sufficient collateral. Rivera points out that the Spouses Chua
never demanded payment for the loan nor interest thereof (sic) from [Rivera] for almost four (4) years from the time of
the alleged default in payment [i.e., after December 31, 1995].

Rivera next argues that even assuming the validity of the Promissory Note, demand was still necessary in order to charge
him liable thereunder. Rivera argues that it was grave error on the part of the appellate court to apply Section 70 of the
Negotiable Instruments Law (NIL).

ISSUE: WON Rivera is liable under the terms of the Promisory Note.

HELD: Yes.Even if Riveras Promissory Note is not a negotiable instrument and therefore outside the coverage of Section
70 of the NIL which provides that presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable31
December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the amount of
120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is an express
stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where demand would be useless. In the first two paragraphs, it is
not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period
lapses, default will commence.

The Promissory Note expressly provided that after 31 December 1995, default commences and the stipulation on
payment of interest starts. The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation.

The liability for damages of those who default, including those who are guilty of delay, in the performance of their
obligations is laid down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages when the
obligor incurs in delay:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the debtor,
Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the Promissory Note provides
for an indemnity for damages upon default of Rivera which is the payment of a 5% monthly interest from the date of
default.
Solar Harvest,Inc. vs. Davao Corrugated Carton Corporation

FACTS:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao
Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioners
business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the
production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account
with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a
demand letter for reimbursement of the amount paid. On February 19, 2001, respondent replied that the boxes had
been completed as early as April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30 days
from completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000
boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the additional
boxes and P132,000.00 as storage fee.On August 17, 2001, petitioner filed a Complaint for sum of money and damages
against respondent.
In its Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it had already completed production
of the 36,500 boxes, contrary to petitioners allegation. According to respondent, petitioner, in fact, made an additional
order of 24,000 boxes, out of which, 14,000 had been completed without waiting for petitioners payment. Respondent
stated that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent
averred that, on October 8, 1998, petitioners representative, Bobby Que (Que), went to the factory and saw that the
boxes were ready for pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to
sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioners transaction to ship bananas
to China did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner
should be made to pay storage fee at P60.00 per square meter for every month from April 1998.

ISSUE: WON respondent defaulted in the performance of its obligation.

HELD: No.
Art. 1169 provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties respective
obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation
and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance
of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph
of the present article,that is, the other party would incur in delay only from the moment the other party demands
fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the periodfor the fulfillment of the obligation
is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of
action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and deliver the boxes.Without a previous demand for the fulfillment
of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not
yet be considered in breach of its contractual obligation.
Agcaoili vs. GSIS

FACTS:
The appellant Government Service Insurance System, (GSIS, for short) approved the application of the appellee Agcaoili
for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal, subject to the condition that
the latter should forthwith occupy the house, a condition that Agacoili tried to fulfill but could not for the reason that
the house was absolutely uninhabitable. Agcaoili, after paying the first installment and other fees, thereafter refused to
make further payment of other stipulated installments until GSIS had made the house habitable. Appellant, opting
instead to cancel the award, demanded the vacation by Agcaoili of the premises. Agcaoili sued the GSIS in the Court of
First Instance of Manila for specific performance with damages and having obtained a favorable judgment, the case was
appealled to this Court by the GSIS.

ISSUE:WON GSIS can invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between
them.
HELD: No.
There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the
purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite
price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to reciprocally
demand performance. 13 It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition
suitable for its enjoyment by the buyer for the purpose contemplated, in other words, to deliver the house subject of
the contract in a reasonably livable state. This it failed to do.

It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale. Under the
circumstances there can hardly be any doubt that the house contemplated was one that could be occupiedpurposes of
residence in reasonable comfort and convenience. There would be no sense to require the awardee to immediately
occupy and live in a shell of a house, a structure consisting only of four walls with openings, and a roof, and to theorize,
as the GSIS does, that this was what was intended by the parties, since the contract did not clearly impose upon it the
obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective
interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver to
Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not fulfill
that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of
payment of amortizations as cause to cancel the contract between them. It is axiomatic that "(i)n reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him."
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not
complied with the condition of occupying the house within three (3) days. The record shows that Agcaoili did try to fulfill
the condition; he did try to occupy the house but found it to be so uninhabitable that he had to leave it the following
day. He did however leave a friend in the structure, who being homeless and hence willing to accept shelter even of the
most rudimentary sort, agreed to stay therein and look after it. Thus the argument that Agcaoili breached the
agreement by failing to occupy the house, and by allowing another person to stay in it without the consent of the GSIS,
must be rejected as devoid of merit.
Paz Arrieta vs. NARIC

FACTS:
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric
tons of Burmese rice. As her bid was the lowest, she was awarded the contract for the same. Accordingly, on July 1,
1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the
terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmess Rice at $203.00 per
metric ton, CIF Manila. In turn, the defendant corporation committed itself to pay for the imported rice "by means of an
irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in
Burma, immediately." Despite the commitment to pay immediately "by means of an irrevocable, confirmed and
assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract,
that the defendant corporation, thru its general manager, took the first to open a letter of credit by forwarding to the
Philippine National Bank its Application for Commercial Letter Credit. The application was accompanied by a transmittal
letter, the relevant paragraphs of which read:

In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required to be deposited as a condition for the opening of letters
of credit, we will appreciate it if this application could be considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4, 1952, and in order to comply therewith, it is imperative that the L/C be opened
prior to that date. We would therefore request your full cooperation on this matter.

On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant corporation of the
extremenecessity for the immediate opening of the letter credit since she had by then made a tender to her supplier in
Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations
in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a letter of
credit for $3,614,000.00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that
marginal cash deposit be paid and that drafts are to be paid upon presentment." Furthermore, the Bank represented
that it "will hold your application in abeyance pending compliance with the above stated requirement."

As it turned out, however, the appellant corporation not in any financial position to meet the condition. In a letter,
NARIC bluntly confessed to the appellee its dilemma. Consequently, the credit instrument applied for was opened only
on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more
than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of
credit.

As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to
524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although
the Burmese authorities had set August 4, 1952, as the deadline for the remittance of the required letter of credit, the
cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a full
half month after the expiration of the deadline. And yet, even with the 15-day grace, appellant corporation was unable
to make good its commitment to open the disputed letter of credit.

The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating
the same became apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at
the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time. This
offer for substitution, however, was rejected by the appellant.

On the foregoing, the appellee sent a letter to the appellant, 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 now on appeal.

ISSUE:Whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the
contract for which it may be held liable in damages.
HELD:YES.
It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the
appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened with the contemplated period.
This failure must, therefore, be taken as the immediate cause for the consequent damage which resulted. 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 stipulated letter of credit and which, in turn, caused the cancellation of the allocation in Burma, was
the inability of the appellant corporation to meet the condition importation by the Bank for granting the same.

The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the
bank. 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 prestation. We base this judgment upon the letter which accompanied the
application filed by the appellant with the bank, a part of which letter was quoted earlier in this decision. In the said
accompanying correspondence, appellant admitted and owned that it did "not have sufficient deposit with your
institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters
of credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant knew the
bank requirements for opening letters of credit; second, that appellant also knew it could not meet those requirement.
When, therefore, despite this awareness that was financially incompetent to open a letter of credit immediately,
appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirm and assignable
letter of credit," it must be similarly held to have bound itself to answer for all and every consequences that would result
from the representation.

We would like to make reference also to Article 11 of the Civil Code which provides:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable in damages.

Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations a decreed
liable; in general, every debtor who fails in performance of his obligations is bound to indemnify for thelosses and
damages caused thereby . The phrase "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 or defective performance. (IV Tolentino, Civil
Code of the Philippines, citing authorities, p. 103.)
Roberto Sicam vs. Lulu Jorge

FACTS:
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several
pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to
secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found
inside the pawnshop vault.

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the
robbery incident in the pawnshop. On November2, 1987, respondent Lulu then wrote a letter to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank
near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare
the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam
with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual,
moral and exemplary damages as well as attorney's fees. Respondents subsequently filed an Amended Complaint to
include petitioner corporation. Petitioners insist that they are not liable since robbery is a fortuitous event and they are
not negligent at all.

ISSUE: Whether petitioners are liable for the loss of the pawned articles in their possession since robbery is a fortuitous
event .

HELD: YES.
Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that
the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be
impossible toforesee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the injury or loss.

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury
was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's
participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and
removed from the rules applicable to acts of God.

Petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. 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.

Article 2123 of the Civil Code provides that:


With regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning
them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that:

The creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns
the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. 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 time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2
shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be
required.

A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily
prudent person would have used in the same. The robbery in this case happened in petitioners' pawnshop and they
were negligent in not exercising the precautions justly demanded of a pawnshop.
NPC vs. CA

FACTS:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder, executed a contract in Manila with
the National Waterworks and Sewerage Authority (NAWASA), whereby the former undertook to furnish all tools, labor,
equipment, and materials (not furnished by Owner), and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and
Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said
works within eight hundred (800) calendar days from the date the Contractor receives the formal notice to proceed.

By September 1967, the plaintiff corporation already had completed the first major phase of the work, namely, the
tunnel excavation work. Some portions of the outworks at the Bicti site were still under construction. As soon as the
plaintiff corporation had finished the tunnel excavation work at the Bicti site, all the equipment no longer needed there
were transferred to the Ipo site where some projects were yet to be completed.

On November 4,1967, typhoon 'Welming' hit Central Luzon, passing through defendant's Angat Hydro-electric Project
and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to
the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger
height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates."As a result,
an extraordinary large volume of water rushed out of the gates, and hit the installations and construction works of ECI at
the lpo site with terrific impact, as a result of which the latter's stockpile of materials and supplies, camp facilities and
permanent structures and accessories either washed away, lost or destroyed.

NPC argues that the rapid rise of the water level in the reservoir of its Angat Dam due to heavy rains brought about by
the typhoon was an extraordinary occurrence that could not have been foreseen, and thus, the subsequent release of
water through the spillway gates and its resultant effect, if any, on ECI's equipment and facilities may rightly be
attributed to force majeure.

ISSUE: WON NPC can invoke Act of God Doctrine toescape liability.

HELD: No.
It is clear from the appellate court's decision that based on its findings of fact and that of the trial court's, petitioner NPC
was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon
"Welming" when it knew very well that it was safer to have opened the same gradually and earlier, as it was also
undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the
typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was
the proximate cause of the loss and damage.

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence,
delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the
Civil Code, which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by
the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief.
When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it
was, and removed from the rules applicable to the acts of God. Thus, it has been held that when the negligence of a
person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he
must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned.
Fil-estate Inc vs. Sps. Ronquillo

FACTS:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-
Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for
a pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (5,174,000.00). On 29
August 1997, respondents executed and signed a Reservation Application Agreement wherein they deposited
200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of 1,552,200.00 and had
been paying the 63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of 2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded
a full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file
a Complaint for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed
for reimbursement/refund of 2,198,949.96 representing the total amortization payments, 200,000.00 as and by way
of moral damages, attorneys fees and other litigation expenses.

Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was
a mere delay in the completion of the project and that they only resorted to "suspension and reformatting as a
testament to their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that
befell the real estate industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held
liable for a fortuitous event.

ISSUE: Whether or not the Asian financial crisis constitute a fortuitous event which would justify delay by petitioners in
the performance of their contractual obligation.

HELD: No.
Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses Go, where
the Court stated that the Asian financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as the
instant case, G.R. No. 165164 involves the same company, Fil- Estate, albeit about a different condominium property.
The company likewise reneged on its obligation to respondents therein by failing to develop the condominium project
despite substantial payment of the contract price. Fil-Estate advanced the same argument that the 1997 Asian financial
crisis is a fortuitous event which justifies the delay of the construction project. First off, the Court classified the issue as a
question of fact which may not be raised in a petition for review considering that there was no variance in the factual
findings of the HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the previous rulings
of Asian Construction and Development Corporation v. Philippine Commercial International Bank14 and Mondragon
Leisure and Resorts Corporation v. Court of Appeals holding that the 1997 Asian financial crisis did not constitute a valid
justification to renege on obligations. The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. It is unfortunate that
petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its real
estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on
commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso fortuito.

The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in
this case. The principle of stare decisis, which means adherence to judicial precedents, applies.
Universal Food Corporation vs. CA

FACTS:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a
food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that the manufacture of this
product was used in commercial scale in 1942, and in the same year plaintiff registered his trademark in his name as
owner and inventor with the Bureau of Patents; that due to lack of sufficient capital to finance the expansion of the
business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the
aforequoted "Bill of Assignment"

The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said respondent patentee to continue research on the
patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and
personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product

Due to the alleged scarcity and high prices of raw materials, Secretary-Treasurer Ciriaco L. de Guzman of defendant
issued a Memorandum duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo
Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped
for the time being until the corporation should resume its operation.

Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his
services were terminated on November 30, 1960. Without plaintiff Magdalo V. Francisco, Sr. being recalled back to
work, the latter filed an action for rescission of a contract entitled "Bill of Assignment."About a month afterwards, in a
letter dated March 20, 1961, defendant, thru its President and General Manager, requested said plaintiff to report for
duty , but the latter declined the request because the present action was already filed in court.

The petitioner contended that the respondents are not entitled to rescission. That in this case the trial court found that
the respondents not only have failed to show that the petitioner has been guilty of default in performing its contractual
obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco who had been
remiss in the compliance of his contractual obligation to cede and transfer to the defendant the formula for Mafran
sauce;" that even the respondent Court of Appeals found that as "observed by the lower court, 'the record is replete
with the various attempt made by the defendant (herein petitioner) to secure the said formula from Magdalo V.
Francisco to no avail; and that upon the foregoing findings, the respondent Court of Appeals unjustly concluded that the
private respondents are entitled to rescind the Bill of Assignment.

ISSUE: WON rescission of the Bill of Assignment is proper?

HELD:Yes.
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 of the Mortgage Law.

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 fulfillment and rescission of the obligation, with payment
of damages in either case.
In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The
petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of
the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for
suchsubstantial and fundamental breach as would defeat the very object of the parties in making the agreement.In this
case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option to demand performance or ask for
rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no
alternative but to file the present action for rescission and damages. It is to be emphasized that the respondent
patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of
the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in
the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these
measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy
its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The salient provisions
of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the
respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said
respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the
need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and
safekeeping of the chemicals and other mixtures used in the preparation of said product all these provisions of the
Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest.