LOSSES AND DAMAGES

Eastern Shipping Lines vs. CA

G.R. No. 97412 July 12, 1994
VITUG, J.:

DOCTRINE:
Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

FACTS:
Two fiber drums were shipped owned by Eastern Shipping from Japan. The
shipment as insured with a marine policy. Upon arrival in Manila unto the
custody of metro Port Service, which excepted to one drum, said to be in
bad order and which damage was unknown the Mercantile Insurance
Company. Allied Brokerage Corporation received the shipment from Metro,
one drum opened and without seal. Allied delivered the shipment to the
consignee’s warehouse. The latter excepted to one drum which contained
spillages while the rest of the contents was adulterated/fake. As
consequence of the loss, the insurance company paid the consignee, so that
it became subrogated to all the rights of action of consignee against the
defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance
company filed before the trial court. The trial court ruled in favor of plaintiff
an ordered defendants to pay the former with present legal interest of 12%
per annum from the date of the filing of the complaint. On appeal by
defendants, the appellate court denied the same and affirmed in toto the
decision of the trial court.
ISSUE:
(1)   Whether the applicable rate of legal interest is 12% or 6%.

(2)   Whether the payment of legal interest on the award for loss or damage
is to be computed from the time the complaint is filed from the date the
decision appealed from is rendered.

RULING:

(1) The Court held that the legal interest is 6% computed from the decision
of the court. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.

When the judgment of the court awarding a sum of money becomes final
and executor, the rate of legal interest shall be 12% per annum from such
finality until satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed for default.

(2) From the date the judgment is made. Where the demand is established
with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run
only from the date of judgment of the court is made.
REMEDIES FOR BREACH
Cristina Garments vs. CA
G.R. No. 128721 March 09, 1999
PANGANIBAN, J.:

DOCTRINE:

Interest shall be computed in accordance with the stipulation of the parties.

In the absence of such agreement, the rate shall be twelve percent (12%)
per annum when the obligation arises out of a loan or a forbearance of
money, goods or credits. In other cases, it shall be six percent (6%).

FACTS:

During the period from February 1979 to April 1979, the petitioner, which
was engaged in the export of girls' denim pants, contracted the services of
the respondent, the sole proprietress of the D'Wilmar Garments, for the
sewing of 20,762 pieces of assorted girls’ denims supplied by the petitioner
under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated
February 1, 1979, 1453 dated April 30, 1979. The petitioner was obliged to
pay the respondent, for her services, in the total amount of P76,410.00. The
respondent sewed the materials and delivered the same to the petitioner
which acknowledged the same per Delivery Receipt Nos. 0030, dated
February 9, 1979; 0032, dated February 15, 1979; 0033 dated February 21,
1979; 0034, dated February 24, 1979; 0036, dated February 20, 1979;
0038, dated March 11, 1979; 0039, dated March 24, 1979; 0040 dated
March 27, 1979; 0041, dated March 29, 1979; 0044, dated March 25, 1979;
0101 dated May 18, 1979; 0037, dated March 10, 1979 and 0042 dated
March 10, 1979, in good order condition. At first, the respondent was told
that the sewing of some of the pants was defective. She offered to take
delivery of the defective pants. However, she was later told by petitioner's
representative that the goods were already good. She was told to just return
for her check of P76,410.00. However, the petitioner failed to pay her the
aforesaid amount. This prompted her to hire the services of counsel who, on
November 12, 1979, wrote a letter to the petitioner demanding payment of
the aforesaid amount within ten (10) days from receipt thereof. On February
7, 1990, the petitioner's vice-president-comptroller, wrote a letter to
respondent's counsel, averring, inter alia, that the pairs of jeans sewn by
her, numbering 6,164 pairs, were defective and that she was liable to the
petitioner for the amount of P49,925.51 which was the value of the damaged
pairs of denim pants and demanded refund of the aforesaid amount.

On January 8, 1981, the respondent filed her complaint against the

petitioner with the trial court for the collection of the principal amount of
P76,410.00.

ISSUE:

Whether or not it is proper to impose interest at the rate of twelve percent

(12%) per annum for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties.

RULING:

No. Because the amount in this case arose from a contract for a piece of
work, not from a loan or forbearance of money, the legal interest of 6% per
annum should be applied.

Under Article 1589 of the Civil Code provides that the vendee (herein
petitioner) shall owe interest for the period between the delivery of the thing
and the payment of the price x x x should he be in default, from the time of
judicial or extrajudicial demand for the payment of the price. The only issue
now is the applicable rate of interest for the late payment.

Furthermore, since the amount of the demand could be established with

certainty when the complaint was filed, the 6% interest should be computed
from the filing of the said complaint. But after the judgement becomes final
and executory until the obligation is satisfied, the interest should be
reckoned at 12% per year.
REMEDIES FOR BREACH – PERFORMANCE
Keng Hua Products vs. CA
G.R. No. 116863 February 12, 1998
PANGANIBAN, J.:

DOCTRINE:

A bill of lading serves two functions.

1. It is a receipt for the goods shipped.

2. It is a contract by which three parties, namely, the shipper, the carrier,

and the consignee undertake specific responsibilities and assume stipulated
obligations.

A “bill of lading delivered and accepted constitutes the contract of carriage

even though not signed,” because the “acceptance of a paper containing the
terms of a proposed contract generally constitutes an acceptance of the
contract and of all of its terms and conditions of which the acceptor has
actual or constructive notice.” The acceptance of a bill of lading by the
shipper and the consignee, with full knowledge of its contents, gives rise to
the presumption that the same was a perfected and binding contract.

FACTS:

On June 29, 1982, the carrier received at its Hong Kong terminal a sealed
container containing seventy-six bales of “unsorted waste paper” for
shipment to consignee in Manila. The shipment was covered by a bill of
lading which the consignee received immediately after arrival but it refused
to accept the shipment because the merchandise was in excess of 10 metric
tons.

The shipment was discharged at the Manila International Container Port.

However, the consignee failed to discharge the shipment from the container
during the grace period despite notices of arrival. The shipment remained
inside the shipper’s container for four hundred eighty-one (481) days – from
the moment the grace period expired until the time when the shipment was
unloaded from the container. During the 481-day period, demurrage charges
accrued. Meanwhile, the shipper demanded payment but the consignee
refused to settle its obligation.
ISSUE:

1. Whether or not the bill of lading is a valid and perfected contract between
the shipper, the consignee, and the carrier?

2. Whether an alleged overshipment justify the consignee’s refusal to receive

the goods described in the bill of lading?

3. When may interest be computed on unpaid demurrage charges?

RULING:

1. Yes. Both lower courts held that the bill of lading was a valid and
perfected contract between the shipper, the consignee, and the carrier.
Section 17 of the bill of lading provided that the shipper and the consignee
were liable for the payment of demurrage charges for the failure to
discharge the containerized shipment beyond the grace period allowed by
tariff rules.

2. No. The consignee’s remedy in case of overshipment lies against the

seller/shipper, not against the carrier. The contract of carriage, as stipulated
in the bill of lading is separate and distinct from the contract of sale between
the seller and the buyer in which the amount of goods is indicated. In the
present case, the contract of carriage was under the arrangement known as
“Shipper’s Load And Count,” and the shipper was solely responsible for the
loading of the container while the carrier was oblivious to the contents of the
shipment. The carrier had no knowledge of the contents of the container.

3. The legal interest of six percent per annum shall be computed from
September 28, 1990, the date of the trial court’s decision until its full
payment before finality of judgment. The rate of interest shall be adjusted to
twelve percent per annum, computed from the time said judgment became
final and executory until full satisfaction.
REMEDIES FOR BREACH
Security Bank vs. RTC Makati
G.R. No. 113926 October 23, 1996
HERMOSISIMA JR., J.:

DOCTRINE:

CB Circular 905 was issued by the Central Bank’s Monetary Board pursuant
to P.D. 1684 empowering them to prescribe the maximum rates of interest
for loans and certain forbearances.

FACTS:

Private respondent Magtanggol Eusebio executed Promissory Note in favor of

petitioner Security Bank and Trust Co. (SBTC) in the total amount of One
Hundred Thousand Pesos (P100,000.00) payable in six monthly installments
with a stipulated interest of 23% per annum up to the fifth installments.

One Hundred Thousand Pesos (P100.000.00) in six (6) monthly installments

plus 23% interest per annum.

Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this

note in six (6) monthly installments plus interest at the rate of 23% per
annum

On all the abovementioned notes, private respondents Leila Ventura had

signed as co-maker.

Upon the failure and refusal of respondent Eusebio to pay the aforestated
balance payable, a collectible case was filed in court by petitioner SBTC.

The court rendered a judgment in favor of petitioner SBTC, a motion for

partial reconsideration was filed by petitioner SBTC contending that the
interest rate agreed upon by the parties during the signing of the promissory
notes was 23% per annum

Consequently, an Order was issued by the court denying the motion to grant
the rates of interest beyond 12% per annum.
ISSUE:

Whether or not the 23% rate of interest per annum agreed upon by SBTC
and Eusebio is allowable and not against the Usury Law.

RULING:

Yes. CB Circular 905 suspended the effectivity of the Usury Law, thereby
removing the ceiling on interest rates for loans and forbearances.

All the promissory note were signed in 1983 and therefore were already
covered by CB Circular 905. Contrary to the claim of the RTC, this circular
did not repeal nor in anyway amend the Usury Law but simply suspended
the latter’s effectivity. The rate of interest was agreed upon by the parties
freely. Significantly, Eusebio did not question that rate. It is not for the RTC
to change the stipulations in the contract where it is not illegal. Furthermore,
Article 1306 of the New Civil code provides
REMEDIES FOR BREACH
Almeda vs. CA
G.R. No. 113412 April 17, 1996
KAPUNAN, J.:

DOCTRINE:

ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void.

FACTS:

Ponciano and Eufemia Almeda acquired several loan/credit amounting to P18

million in total from PNB, at an interest rate of 21% per annum. To secure
the loan, spouses executed a Real Estate Mortgage Contract covering a
parcel of their land at Pasong Tamo, Makati and the building erected thereon
(Marvin Plaza).
A credit agreement was also executed by the parties, which provides: “the
Bank reserves the right to increase the interest rate within the limits allowed
by law at any time provided that the interest rate on these accomodations
shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In
either case, the adjustment in the interest rate agreed upon shall take effect
on the effectivity date of the increase or decrease of the maximum interest
rate.”
The Almedas made several partial payments on the loan totaling
P7,735,004.66, a substantial portion of which was applied to accrued
interest. Then, over the Almedas’ protests, PNB raised the interest rate to
28% pursuant to their credit agreement, and thereafter increased it to a
high of 68% before the loan matured. Thus, the Almedas filed a petition for
declaratory relief with prayer for a writ of preliminary injunction and TRO to
enjoin PNB from unilaterally raising the interest rates on the loan, pursuant
to the credit agreement’s escalation clause.
The RTC Makati issued the TRO, but by this time the Almedas were already
in default of their loan obligations. Invoking the law on Mandatory
Foreclosure (Act 3135 and PD 385), PNB countered by ordering the
extrajudicial foreclosure of the Almedas’ mortgaged properties and
scheduling an action sale.
The RTC granted a supplemental writ of preliminary injunction, staying the
public auction. The RTC later dissolved the writ. PNB then set a new date for
the sale.
Before the sale, the Almedas tendered to PNB P40,142,518, which covered
the remaining principal amount of the loan plus interest at 21%.
PNB refused to accept the tender of payment, thus the Almedas consigned
the P40M with the RTC. The RTC granted the Almedas’ prayer for a writ of
preliminary injunction against the sale anew.
PNB appealed to the CA, which set aside the trial court’s order granting the
writs and upheld PNB’s right to foreclosure pursuant to Act 3135 and PD
385.
PNB vigorously denied that the increases in the interest rates were illegal,
unilateral, excessive and arbitrary, it argued that the escalated rates of
interest it imposed was based on the agreement of the parties.

ISSUE:

Whether or not PNB was authorized to raise its interest rates from 21% to as
high as 68% under the agreement.

RULING:
No. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is void. Likewise, any
stipulation regarding the validity or compliance of the contract which is left
solely to the will of one of the parties is invalid. The binding effect of any
agreement between parties to a contract is premised on two settled
principles: that any obligation arising from contract has the force of law
between the parties; and that there must be mutuality between the parties
based on their essential equality.
PNB unilaterally altered the terms of its contract with the Almedas by
increasing the interest rates on the loan without prior assent of the latter, in
violation of the mutuality principle of contracts expressed in Article 1308 of
the New Civil Code.
The stipulation in the credit agreement, which requires that the increase be
within the limits allowed by law refers to legislative enactments, not
administrative circulars, otherwise the credit agreement would not have
made the distinction between law and the Monetary Board in the phrase
“that the interest rate in these accomodations shall be correspondingly
decreased in the event that the applicable maximum interest rate is reduced
by law or by the Monetary Board.”
The increased interest rates, to which the Almedas never assented, thereby
resulting to PNB’s contravention of their credit agreement by implementing
the same, are patently unconscionable and excessive, unjustly disabling the
Almedas from fulfilling their obligation due to the new amount of the loan
that is way above the original amount of the old interest rate.
REMEDIES FOR BREACH
First Metro Investment vs. CA
G.R. No. 141811 November 15, 2001
De Leon Jr., J.

DOCTRINE:
Art. 1957. Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower
may recover in accordance with the laws on usury."

FACTS:
Petitioner FMIC granted respondent a loan of Seven Million Three Hundred
Eighty Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
construction of a sports complex at Montalban, Rizal. Respondent also
executed, as provided for by the Loan Agreement, an Underwriting
Agreement with underwriting fee, annual supervision fee and consultancy
fee with Consultancy Agreement for four (4) years, coinciding with the term
of the loan. The said fees were deducted from the first release of loan.
Respondent failed to meet the schedule of repayment. Petitioner instituted
an instant collection suit. The trial court rendered its decision in favor of
petitioner. The Court of Appeals reversed the decision of the trial court in
favor of herein respondents after its factual findings and conclusion.

ISSUE:
Whether or not the Underwriting and Consultancy Agreements were merely
camouflages for usurious interest.

RULING:
YES. In the instant case, several facts and circumstances taken altogether
show that the Underwriting and Consultancy Agreements were simply cloaks
or devices to cover an illegal scheme employed by petitioner FMIC to conceal
and collect excessively usurious interest. “Art. 1957.  Contracts and
stipulations, under any cloak or device whatever, intended to circumvent the
laws against usury shall be void.  The stipulated penalties, liquidated
damages and attorney’s fees, excessive, iniquitous and unconscionable and
revolting to the conscience as they hardly allow the borrower any chance of
survival in case of default. Hence, the instant petition was denied and the
assailed decision of the appellate court is affirmed.
REMEDIES FOR BREACH
Chavez vs. Gonzales
G.R. No. 27454 April 30, 1970
Reyes, J.

DOCTRINE:
Article 1167 refers to an obligation to do, that is, to perform an act or render
a service. It contemplates three situations:
1. The debtor fails to perform an obligation to do.
2. The debtor performs an obligation to do but contrary to the terms thereof.
3. The debtor performs an obligation to do in poor manner.

FACTS:

On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales

a typewriter repairman for the cleaning and servicing of the said typewriter
but the latter was not able to finish the job. During October 1963, the
plaintiff gave the amount of P6.00 to the defendant which the latter asked
from the plaintiff for the purchase of spare parts, because of the delay of the
repair the plaintiff decided to recover the typewriter to the defendant which
he wrapped it like a package. When the plaintiff reached their home he
opened it and examined that some parts and screws was lost. That on
October 29, 1963 the plaintiff sent a letter to the defendant for the return of
the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The
following day, the defendant returned to the plaintiff some of the missing
parts, the interior cover and the P6.00. The plaintiff brought his typewriter to
Freixas Business Machines and the repair cost the amount of P89.85. He
commenced this action on August 23, 1965 in the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees. The defendant made no denials of
the facts narrated above, except the claim of the plaintiff that the cost of the
repair made by Freixas Business Machines be fully chargeable against him.
ISSUE:

Whether or not the defendant is liable for the total cost of the repair made
by Freixas Business Machines with the plaintiff typewriter?

RULING:

No, he is not liable for the total cost of the repair made by Freixas Business
Machines instead he is only liable for the cost of the missing parts and
screws. The defendant contravened the tenor of his obligation in repairing
the typewriter of the plaintiff that he fails to repair it and returned it with the
missing parts, he is liable under “ART. 1167. If a person obliged to do
something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of

the obligation. Furthermore it may be decreed that what has been poorly
done he undone.”