G.R. No. 118664 August 7, 1998 To begin with, there is no dispute that the Mt.
To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding
JAPAN AIRLINES vs. THE COURT OF APPEALS, ENRIQUE AGANA., MARIA ANGELA
NINA AGANA, ADALIA B. FRANCISCO and JOSE MIRANDA, respondents.
Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the
reversal of the decision of the Court of Appeals, 1 which affirmed with modification the award of
damages made by the trial court in favor of herein private respondents Enrique Agana, Maria
Angela Nina Agana, Adelia Francisco and Jose Miranda.
On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San
Francisco, California bound for Manila. Likewise, on the same day private respondents Enrique
Agana, Maria Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila
via JAL flight No. JL 061. As an incentive for travelling on the said airline, both flights were to
make an overnight stopover at Narita, Japan, at the airlines' expense, thereafter proceeding to
Manila the following day.
Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko
Narita for the night. The next day, private respondents, on the final leg of their journey, went to
the airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting
ashfall blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline
traffic. Hence, private respondents' trip to Manila was cancelled indefinitely.
To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound
passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel
expenses for their unexpected overnight stay. On June 16, 1991, much to the dismay of the
private respondents, their long anticipated flight to Manila was again cancelled due to NAIA's
indefinite closure. At this point, JAL informed the private respondents that it would no longer
defray their hotel and accommodation expense during their stay in Narita.
Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were
forced to pay for their accommodations and meal expenses from their personal funds from June
16 to June 21, 1991. Their unexpected stay in Narita ended on June 22, 1991 when they arrived
in Manila on board JL flight No. 741.
Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced
an action for damages against JAL before the Regional Trial Court of Quezon City, Branch 104.
2
To support their claim, private respondents asserted that JAL failed to live up to its duty to
provide care and comfort to its stranded passengers when it refused to pay for their hotel and
accommodation expenses from June 16 to 21, 1991 at Narita, Japan. In other words, they
insisted that JAL was obligated to shoulder their expenses as long as they were still stranded in
Narita. On the other hand, JAL denied this allegation and averred that airline passengers have
no vested right to these amenities in case a flight is cancelled due to "force majeure."
On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding
JAL liable for damages, viz.:
WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant Japan Airlines
to pay the plaintiffs Enrique Agana, Adalia B. Francisco and Maria Angela Nina Agana the sum
of One million Two Hundred forty-six Thousand Nine Hundred Thirty-Six Pesos (P1,246,936.00)
and Jose Miranda the sum of Three Hundred Twenty Thousand Six Hundred sixteen and 31/100
(P320,616.31) as actual, moral and exemplary damages and pay attorney's fees in the amount
of Two Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.
Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the
exception of lowering the damages awarded affirmed the trial court's finding, 3 thus:
Thus, the award of moral damages should be as it is hereby reduced to P200,000.00 for each of
the plaintiffs, the exemplary damages to P300,000.00 and the attorney's fees to P100,000.00
plus the costs.
WHEREFORE, with the foregoing Modification, the judgment appealed from is hereby
AFFIRMED in all other respects.
JAL filed a motion for reconsideration which proved futile and
unavailing. 4
Failing in its bid to reconsider the decision, JAL has now filed this instant petition.
The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the
hotel and meal expenses of its stranded passengers until they have reached their final
destination, even if the delay were caused by "force majeure."
to Manila on schedule. Likewise, private respondents concede that such event can be
considered as "force majeure" since their delayed arrival in Manila was not imputable to JAL. 5
However, private respondents contend that while JAL cannot be held responsible for the
delayed arrival in Manila, it was nevertheless liable for their living expenses during their
unexpected stay in Narita since airlines have the obligation to ensure the comfort and
convenience of its passengers. While we sympathize with the private respondents' plight, we are
unable to accept this contention.
We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a
contract to transport passengers is quite different in kind, and degree from any other contractual
relation. It is safe to conclude that it is a relationship imbued with public interest. Failure on the
part of the common carrier to live up to the exacting standards of care and diligence renders it
liable for any damages that may be sustained by its passengers. However, this is not to say that
common carriers are absolutely responsible for all injuries or damages even if the same were
caused by a fortuitous event. To rule otherwise would render the defense of "force majeure," as
an exception from any liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his obligation because of
"force majeure," the general rule is that he cannot be held liable for damages for non-
performance. 6 Corollarily, when JAL was prevented from resuming its flight to Manila due to the
effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal
expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that
JAL assumed the hotel expenses of respondents for their unexpected overnight stay on June
15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience
for the private respondents. To be sure, they underwent distress and anxiety during their
unanticipated stay in Narita, but their predicament was not due to the fault or negligence of JAL
but the closure of NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or
negligence, liable for the amenities of its stranded passengers by reason of a fortuitous event is
too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks incident to the mode
of travel. 7 In this regard, adverse weather conditions or extreme climatic changes are some of
the perils involved in air travel, the consequences of which the passenger must assume or
expect. After all, common carriers are not the insurer of all risks. 8
Paradoxically, the Court of Appeals, despite the presence of "force majeure," still ruled against
JAL relying in our decision in PAL v. Court of Appeals, 9 thus:
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a
fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the sole one to operate in the country,
PAL is deemed equipped to deal with situations as in the case at bar. What we said in one case
once again must be stressed, i.e., the relation of carrier and passenger continues until the latter
has been landed at the port of destination and has left the carrier's premises. Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they have reached their final
destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent
was a stranger to the place.
The reliance is misplaced. The factual background of the PAL case is different from the instant
petition. In that case there was indeed a fortuitous event resulting in the diversion of the PAL
flight. However, the unforeseen diversion was worsened when "private respondents (passenger)
was left at the airport and could not even hitch a ride in a Ford Fiera loaded with PAL
personnel," 10 not to mention the apparent apathy of the PAL station manager as to the
predicament of the stranded passengers. 11 In light of these circumstances, we held that if the
fortuitous event was accompanied by neglect and malfeasance by the carrier's employees, an
action for damages against the carrier is permissible. Unfortunately, for private respondents,
none of these conditions are present in the instant petition.
We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be
noted that private respondents bought tickets from the United States with Manila as their final
destination. While JAL was no longer required to defray private respondents' living expenses
during their stay in Narita on account of the fortuitous event, JAL had the duty to make the
necessary arrangements to transport private respondents on the first available connecting flight
to Manila. Petitioner JAL reneged on its obligation to look after the comfort and convenience of
its passengers when it declassified private respondents from "transit passengers" to "new
passengers" as a result of which private respondents were obliged to make the necessary
arrangements themselves for the next flight to Manila. Private respondents were placed on the
waiting list from June 20 to June 24. To assure themselves of a seat on an available flight, they
were compelled to stay in the airport the whole day of June 22, 1991 and it was only at 8:00 p.m.
of the aforesaid date that they were advised that they could be accommodated in said flight
which flew at about 9:00 a.m. the next day.
We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to
June 21, 1991 caused considerable disruption in passenger booking and reservation. In fact, it
would be unreasonable to expect, considering NAIA's closure, that JAL flight operations would
be normal on the days affected. Nevertheless, this does not excuse JAL from its obligation to
make the necessary arrangements to transport private respondents on its first available flight to
Manila. After all, it had a contract to transport private respondents from the United States to
Manila as their final destination.
Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in
order that a right of a plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized and not for the purpose of indemnifying any loss suffered by him. 12 The
court may award nominal damages in every obligation arising from any source enumerated in
article 1157, or in every case where any property right has been invaded. 13
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December
22, 1993 is hereby MODIFIED. The award of actual, moral and exemplary damages is hereby
DELETED. Petitioner JAL is ordered to pay each of the private respondents nominal damages in
the sum of P100,000.00 each including attorney' s fees of P50,000.00 plus costs.
G.R. No. 125018 April 6, 2000
REMMAN ENTERPRISES, INC vs. COURT OF APPEALS and CRISPIN E. LAT,
REMMAN ENTERPRISES, INC. (REMMAN), and CRISPIN E. LAT are adjoining landowners in
Barangay Bugtong Na Pulo, Lipa City. The land of Lat containing an area of 1.8 hectares is
agricultural and planted mostly with fruit trees while REMMAN occupies a land area of fifteen
(15) hectares six (6) hectares of which are devoted to its piggery business. REMMAN's land is
one and a half (1 1/2) meters higher in elevation than that of respondent Lat.
Sometime in July 1984 Lat noticed that REMMAN's waste disposal lagoon was already
overflowing and inundating one-fourth (1/4) of Lat's plantation. He made several representations
with REMMAN but they fell on deaf ears. On 14 March 1985, after almost one (1) hectare of
Lat's plantation was already inundated with water containing pig manure, as a result of which the
trees growing on the flooded portion started to wither and die, Lat filed a complaint for damages
with preliminary mandatory injunction against REMMAN. Lat alleged that the acidity of the soil in
his plantation increased because of the overflow of the water heavy with pig manure from
REMMAN's piggery farm.
REMMAN denied all the allegations of Lat and raised as an affirmative defense that measures
such as the construction of additional lagoons were already adopted to contain the waste water
coming from its piggery to prevent any damage to the adjoining estates.
After conducting an ocular inspection and evaluating the evidence of both parties the Regional
Trial Court found that indeed REMMAN’s waste disposal lagoon overflowed with the
contaminated water flooding one (1) hectare of Lat's plantation. The waste water was ankle-
deep and caused death and destruction to one (1) jackfruit tree, fifteen (15) coconut trees, one
hundred twenty-two (122) coffee trees, and an unspecified number of mango trees, bananas
and vegetables. As a consequence, the trial court ordered REMMAN to indemnify Lat
P186,975.00 for lost profits for three (3) crop years and P30,000.00 as attorney's fees. 1
The decision of the court a quo was affirmed in toto by the Court of Appeals. 2
In this Petition for Review on Certiorari REMMAN prays that we pass upon the findings of the
trial court as well as of the appellate court. REMMAN insists that factual findings of lower courts
may be passed upon, reviewed and reversed: (a) when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; (b) when the inference made is manifestly
mistaken, absurd or impossible; (c) when there is grave abuse of discretion; (d) when the
judgment is based on a misapprehension of facts; (e) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; (f) when the conclusions of the Court of Appeals are not
supported by the evidence on record; (g) when facts of substance were overlooked which, if
correctly considered, might have changed the outcome of the case; and, (h) when the findings of
the Court of Appeals are not in accord with what reasonable men would readily accept are the
correct inferences from the evidence extant in the records. 3
Indeed, in the abovementioned instances, the factual milieu of a particular case may be passed
upon, reversed or modified by this Court. But examination of the record reveals that all the
above instances are unavailing. From this point of view alone the instant petition is dismissible.
Nevertheless, we shall discuss them hereunder to dispose finally of the contentions of
REMMAN.
First, REMMAN argues that its liability for the damages suffered by Lat was not clearly
established.
We disagree. During the ocular inspection conducted by the lower court where representatives
of both parties were present, it was established that the waste water containing pig manure was
continuously flowing from REMMAN's piggery farm to Lat's plantation. The water was ankle-
deep and flooded one (1) hectare of Lat's plantation. The overflow of the "acidic, malodorous
and polluted water" continued from June 1984 to March 1985 thus destroying one (1) jackfruit
tree, fifteen (15) coconut trees, one hundred an twenty-two (122) coffee trees, and an
unspecified number of mango trees, bananas and vegetables. 4
In addition, the appellate court found that there was indeed negligence on the part of REMMAN
which directly caused the damage to the plantation of Lat. Thus —
. . . Negligence was clearly established. It is uncontroverted that the land of appellee was
flooded on account of the overflow of acidic, malodorous and polluted water coming from the
adjacent piggery farm of appellant sometime in May 1984. This resulted in the impairment of the
productivity of appellee's land as well as the eventual destruction and death of several fruit trees,
such as coconuts, coffee, jackfruits, bananas and other plants . . . . Appellant cannot avoid
liability because their negligence was the proximate cause of the damage. Appellee's property
was practically made a catch-basin of polluted water and other noxious substances emptying
from appellant's piggery which could have been prevented had it not been for the negligence of
appellant arising from its: (a) failure to monitor the increases in the level of water in the lagoons
before, during and after the heavy downpours which occurred during the rainy months of 1984;
(b) failure to augment the existing lagoons prior to the incident, notwithstanding the fact that at
the time of the flooding, the piggery had grown to a capacity of 11,000 heads, and considering
that it was reasonably forseeable that the existing waste disposal facilities were no longer
adequate to accomodate the increasing volume of waste matters in such a big farm; and more
importantly, (c) the repeated failure to comply with their promise to appellee. 5
Finally, REMMAN complains that the damages, if any, were due to a fortuitous event.
Again, we cannot agree with petitioner. We defer instead to the findings opinions expressed by
the lower courts —
Even assuming that the heavy rains constituted an act of God, by reason of their negligence, the
fortuitous event became humanized, rendering appellants liable for the ensuing damages. In
National Power Corporation v. Court of Appeals, 233 SCRA 649 (1993), the Supreme Court
held:
Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to escape
liability for the loss or damage sustained by private respondents since they, the petitioners, were
guilty of negligence. This event then was not occasioned exclusively by an act of God or force
majeure; a human factor — negligence or imprudence — had intervened. The effect then of the
force majeure in question may be deemed to have, even if only partly, resulted from the
participation of man. Thus, the whole occurrence was thereby humanized, as it were, and
removed from the rules applicable to acts of God.
As regards the alleged natural easement imposed upon the property of appellee, resort to
pertinent provisions of applicable law is imperative. Under the Civil Code, it is provided:
Art. 637. Lower estates are obliged to receive the waters which naturally and without the
intervention of man descend from the higher estates, as well as the stones or earth which they
carry with them.
The owner of the lower estate cannot construct works which will impede this easement; neither
can the owner of the higher estate make works which will increase the burden.
A similar provision is found in the Water Code of the Philippines (P.D. No. 1067), which
provides:
Art. 50. Lower estates are obliged to receive the water which naturally and without the
intervention of man flow from the higher estates, as well as the stone or earth which they carry
with them.
The owner of the lower estate cannot construct works which will impede this natural flow, unless
he provides an alternative method of drainage; neither can the owner of the higher estate make
works which will increase this natural flow.
As worded, the two (2) aforecited provisions impose a natural easement upon the lower estate
to receive the waters which naturally and without the intervention of man descend from higher
states. However, where the waters which flow from a higher state are those which are artificially
collected in man-made lagoons, any damage occasioned thereby entitles the owner of the lower
or servient estate to compensation. 9
On the basis of the foregoing discussion, it is crystal clear that REMMAN is directly accountable
to Lat for the damages sustained by him. The negligence of REMMAN in maintaining the level of
waste water in its lagoons has been satisfactorily established. The extent of damages suffered
by Lat remains unrebutted; in fact, has been proved.
WHEREFORE, the petition is DENIED. The 19 October 1995 Decision of the Court of Appeals
affirming that of the Regional Trial Court-Br. 16, Lipa City, holding petitioner Remman
Enterprises, Inc. (REMMAN) liable to private respondent Crispin E. Lat for damages and to
indemnify the latter P186,975.00 for lost profits for three (3) crop years and P30,000.00 as
attorneys fees, is AFFIRMED. Costs against petitioner.1âwphi1.nêt
G.R. No. 97626 March 14, 1997
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA
PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO
LIPANA, its President & General Manager, respondents.
Challenged in this petition for review is the Decision dated February 28, 1991 1 rendered by
public respondent Court of Appeals which affirmed the Decision dated November 15, 1985 of
the Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig City, in Civil
Case No. 27288 entitled "Rommel's Marketing Corporation, etc. v. Philippine Bank of
Commerce, now absorbed by Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent Rommel's Marketing
Corporation (RMC for brevity), represented by its President and General Manager Romeo
Lipana, to recover from the former Philippine Bank of Commerce (PBC for brevity), now
absorbed by the Philippine Commercial International Bank, the sum of P304,979.74
representing various deposits it had made in its current account with said bank but which were
not credited to its account, and were instead deposited to the account of one Bienvenido Cotas,
allegedly due to the gross and inexcusable negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-
01748-7, with the Pasig Branch of PBC in connection with its business of selling appliances.
In the ordinary and usual course of banking operations, current account deposits are accepted
by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's
agent or representative, who indicates therein the current account number to which the deposit
is to be credited, the name of the depositor or current account holder, the date of the deposit,
and the amount of the deposit either in cash or checks. The deposit slip has an upper portion or
stub, which is detached and given to the depositor or his agent; the lower portion is retained by
the bank. In some instances, however, the deposit slips are prepared in duplicate by the
depositor. The original of the deposit slip is retained by the bank, while the duplicate copy is
returned or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC
funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of
depositing said funds in the current accounts of RMC with PBC. It turned out, however, that
these deposits, on all occasions, were not credited to RMC's account but were instead deposited
to Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise maintains an
account with the same bank. During this period, petitioner bank had, however, been regularly
furnishing private respondent with monthly statements showing its current accounts balances.
Unfortunately, it had never been the practice of Romeo Lipana to check these monthly
statements of account reposing complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of
the deposit slip, an original and a duplicate. The original showed the name of her husband as
depositor and his current account number. On the duplicate copy was written the account
number of her husband but the name of the account holder was left blank. PBC's teller, Azucena
Mabayad, would, however, validate and stamp both the original and the duplicate of these
deposit slips retaining only the original copy despite the lack of information on the duplicate slip.
The second copy was kept by Irene Yabut allegedly for record purposes. After validation, Yabut
would then fill up the name of RMC in the space left blank in the duplicate copy and change the
account number written thereon, which is that of her husband's, and make it appear to be RMC's
account number, i.e., C.A. No. 53-01980-3. With the daily remittance records also prepared by
Ms. Yabut and submitted to private respondent RMC together with the validated duplicate slips
with the latter's name and account number, she made her company believe that all the while the
amounts she deposited were being credited to its account when, in truth and in fact, they were
being deposited by her and credited by the petitioner bank in the account of Cotas. This went on
in a span of more than one (1) year without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its
money, but as its demand went unheeded, it filed a collection suit before the Regional Trial
Court of Pasig, Branch 160. The trial court found petitioner bank negligent.
On appeal, the appellate court affirmed the foregoing decision with modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the awards of
exemplary damages and attorney's fees specified therein are eliminated and instead, appellants
are ordered to pay plaintiff, in addition to the principal sum of P304,979.74 representing plaintiff's
lost deposit plus legal interest thereon from the filing of the complaint, P25,000.00 attorney's
fees and costs in the lower court as well as in this Court. 3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of respondent Rommel Marketing
Corporation and Romeo Lipana in entrusting cash to a dishonest employee.
2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's
statements of account with its own records during the entire period of more than one (1) year is
the proximate cause of the commission of subsequent frauds and misappropriation committed
by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by respondent Rommel Marketing
Corporation are falsified and are not proof that the amounts appearing thereon were deposited
to respondent Rommel Marketing Corporation's account with the bank,
4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover up her
fraudulent acts against respondent Rommel Marketing Corporation, and not as records of
deposits she made with the bank. 4
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause of the loss, to the
tune of P304,979.74, suffered by the private respondent RMC — petitioner bank's negligence or
that of private respondent's?
Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC and
Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. Irene Yabut. 5
According to them, it was impossible for the bank to know that the money deposited by Ms.
Irene Yabut belong to RMC; neither was the bank forewarned by RMC that Yabut will be
depositing cash to its account. Thus, it was impossible for the bank to know the fraudulent
design of Yabut considering that her husband, Bienvenido Cotas, also maintained an account
with the bank. For the bank to inquire into the ownership of the cash deposited by Ms. Irene
Yabut would be irregular. Otherwise stated, it was RMC's negligence in entrusting cash to a
dishonest employee which provided Ms. Irene Yabut the opportunity to defraud RMC. 6
Private respondent, on the other hand, maintains that the proximate cause of the loss was the
negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating the deposit slips,
both original and duplicate, presented by Ms. Yabut to Ms. Mabayad, notwithstanding the fact
that one of the deposit slips was not completely accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault or
negligence of the defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and the
damages incurred by the plaintiff. 7
In the case at bench, there is no dispute as to the damage suffered by the private respondent
(plaintiff in the trial court) RMC in the amount of P304,979.74. It is in ascribing fault or
negligence which caused the damage where the parties point to each other as the culprit.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. The seventy-eight (78)-year-old, yet
still relevant, case of Picart v. Smith, 8 provides the test by which to determine the existence of
negligence in a particular case which may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. 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.
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner
bank in the selection and supervision of its bank teller, which was the proximate cause of the
loss suffered by the private respondent, and not the latter's act of entrusting cash to a dishonest
employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed considerations of logic,
common sense, policy and precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated in the case of
Bank of the Phil. Islands v. Court of Appeals, 17 defines proximate cause as "that cause, which,
in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred. . . ." In this case, absent the act of
Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit slip, Ms.
Irene Yabut would not have the facility with which to perpetrate her fraudulent scheme with
impunity. Apropos, once again, is the pronouncement made by the respondent appellate court,
to wit:
. . . . Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by
plaintiff, she would not have been able to deposit those funds in her husband's current account,
and then make plaintiff believe that it was in the latter's accounts wherein she had deposited
them, had it not been for bank teller Mabayad's aforesaid gross and reckless negligence. The
latter's negligence was thus the proximate, immediate and efficient cause that brought about the
loss claimed by plaintiff in this case, and the failure of plaintiff to discover the same soon enough
by failing to scrutinize the monthly statements of account being sent to it by appellant bank could
not have prevented the fraud and misappropriation which Irene Yabut had already completed
when she deposited plaintiff's money to the account of her husband instead of to the latter's
accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred to, at times as "supervening
negligence" or as "discovered peril"), petitioner bank was indeed the culpable party. This
doctrine, in essence, states that where both parties are negligent, but the negligent act of one is
appreciably later in time than that of the other, or when it is impossible to determine whose fault
or negligence should be attributed to the incident, the one who had the last clear opportunity to
avoid the impending harm and failed to do so is chargeable with the consequences thereof. 19
Stated differently, the rule would also mean that an antecedent negligence of a person does not
preclude the recovery of damages for the supervening negligence of, or bar a defense against
liability sought by another, if the latter, who had the last fair chance, could have avoided the
impending harm by the exercise of due diligence. 20 Here, assuming that private respondent
RMC was negligent in entrusting cash to a dishonest employee, thus providing the latter with the
opportunity to defraud the company, as advanced by the petitioner, yet it cannot be denied that
the petitioner bank, thru its teller, had the last clear opportunity to avert the injury incurred by its
client, simply by faithfully observing their self-imposed validation procedure.
At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in
dealing with their clients.
The New Civil Code 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 the 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. (1104a)
In the case of banks, however, the degree of diligence required is more than that of a good
father of a family. Considering the fiduciary nature of their relationship with their depositors,
banks are duty bound to treat the accounts of their clients with the highest degree of care. 21
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. In the case before us, it is
apparent that the petitioner bank was remiss in that duty and violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's
statements of account with its own records during the entire period of more than one (1) year is
the proximate cause of the commission of subsequent frauds and misappropriation committed
by Ms. Irene Yabut.
We do not agree.
While it is true that had private respondent checked the monthly statements of account sent by
the petitioner bank to RMC, the latter would have discovered the loss early on, such cannot be
used by the petitioners to escape liability. This omission on the part of the private respondent
does not change the fact that were it not for the wanton and reckless negligence of the
petitioners' employee in validating the incomplete duplicate deposit slips presented by Ms. Irene
Yabut, the loss would not have occurred. Considering, however, that the fraud was committed in
a span of more than one (1) year covering various deposits, common human experience
dictates that the same would not have been possible without any form of collusion between Ms.
Yabut and bank teller Mabayad. Ms. Mabayad was negligent in the performance of her duties as
bank teller nonetheless. Thus, the petitioners are entitled to claim reimbursement from her for
whatever they shall be ordered to pay in this case.
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise
negligent in not checking its monthly statements of account. Had it done so, the company would
have been alerted to the series of frauds being committed against RMC by its secretary. The
damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC
amounts to contributory negligence which shall mitigate the damages that may be awarded to
the private respondent 23 under Article 2179 of the New Civil Code, to wit:
. . . When the plaintiff's own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.
In view of this, we believe that the demands of substantial justice are satisfied by allocating the
damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court,
except the award of P25,000.00 attorney's fees, shall be borne by private respondent RMC; only
the balance of 60% needs to be paid by the petitioners. The award of attorney's fees shall be
borne exclusively by the petitioners.
WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the
amount of actual damages private respondent is entitled to by 40%. Petitioners may recover
from Ms. Azucena Mabayad the amount they would pay the private respondent. Private
respondent shall have recourse against Ms. Irene Yabut. In all other respects, the appellate
court's decision is AFFIRMED.
G.R. No. 108346 July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, vs. COURT OF APPEALS,
DAVID A. RAYMUNDO and GEORGE RAYMUNDO,
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by
the contract, entitled the injured party to rescind the obligation. Rescission abrogates the contract from its
inception and requires a mutual restitution of benefits received.
'WHEREAS, while my application for the assumption of the mortgage obligations on the property is not
yet approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the property with
the Bank in the name of Mr. David A. Raymundo, in accordance with the terms and conditions of the said
Deed of Real Estate Mortgage, including all interests and other charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of
attesting and confirming our private understanding concerning the said mortgage obligations to be
assumed.
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the
mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the bank of the Philippine Islands, I, Mrs, Avelina D, Velarde with the consent
of my husband, Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors and
assigns, to strictly and faithfully comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on the property purchased is
approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan
in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I
hereby agree that my downpayment of P800,000.00, plus all payments made with the Bank of the
Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by
way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr.
David A. Raymundo shall resume total and complete ownership and possession of the property sold by
way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled
and be of no further force or effect, in the same manner as it (the) same had never been executed or
entered into.
'3. That I am executing the Undertaking for purposes of binding myself, my heirs, successors and assigns,
to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank
of the Philippine Islands, and the covenants, stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby
confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage
obligations by the Vendee with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds
of a loan that plaintiffs were to secure from a bank with defendant's help. Defendants had a standing
approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this,
subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Pending BPI's
approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured
by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00; October 20,
1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with
BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any further
payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment
to the mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January
21, 1987 provided: (a) you deliver actual possession of the property to her not later than January 15, 1987
for her immediate occupancy; (b) you cause the re- lease of title and mortgage from the Bank of P.I. and
make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed
of sale in her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'k', '4', p.
223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended
sale of the subject property allegedly due to the latter's failure to comply with the terms and conditions of
the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No.
15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard by then Judge
Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the Complaint in a
Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A.
Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991,9 Judge Abad Santos
granted petitioner's Motion for Reconsideration and directed the parties to proceed with the sale. He
instructed petitioners to pay the balance of P1.8 million to private respondents who, in turn, were ordered
to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier
Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
The Issues
Petitioners, in their Memorandum,12 interpose the following assignment of errors:
The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a
breach of the contract.
The Court of Appeals erred in holding that the rescission (resolution) of the contract by private
respondents was justified.
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new conditions'
constituting mere offers or an attempt to novate necessitating a new agreement between the parties."
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a
breach of contract, considering that their request to assume the obligation had been disapproved by the
mortgagee bank. Accordingly, payment of the monthly amortizations ceased to be their obligation and,
instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both parties, their agreement mandated that petitioners
should pay the purchase price balance of P1.8 million to private respondents in case the request to assume
the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners received notice of the
bank's disapproval of their application to assume respondents' mortgage, they should have paid the
balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only
upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such
conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a
buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in money or its equivalent.13
Private respondents had already performed their obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the property to petitioner through constructive delivery. Prior
physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed
equivalent to delivery.14
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in
the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those
stipulated in the contract before fulfilling their own obligation to pay the full purchase price.
 Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents was not justified,
inasmuch as the former had signified their willingness to pay the balance of the purchase price only a little
over a month from the time they were notified of the disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the contract was not substantial as would warrant a
rescission. They cite several cases15 in which this Court declared that rescission of a contract would not be
permitted for a slight or casual breach. Finally, they argue that they have substantially performed their
obligation in good faith, considering that they have already made the initial payment of P800,000 and
three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price
under the contract of sale. Private respondents' right to rescind the contract finds basis in Article 1191 of
the Civil Code, which explicitly provides as follows:
"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 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 right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a
breach of faith by the other party who violates the reciprocity between them.16 The breach contemplated in
the said provision is the obligor's failure to comply with an existing obligation.17 When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just
cause for the court to determine the period of compliance, the court shall decree the rescission.18
In the present case, private respondents validly exercised their right to rescind the contract, because of the
failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably,
the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave
rise to private respondent's right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it
became due; however, this was not equivalent to actual payment as would constitute a faithful compliance
of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private
respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot
be said that the breach committed by petitioners was merely slight or casual as would preclude the
exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances in those
cases are not analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a
delay of twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer to pay was
unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which was actually
paid.
In Tan, the alleged breach was private respondent's delay of only a few days, which was for the purpose of
clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract
price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents
new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer
to pay was a repudiation of an existing obligation, which was legally due and demandable under the
contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect
their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code
provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the
amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried out only when the
one who demands rescission can return whatever he may be obliged to restore.20 To rescind is to declare a
contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no contract has been made.21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised
by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of
petitioners to private respondents were not part of the original contract. By that time, it was already
incumbent upon the former to pay the balance of the sale price. They had no right to demand
preconditions to the fulfillment of their obligation, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private
respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a
consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.1âwphi1.nêt
G.R. No. 97347 July 6, 1999
JAIME G. ONG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and
ALEJANDRO M. ROBLES, respondents.
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the judgment rendered by the Court of
Appeals which, except as to the award of exemplary damages, affirmed the decision of the
Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and
Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 85-
85.1âwphi1.nêt
On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K.
Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and
Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms
and conditions of the contract read:"
1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS
(P2,000,000.00), Philippine currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed
by the parties, shall be broken down as follows:
1. P103,499.91 shall be paid, and as already paid by the BUYER to the SELLERS on March 22,
1983, as stipulated under the Certification of undertaking dated March 22, 1983 and covered by
a check of even date.
2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine
Islands to answer for the loan of the SELLERS which as of March 15, 1983 amounted to
P537,310.10, and for the interest that may accrued (sic) from March 15, 1983, up to the time
said obligation of the SELLERS with the said bank has been settled, provided however that the
amount in excess of P496,500.09, shall be chargeable from the time deposit of the SELLERS
with the aforesaid bank.
B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS
shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of THREE
HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and payable on June
15, 1983, and every quarter thereafter, until the whole amount is fully paid, by these presents
promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill and
the piggery which are the most notable improvements thereon, situated at Barangay Puri, San
Antonio Quezon, . . .
2. That upon the payment of the total purchase price by the BUYER the SELLERS bind
themselves to deliver to the former a good and sufficient deed of sale and conveyance for the
described two (2) parcels of land, free and clear from all liens and encumbrances.
3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender
and transfer possession of the said parcels of land including all the improvements that may be
found thereon, to the BUYER, and the latter shall take over from the SELLER the possession,
operation, control and management of the RICEMILL and PIGGERY found on the aforesaid
parcels of land.
4. That all payments due and payable under this contract shall be effected in the residence of
the SELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have
been subsequently designated by both parties in writing.
On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the
piggery, building, ricemill, residential house and other improvements thereon.
Pursuant to the contract they executed, petitioner paid respondent spouses the sum of
P103,499.91 2 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner
deposited sums of money with the Bank of Philippine Islands (BPI), 3 in accordance with their
stipulation that petitioner pay the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank
checks payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No.
157708 dated June 15, 1983, 4 Check No. 157709 dated September 15, 1983, 5 Check No.
157710 dated December 15, 1983 6 and Check No. 157711 dated March 15, 1984. 7 When
presented for payment, however, the checks were dishonored due to insufficient funds.
Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the
P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which
petitioner, as per agreement, should have paid, petitioner only managed to dole out no more
than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage,
they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding
obligation with said bank, with the knowledge and conformity of petitioner. 8 Petitioner, in return,
voluntarily gave the spouses authority to operate the rice mill. 9 He, however, continued to be in
possession of the two parcels of land while private respondents were forced to use the rice mill
for residential purposes.
On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter
asking for the return of the properties. Their demand was left unheeded, so, on September 2,
1985, they filed with the Regional Trial Court of Lucena City, Branch 60, a complaint for
rescission of contract and recovery of properties with damages. Later, while the case was still
pending with the trial court, petitioner introduced major improvements on the subject properties
by constructing a complete fence made of hollow blocks and expanding the piggery. These
prompted the respondent spouses to ask for a writ of preliminary injunction. 10 The trial court
granted the application and enjoined petitioner from introducing improvements on the properties
except for repairs. 11
On June 1, 1989 the trial court rendered a decision setting aside the contracts of the parties
ordering the petitioner to deliver the two parcels of land to the respondent’s possession and the
respondents to return to the petitioner his initial payment of P497,179.51.
Petitioner appealed to the Court of Appeals bu the court affirmed the decision of the RTC with a
modification deleting the exemplary damage.
Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has
already paid respondent spouses a considerable sum and has therefore substantially complied
with his obligation. He cites Article 1383 instead, to the effect that where specific performance is
available as a remedy, rescission may not be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy
granted by law to the contracting parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be valid, by restoration of things to
their condition at the moment prior to the celebration of the contract. 14 It implies a contract,
which even if initially valid, produces a lesion or a pecuniary damage to someone. 15
On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to
reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. 16 They are to be performed simultaneously such
that the performance of one is conditioned upon the simultaneous fulfillment of the other.
Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383. Although both presuppose
contracts validly entered into and subsisting and both require mutual restitution when proper,
they are not entirely identical.
While Article 1191 uses the term "rescission," the original term which was used in the old Civil
Code, from which the article was based, was "resolution. 17" Resolution is a principal action
which is based on breach of a party, while rescission under Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which
expressly enumerates the following rescissible contracts:
1. Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one fourth of the value of the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims
due them;
4. Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
5. All other contracts specially declared by law to be subject to rescission.
Obviously, the contract entered into by the parties in the case at bar does not fall under any of
those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.
May the contract entered into between the parties, however, be rescinded based on Article
1191?
A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature
of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the
property passes to the vendee upon the delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. 18 In a contract to sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title from acquiring an obligatory
force. 19
Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean
title covering the two parcels of land upon full payment by the buyer of the purchase price of
P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of
full payment of the purchase price by the petitioner. Petitioner, however, failed to complete
payment of the purchase price. The non-fulfillment of the condition of full payment rendered the
contract to sell ineffective and without force and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an
obligation. 20 Failure to pay, in this instance, is not even a breach but merely an event which
prevents the vendor's obligation to convey title from acquiring binding force. 21 Hence, the
agreement of the parties in the case at bench may be set aside, but not because of a breach on
the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to
do so brought about a situation which prevented the obligation of respondent spouses to convey
title from acquiring an obligatory force.
The award of exemplary damages was correctly deleted by the Court of Appeals in as much as
no moral, temperate, liquidated or compensatory damages in addition to exemplary damages
were awarded.
WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the
MODIFICATION that respondent spouses are ordered to return to petitioner the sum of
P48,680.00 in addition to the amounts already awarded. Costs against petitioner.1âwphi1.nêt