Case #21: Tanguilig v. CA.

266 SCRA 78 (1997)

Facts:

• Jacinto M. Tanguilig, doing business as J.M.T. Engineering and General Merchandising,

proposed to construct a windmill system for Vicente Herce Jr. for a fee of P60,000.00, with
a one-year guarantee from the date of completion and acceptance by Herce Jr.
• Herce Jr. paid a down payment of P30,000.00 and an installment payment of P15,000.00,
leaving a balance of P15,000.00.
• When Herce Jr. refused to pay the remaining balance, Tanguilig filed a complaint to collect
the amount.
• Herce Jr. claimed that he had already paid P15,000.00 to San Pedro General Merchandising
Inc. (SPGMI) for the construction of a deep well, which was part of the windmill system
project. He also argued that defects in the windmill caused its collapse.
• Tanguilig denied that the construction of the deep well was part of the agreement and
argued that the collapse was due to a typhoon, relieving him of liability. The trial court
found that the construction of the deep well was not part of the windmill project, based
on the clear terms of the proposals submitted by Tanguilig. The Court of Appeals reversed
this decision, claiming that the construction of the deep well was included in the
agreement based on mentions in the proposals and witness testimony.
•

Major Issues:

1. Whether the agreement included the construction of a deep well as part of the windmill
system.
2. Whether Tanguilig is obligated to reconstruct the windmill after its collapse.

Court's Ruling with Reasoning:

No, The Supreme Court reversed the Court of Appeals on the first issue, stating that the proposals
clearly outlined the windmill system without mention of a deep well. The Court emphasized that
the intention of the parties in the contract should be given primordial consideration, and
subsequent acts did not support Herce Jr.'s claims.
No, Regarding the second issue, the Supreme Court upheld the Court of Appeals, stating that
Tanguilig failed to prove that the collapse of the windmill was solely due to a fortuitous event.
The Court noted the absence of evidence of a typhoon on the day of the collapse and emphasized
that a strong wind should be expected in places where windmills are constructed. In order for a
party to be exempt from liability due to a fortuitous event, as stated in Article 1174 of the Civil
Code, four requisites must concur, as outlined in Nakpil vs. Court of Appeals:

1. The cause of the breach must be independent of the will of the debtor.
2. The event must be unforeseeable or unavoidable.
3. The event must make it impossible for the debtor to fulfill their obligation in a normal
manner.
4. The debtor must be free from any participation in or aggravation of the injury to the
creditor.

• Tanguilig's argument that Herce Jr. was in default of payment and should bear the loss
was rejected, as reciprocal obligations were involved, and Tanguilig was obligated to repair
the windmill under the contract's guarantee.

Principle Applicable to the Case: The intention of the parties in a contract should be accorded
primordial consideration, and the terms of the contract should be interpreted based on the clear
and explicit language used. Additionally, in reciprocal obligations, if one party fails to fulfill their
obligation, the other party may demand performance or seek reimbursement for expenses
incurred to fulfill the obligation.
Case #22: Metropolitan Bank & Trust Co., v. International Exchange Bank, GR No. 176008

Facts: Sacramento Steel Corporation (SSC) entered into a Credit Agreement with
International Exchange Bank (IEB) for a credit line and loan.
• SSC executed chattel mortgages over its equipment as security for the loan.
• SSC defaulted on its obligations, leading IEB to file a case for injunction and later
a petition for extrajudicial foreclosure.
• SSC filed a complaint for annulment of mortgage and specific performance,
seeking to restructure its obligations.
• The court issued a writ of preliminary injunction against foreclosure.
• Sacramento Steel entered into a Capacity Lease Agreement with Chuayuco Steel
Manufacturing Corporation (CSMC) for the lease and operation of its equipment.
• Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention,
seeking the rescission of the chattel mortgages, claiming they were entered into to
defraud SSC's creditors.
• CSMC also filed a motion for intervention to operate the equipment under the
Capacity Lease Agreement.
• The court admitted the motions for intervention.
• IEB filed a petition for certiorari with the Court of Appeals (CA) challenging the RTC
orders.
• CA annulled the RTC orders, directing the turnover of mortgaged properties to IEB.
• Petitioners Metrobank and CSMC appealed to the Supreme Court.
Major Issue: Whether Metrobank's complaint-in-intervention seeking rescission of chattel
mortgages is proper.

Court's Ruling and Reasoning:

• No, The Supreme Court agreed with the Court of Appeals' assessment that
Metrobank's complaint-in-intervention seeking the rescission of chattel mortgages
was not proper. The Court noted that Metrobank's action resembled an accion
pauliana, which is considered a subsidiary action and can only be pursued after
exhausting other available legal remedies to recover debts from a debtor.

• Metrobank failed to demonstrate that it had exhausted other remedies before

seeking rescission of the chattel mortgages. Under Article 1381 of the Civil Code,
an accion pauliana is a legal action aimed at rescinding contracts entered into by
a debtor in fraud of creditors. However, before a creditor can pursue such an action,
legal precedents dictate a series of steps to be taken. These include fully exploiting
the debtor's properties through attachment and execution, utilizing all available
rights and actions of the debtor (accion subrogatoria), and only then resorting to
seeking rescission of fraudulent contracts (accion pauliana). Essentially, accion
pauliana should be the last recourse, pursued only after all other legal avenues
have been exhausted and proven ineffective. there was no evidence presented to
show that Metrobank attempted to avail itself of other legal remedies available to
creditors before pursuing rescission.

• Therefore, the Court affirmed the CA's ruling that Metrobank's intervention seeking
rescission of chattel mortgages was not proper under the circumstances of the
case.
Principle Applicable: Intervention is allowed when the intervenor has a legal interest in the matter in
litigation and when intervention will not unduly delay or prejudice the adjudication of rights. The decision
to allow intervention is governed by Rule 19 of the Rules of Court. An accion pauliana, seeking rescission of
contracts in fraud of creditors, is a subsidiary action that can only be pursued after exhausting other legal
remedies to recover debts from a debtor.
Case #23: Khe Hong Cheng v. CA,355 SCRA 701 (2001)

- Facts: Khe Hong Cheng/Felix Khe (Khe) is the owner of Butuan Shipping Lines.
- Phil. Agricultural Trading Corp. (consignee) shipped onboard M/V Prince Eric, owned by Khe, 3,400
bags of copra from Masbate to Dipolog City, Zamboanga del Norte. The shipment was covered by
a marine insurance policy issued by American Home Insurance Co. (Philam). However, somewhere
between Negros and Northeastern Mindano, the ship sank resulting in total loss of the shipment.
- Because of the loss, Philam paid P354k (value of copra) to the consignee.
- Philam, having been subrogated into the rights of the consignee, filed in the RTC of Makati an
action for recovery of money against Khe.
- Pending the case, or on Dec. 20, 1989, Khe executed deeds of donation of parcels of land in Butuan
in favor of his children Sandra Joy and Ray Stevens and new TCTs were issued in their names.
- The trial court ordered Khe to pay 354k. After the decision became final, a writ of execution was
issued and despite earnest efforts of the sheriff he could not find any property under Butuan
Shipping Lines’ or Khe’s names.
- On Jan. 17, 1997, the sheriff and Philam’s counsel went to Butuan and discovered that Khe had no
property and that he had conveyed the subject properties to his children.
- Thus, on Feb. 25, 1997, Philam filed before RTC Makati a complaint for the rescission of the deeds
of donation and for the nullification of the TCTs in the name of Khe’s children. Philam alleged
that Khe executed the deeds in fraud of his creditors, including Philam.
- In his motion to dismiss (MD), Khe contended that the registration of the deeds of donation on
Dec. 1989 constituted constructive notice, and since the complaint was filed only on Feb 1997 (more
than 4 years later), the action was barred by prescription.
- The RTC denied the MD, holding that the prescriptive period began to run only from Dec. 29, 1993,
the date of the decision in Civil Case No. 13357.
- The CA affirmed, holding that the four year period to institute the action for rescission began to
run only in Jan. 1997. Prior thereto, Philam had not yet exhausted all legal means for the satisfaction
of the decision in its favor, as prescribed under A1383, NCC.

Major issue: Whether or not the action for accion pauliana was properly invoked by the creditor.

Whether or not the action for rescission was barred by prescription

Court’s ruling with reasoning: Yes, in the case provided, the requisites for an accion pauliana were met:
Accion pauliana is a legal action that can be pursued by a creditor under specific circumstances. For this
action to accrue, certain requirements must be met: 1. The plaintiff seeking rescission must have a credit
against the debtor, even if it's not immediately due; 2 The debtor must have entered into a subsequent
contract that benefits a third party; The creditor must have no other legal means to satisfy their claim, and
rescinding the conveyance would benefit them; The act being challenged must involve fraud; If the third
party received the property through an onerous title, they must have been complicit in the fraud.

Existence of a Credit: American Home, the plaintiff seeking rescission, had a credit against the debtor, Khe
Hong Cheng, arising from the insurance payment made due to the loss of the copra shipment.
Subsequent Contract Conveying Benefit: Khe Hong Cheng, the debtor, made subsequent contracts by
executing deeds of donation in favor of his children, conveying patrimonial benefits to them.
No Other Legal Remedy for the Creditor: American Home had exhausted all legal means to satisfy its
claim against Khe Hong Cheng, as evidenced by the failure of the sheriff to enforce the judgment due to
the debtor's lack of assets.
Fraudulent Act: The deeds of donation were executed by Khe Hong Cheng with the intent to defraud his
creditors, as shown by the timing of the donations in relation to the pending legal proceedings and the lack
of remaining assets to satisfy the judgment.

No, The Court ruled that the action for rescission was not barred by prescription. The prescriptive period
for such an action commences when the creditor discovers that they have no other legal remedy for the
satisfaction of their claim against the debtor. In this case, the action accrued when the creditor, American
Home, discovered that Khe Hong Cheng had no more property to satisfy the judgment against him. This
occurred in January 1997, not when the deeds of donation were registered in December 1989. Even if
American Home was aware of the deeds of donation in 1989, it still had other legal remedies available, and
it couldn't prove that Khe Hong Cheng had no other property at that time. Therefore, the action for
rescission had not yet prescribed. WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
Juan Nakpil & Sons v. CA, 144 SCRA 597 (1986)

Principle: Case about Inability of Fortuitous Event Defense When The Defendants Acted with
Wanton Negligence. • 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. 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.

Facts: 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 proposal was approved
by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant
in this case. The plans and specifications for the building were prepared by the other third-party
defendants Juan F. Nakpil & Sons. The building was completed in June, 1966.

• 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. The tenants vacated the building in view
of its precarious condition. As a temporary remedial measure, the building was shored up by
United Construction, Inc. at the cost of P13,661.

• 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 accused 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. Roman Ozaeta, the then president of the plaintiff Bar Association
was included as a third-party defendant for damages for having included Juan J. Carlos, President
of the United Construction Co., Inc. as party defendant.

• Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr.
Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the technical issues.

• After the protracted hearings, the Commissioner eventually submitted his report on September
25, 1970 with the findings that while the damage sustained by the PBA building was caused
directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also
caused by the defects in the plans and specifications prepared by the third-party defendants'
architects, deviations from said plans and specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite degree of supervision in the
construction of subject building.

• On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and
the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae.
They proposed to present a position paper on the liability of architects when a building collapses
and to submit likewise a critical analysis with computations on the divergent views on the design
and plans as submitted by the experts procured by the parties. The motion having been granted,
the amicus curiae were granted a period of 60 days within which to submit their position.

Issues: • W/N the petitioners can use the defense of fortuitous event (i.e., Earthquake) for the
damage incurred by the building they constructed and sold to Philippine Bar Association?

Held: • No. It is reasonable to conclude, therefore, that the proven defects, deficiencies and
violations of the plans and specifications of the PBA building contributed to the damages which
resulted during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is
that they not only increase but also aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not only tend to add but also to multiply
the effects of the shortcomings in the design of the building. We may say, therefore, that the
defects and deficiencies in the construction contributed greatly to the damage which occurred.

The decision being appealed has been modified. In light of special circumstances, a solidary
indemnity of five million pesos is imposed on the defendant and third-party defendants (excluding
Roman Ozaeta), to compensate the Philippine Bar Association for damages related to the loss of
a building, with an additional one hundred thousand pesos allocated for attorney's fees. This sum
is to be paid upon the finality of the decision, with a 12% per annum interest imposed on any
unpaid amounts thereafter.

Term: solidary liable—

Republic v. Luzon Stevedoring Co., 21 SCRA 279 (1967)

Term: In contract law, force majeure is a common clause in contracts which essentially frees both parties
from liability or obligation when an extraordinary event or circumstance beyond the control of the parties,
such as a war, strike, riot, crime, epidemic, or sudden legal change prevents one or both parties from
fulfilling their obligations under the contract. Force majeure often includes events described as an act of
God, though such events remain legally distinct from the clause itself.

Facts: On August 17, 1960, a barge owned by Luzon Stevedoring Corporation collided with one of
the wooden piles of the Nagtahan bailey bridge while being towed down the Pasig river. The
collision caused damage to the bridge, leading to the listing of the bridge. The river was swollen
and had swift currents due to heavy rainfall in the preceding days. The Republic of the Philippines
sued Luzon Stevedoring Corporation for damages amounting to P200,000 in Civil Case No. 44562.

Luzon Stevedoring Corporation claimed it exercised due diligence in the selection and supervision
of its employees, and the damages were caused by force majeure. The Court of First Instance of
Manila held Luzon Stevedoring Corporation liable for the damages and ordered it to pay
P192,561.72 in repair costs. Luzon Stevedoring Corporation appealed directly to the Supreme
Court, challenging the lower court's ruling on various grounds.

Major Issues: Whether the collision between the barge and the bridge supports was caused by
force majeure.

Whether the lower court erred in permitting the introduction of additional evidence of damages
after the plaintiff had rested its case.

Court's Ruling with Reasoning:

No. The Supreme Court affirmed the decision of the lower court. It found that the collision of the
barge with the bridge supports raised a presumption of negligence on the part of Luzon
Stevedoring Corporation or its employees. The court applied the principle of res ipsa loquitur,
which means "the thing speaks for itself." This principle allows an inference of negligence based
on the circumstances of the accident. Despite the precautions taken by the corporation, including
using powerful tugboats and instructing employees to take extra precautions, the court held that
these precautions did not absolve the corporation from liability. The court reasoned that the very
measures adopted by the corporation demonstrated that the possibility of danger was
foreseeable, and thus, it could not claim force majeure as a defense.

No, The Supreme Court found no abuse of discretion in the lower court's decision to permit the
introduction of additional evidence of damages. The court emphasized that the admission of
further evidence after a party has rested its case lies within the discretion of the trial judge. In this
case, the additional evidence introduced by the plaintiff was to support an item of expenditure
already mentioned in an exhibit. The court noted that the defendant had also been allowed to
introduce additional evidence upon written motion. Therefore, the court concluded that there was
no unfairness in the trial proceedings.

Principle: The principle of res ipsa loquitur, or "the thing speaks for itself," applies when the
circumstances surrounding an accident imply negligence. In cases where the defendant had
exclusive control over the instrumentality causing harm and the accident would not have occurred
in the ordinary course of events without negligence, the doctrine shifts the burden of proof to the
defendant to show that they were not negligent.
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby
affirmed. Costs against the defendant-appellant.
Dioquino v. Laureano, 33 SCRA 65 (1970)

Facts: Atty. Dioquino met patrol officer Federico Laureano in the MVO office in Masbate to
register his car. Laureano helped Dioquino in the facilitation of the registration of his car. He
allowed Federico Laureano, the defendant, to use his car temporarily. While Laureano was a
passenger in Dioquino's car, it was stoned by mischievous boys, resulting in damage to the
windshield.

Laureano refused to file charges against the boys, considering the incident to be accidental and
a force majeure. Dioquino attempted to settle the matter amicably, but Laureano refused and
challenged the case to be brought to court. The lower court held Laureano liable for the
damages but absolved his wife and father from any responsibility.

Major Issues:

1. Whether Laureano can be held liable for the damages to the windshield caused
by a fortuitous event.
2. Whether Dioquino should be penalized for including Laureano's wife and father
in the complaint.

Court's Ruling with Reasoning:

1. No. The court ruled that Laureano cannot be held liable for the damages caused
by the fortuitous event. Article 1174 of the Civil Code states that no one shall be
responsible for events that could not be foreseen or were inevitable, except in
cases specified by law or contract. The court found that the incident was
unforeseen and thus, Laureano cannot be held liable for the damages caused by
it. The court emphasized that liability is ruled out in cases of fortuitous events,
and Laureano's belief that he could not be held liable was justified under the law.
2. No. The court declined to award damages against Dioquino for including
Laureano's wife and father in the complaint. While it acknowledged that Dioquino
should have exercised greater care in selecting the parties against whom he
proceeded, it did not conclude that Dioquino acted solely to inflict needless
vexation. Considering the equities of the situation, where Dioquino suffered a
pecuniary loss due to the fortuitous event, the court felt that penalizing him
further for his mistaken view of the law would be unjust. It cited the principle that
litigation expenses and annoyance form part of the social burden of living in a
society governed by law.

Principle: The principle applied in this case is that liability is ruled out in cases of
fortuitous events unless specified by law or contract.
WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders defendant
Federico Laureano to pay plaintiff the amount of P30,000.00 as damages plus the payment of costs,
is hereby reversed.
Austria v. CA, 39 SCRA 527 (1971)

Facts: Guillermo Austria and Maria G. Abad entered into a consignment agreement for the
pendant with diamonds valued at P4,500.00. The terms of the agreement were documented in a
receipt dated 30 January 1961.
On 1 February 1961, while Abad was walking home to her residence in Mandaluyong, Rizal, she
was allegedly accosted by two men. One of the men hit her on the face, while the other snatched
her purse containing jewelry and cash, including the consigned pendant. The incident was
reported and became the subject of a criminal case filed in the Court of First Instance of Rizal
against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).
Despite demands, Abad failed to return the pendant or pay for its value, prompting Austria to file
an action against her and her husband in the Court of First Instance of Manila for recovery of the
pendant or its value, and damages. In response to the complaint, defendants spouses argued that
the alleged robbery extinguished their obligation.
After a trial, the trial court ruled in favor of Austria, holding Abad liable for the loss due to
negligence. However, the Court of Appeals reversed this decision, finding the robbery constituted
a fortuitous event, relieving Abad of liability. Dissatisfied with the appellate court's decision,
Austria petitioned for review, arguing that prior conviction for robbery is necessary to establish it
as a fact in a civil case.

Major Issues: Whether the robbery constituted a fortuitous event exempting Abad from liability.

Whether prior conviction for robbery is necessary to establish the occurrence of robbery in a civil
case.

Court's Ruling with Reasoning:

Yes. The Court held that the occurrence of robbery can constitute a fortuitous event exempting a
person from responsibility, provided certain conditions are met: the event must be independent
of human will, render fulfillment of the obligation impossible in a normal manner, and the obligor
must be free of participation or aggravation of the injury to the creditor. While the emphasis is on
the events rather than the agents responsible for them, the obligor must be free from concurrent
fault or negligence.

No. The Court rejected the argument that prior conviction for robbery is necessary to establish it
as a fact in a civil case. It stated that to require such would demand proof beyond reasonable
doubt in a civil case, which is unnecessary. Preponderant evidence establishing the occurrence of
robbery without concurrent fault on the debtor's part is sufficient. Additionally, the Court noted
that while Abad's conduct in returning home alone with valuable jewelry may be considered
negligent per se in present times, it might not have been so in 1961 when the robbery occurred,
given the lower levels of criminality at that time.

The Court also dismissed the concern that recognizing the fact of robbery in the civil case before
conviction in the criminal action would prejudice the latter or result in inconsistency. It clarified
that a finding of robbery in the civil case does not equate to guilt in the criminal case, and the
evidence required to establish these facts may differ.

Principle:

The principle established is that to constitute a fortuitous event exempting a person from
responsibility, the event must be independent of human will, render fulfillment of the obligation
impossible in a normal manner, and the obligor must be free from concurrent fault or negligence.
Prior conviction for robbery is not necessary to establish it as a fact in a civil case; preponderant
evidence suffices. Moreover, recognizing the fact of robbery in a civil case before conviction in the
criminal action does not prejudice the latter or result in inconsistency, as the evidence required
may differ. Petition dismissed.
NPC v. CA, 161 SCRA 334 (1988)

Facts: Engineering Construction, Inc. (ECI) entered into a contract with the National
Waterworks and Sewerage Authority (NAWASA) to construct the 2nd Ipo-Bicti Tunnel,
Intake and Outlet Structures, and Appurtenant Features at Norzagaray, Bulacan. The
project involved tunnel work covering a distance of seven kilometers and outworks at
both ends of the tunnel.

ECI completed the tunnel excavation work by September 1967, with some portions of
the outworks still under construction. A typhoon named 'Welming' hit Central Luzon on
November 4, 1967, causing heavy rains and a rapid rise in the water level at the Angat
Dam, owned by the National Power Corporation (NPC). NPC opened the spillway gates
of the Angat Dam during the typhoon to prevent overflow, resulting in a large volume
of water rushing out and damaging ECI's installations and construction works at the Ipo
site.
ECI filed a case against NPC, seeking damages for the loss and destruction of its
equipment, materials, camp facilities, and permanent structures.

Major Issues:

1. Whether NPC's negligence in opening the spillway gates during the typhoon makes
it liable for damages.

Court's Ruling: Yes, The Court upheld the decision of the Court of Appeals, affirming
NPC's liability for damages to ECI. The Court found that NPC's negligence in opening
the spillway gates during the typhoon was the proximate cause of the loss and damage
to ECI's property, despite the typhoon being considered an act of God. The Court cited
the principle that when negligence of a person contributes to a loss caused by an act of
God, that person cannot escape liability.

The Court also upheld the reduction of consequential damages awarded to ECI,
considering that ECI had acquired a new crane shortly after the incident, making the
rental of a temporary crane unnecessary beyond one month. The Court eliminated the
award of unrealized bonus from NAWASA, as the incident occurred long after the
stipulated deadline for project completion. Exemplary damages were also eliminated
since NPC's negligence was not considered gross or in bad faith. Attorney's fees were
reduced by the appellate court, which the Supreme Court found to be sufficient for the
services rendered by ECI's counsel.

Principle: The principle of liability for negligence even in the presence of an act of God
was upheld. When negligence contributes to a loss caused by an act of God, the
negligent party cannot escape liability. The court also applied the principle of proximate
cause, determining that NPC's negligence in opening the spillway gates during the
typhoon was the direct cause of the damage to ECI's property.

In summary, the Court affirmed NPC's liability for damages to ECI due to its negligence,
upheld the reduction of consequential damages, eliminated the award of unrealized
bonus, exemplary damages, and reduced attorney's fees.

Term: Unrealized bonus- unrealized income is a profit which has been made but not collected through a
completed transaction.

Exemplary damage- an amount of money that someone who commits an offence has to pay, which is intended to be large
enough to prevent them or others from committing similar offences in the future.
Yobido v. CA, 281 SCRA I (1997)

Facts: On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee
and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City.
Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded.
The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident
resulted in the death of 28-year-old Tito Tumboy, and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and
attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of the
bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. The
plaintiffs asserted that violation of the contract of carriage between them and the defendants
was brought about by the driver's failure to exercise the diligence required of the carrier in
transporting passengers safely to their place of destination. On the other hand, the
defendants raised the affirmative defense of caso fortuito.

Issue: Whether or not petitioners should be exempt from liability because the tire blowout
was a fortuitous event

No. The petitioners' contention that they should be exempt from liability because the tire
blowout was no more than a fortuitous event that could not have been foreseen, must fail.
Under the circumstances of this case, the explosion of the new tire may not be considered a
fortuitous event. There are human factors involved in the situation such as possibility that the
tire blowout was caused by manufacturing defects, improper mounting of the tire, or
excessive tire pressure. The testimony regarding the brand new tire did not guarantee that it
was free from defects or properly installed on the vehicle.

Also, contradictory testimonies were presented regarding the speed of the bus at the time of
the accident. While the bus conductor testified that it was running within the lawful speed
limit, Leny Tumboy claimed that the bus was traveling so fast that she cautioned the driver to
slow down. The fact that the tire was new did not imply that it was entirely free from
manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact
that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in
the conclusion that it could not explode within five days' use.

As a rule, when a passenger boards a common carrier, he takes the risks incidental to the
mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers
and is not bound absolutely and at all events to carry them safely and without injury. However,
when a passenger is injured or dies, while traveling, the law presumes that the common carrier
is negligent. Thus, the Civil Code provides under Article 1755 that a common carrier is bound
to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances.

Principle: A common carrier is presumed to have been at fault or to have acted negligently
in cases of death or injuries to passengers, unless it proves that it observed extraordinary
diligence. A fortuitous event is characterized by the absence of human agency in causing the
injury or loss, which must be impossible to foresee or avoid. Even in cases of force majeure, a
carrier may still be held liable if it fails to prove that it was not negligent. Damages for breach
of contract of carriage resulting in the death of a passenger may include moral and exemplary
damages, in addition to compensatory damages.
Eastern Shipping Line v. CA, 234 SCRA 781 (1994)

Term: Partners are jointly and

severally liable for tort liability of the
partnership. • i.e., the plaintiff can sue
one or more of the partners separately.
• If successful, the plaintiff can recover
the entire amount of the judgment from
any or all of the defendant-partners. •

Facts: In December 1981, Eastern Shipping Lines transported two fiber drums of riboflavin from Yokohama,
Japan, to Manila on vessel "SS EASTERN COMET." Upon arrival in Manila, the shipment was discharged to
Metro Port Service, Inc.'s custody, which noted one drum in bad order. Allied Brokerage Corporation then
received the shipment and delivered it to the consignee's warehouse. However, upon delivery, one drum
was found with adulterated/faked contents.

Upon inspection of the damaged drum, it was discovered that its contents had been adulterated and
replaced with sand. The consignee filed a claim against Eastern Shipping Lines, Metro Port Service, Inc., and
Allied Brokerage Corporation for the damages incurred due to the adulteration of the goods.

Metro Port Service, Inc. argued that it should not be held liable because it exercised due diligence in
handling the cargo while it was in its custody. The arrastre operator asserted that it promptly informed the
consignee of the damaged condition of one of the drums upon discharge from the vessel. Allied Brokerage
Corporation contended that it should not be held liable because it merely facilitated the customs clearance
of the cargo and did not have physical custody or control over the shipment at any point.

The consignee presented evidence from a Marine Cargo Survey Report confirming the adulteration of the
contents of one of the drums while it was in the custody of the defendants. The report detailed the condition
of the cargo upon discharge from the vessel and implicated negligence on the part of all parties involved
in the handling and storage of the goods.

Issue: whether the common carrier (Eastern Shipping Lines), the arrastre operator (Metro Port Service, Inc.),
and the customs broker (Allied Brokerage Corporation) can be held jointly and severally liable for the
losses/damages incurred while the goods were in their respective custody.

Court's Ruling with Reasoning and Principle: Yes, the court found that all defendants, including Eastern
Shipping Lines, were jointly and severally liable for the damages sustained during the shipment. The
liability of a common carrier extends to the entire journey of the goods, including temporary unloading
and storage. In this case, the damages occurred while the goods were in the custody of the carrier, the
arrastre operator, and the broker, as evidenced by the Marine Cargo Survey Report. The court applied
Article 1737 of the New Civil Code, which mandates extraordinary diligence in the vigilance of goods by
the common carrier, even during temporary storage. Therefore, Eastern Shipping Lines, as the common
carrier, was held liable for the damages incurred. Additionally, the court addressed the issue of legal
interest. Breaching any obligation, whether from law, contracts, or other sources, can
result in liability for damages, regarding the award of interest for actual and
compensatory damages:

1. If the breach involves payment of money (e.g., loan), the interest stipulated in writing is applied. If
not stipulated, the rate is 12% per annum from default, starting from judicial or extrajudicial
demand.
2. For breaches not involving money loans, the court may impose 6% interest per annum on
awarded damages, starting from either the judicial or extrajudicial demand if the claim is
reasonably certain. If not, interest begins from the court's judgment date.
3. Once a court judgment becomes final and executory, the legal interest rate becomes 12% per
annum until satisfaction, treating the period as equivalent to a credit forbearance.
The court affirmed the decision of the appellate court, holding the defendants jointly and severally liable
for the damages sustained by the shipment while in their custody. appealed with the MODIFICATION that
the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision until the payment thereof.
Security Bank v. RTC Makati, 263 SCRA 48 (1996)

Facts: In the case at hand, the petitioner, Security Bank and Trust Co. (SBTC), filed a petition
for review on certiorari against the decision of the Regional Trial Court of Makati, Branch
61, dated March 30, 1993, which found the respondent, Eusebio, liable for a sum of money.
The court reduced the interest rate from 23% per annum as stipulated in the promissory
notes to 12% per annum, citing Central Bank Circular No. 905. The petitioner argued that
the agreed-upon interest rate of 23% per annum should prevail. The undisputed facts
reveal that Eusebio executed three promissory notes in favor of SBTC, each with a
stipulated interest rate of 23% per annum. The court rendered a judgment in favor of
SBTC, ordering Eusebio to pay the outstanding balances plus interest at 12% per annum.
SBTC filed a motion for partial reconsideration, seeking to enforce the 23% interest rate
and compound interest as stated in the promissory notes. The court denied the motion,
maintaining the 12% interest rate and holding co-maker Leila Ventura jointly and severally
liable.

Issue: whether the stipulated interest rate of 23% per annum in the promissory notes
should prevail over the 12% interest rate mandated by Central Bank Circular No. 905, and
whether the courts have the discretion to override stipulated interest rates and impose a
lower rate absent evidence justifying a higher rate.

Ruling: Yes, the court ruled in favor of SBTC, affirming the decision of the trial court with
the modification that the 23% interest rate should be imposed, while Circular No. 905
suspended the effectivity of the Usury Law, it did not repeal it, allowing contracting parties
to freely stipulate interest rates. Furthermore, the court cited Philippine National Bank v.
Court of Appeals, which clarified that parties can agree to adjust interest rates upward or
downward.

As the promissory notes were signed voluntarily and not questioned by Eusebio, the
stipulations therein were deemed binding. Therefore, absent evidence to justify a lower
rate, the court upheld the agreed-upon 23% interest rate.

In conclusion, the court affirmed the decision of the trial court, ruling in favor of SBTC and
ordering Eusebio to pay the outstanding balances with interest at 23% per annum, as
stipulated in the promissory notes.

Term: Partners are jointly and severally liable

for tort liability of the partnership. • i.e., the
plaintiff can sue one or more of the partners
separately. • If successful, the plaintiff can
recover the entire amount of the judgment from
any or all of the defendant-partners. •
Nakar v. Gallery Frames, 703 SCRA 440 (2013)

The case involves a petition for review on certiorari filed by Dario Nacar, challenging the Decision
dated September 23, 2008, and the Resolution dated October 9, 2009, of the Court of Appeals in
CA-G.R. SP No. 98591. The petitioner filed a complaint for constructive dismissal against Gallery
Frames before the National Labor Relations Commission (NLRC). The Labor Arbiter ruled in favor
of the petitioner, finding him dismissed without just cause and awarded him backwages and
separation pay. The decision granted separation pay amounting to ₱62,986.56 and backwages of
₱95,933.36. Thus the respondents appealed.

The petitioner argued for a recomputation of backwages and separation pay, as well as the
payment of interest on the awarded amount. This argument stemmed from the petitioner's
contention that the computation of backwages and separation pay should be based on the date
of the finality of the Supreme Court's decision, rather than the date of the Labor Arbiter's initial
decision. Additionally, the petitioner sought the payment of interest on the awarded amount to
compensate for the delay in receiving the monetary awards.

In response to the petitioner's arguments, the Court applied BSP-MB Circular No. 799 to
determine the rate of legal interest for loans or forbearance of money. BSP-MB Circular No. 799,
which became effective on July 1, 2013, revised the rate of legal interest from 12% per annum to
6% per annum. This circular provided a clear guideline for determining the appropriate rate of
interest applicable to monetary awards in legal cases.

Effective July 1, 2013, BSP-MB Circular No. 799 amended the rate of legal interest for loans or
forbearance of money, goods, or credits, as well as the rate allowed in judgments. The new rate
became six percent (6%) per annum, replacing the previous rate of twelve percent (12%) per
annum. This change applied prospectively and not retroactively, meaning that the twelve percent
(12%) per annum rate remained applicable until June 30, 2013, while the new six percent (6%) per
annum rate took effect from July 1, 2013, onwards.

Major Issue: Whether the computation of backwages and separation pay should be based on the
date of the Labor Arbiter's initial decision.

Court's Ruling: No, The Court emphasized that the computation of backwages and separation
pay should be based on the date of the finality of the decision, rather than the date of the initial
decision by the Labor Arbiter. This is because the finality of the decision effectively ends the
employment relationship and serves as the reckoning point for the computation of monetary
awards.

The Court reversed the ruling of the Court of Appeals and ordered the respondents to pay the
petitioner backwages and separation pay computed from the date of dismissal until the finality of
the Supreme Court's decision. Furthermore, it ordered the payment of interest on the total
monetary awards, applying different rates for different time periods in accordance with legal
guidelines and regulations.

Furthermore, the Court cited Article 279 of the Labor Code, which provides for the consequences
of illegal dismissal and mandates that the reliefs continue to accrue until full satisfaction. Thus,
the recomputation of the monetary awards upon execution of the decision does not constitute
an alteration or amendment of the final decision being implemented, but rather a necessary
consequence of the illegality of dismissal.

. The application of BSP-MB Circular No. 799 ensures consistency and adherence to legal
standards in awarding interest on monetary awards in legal cases.
Manila Credit Corporation v. Viroomal, G.R. No. 258526 Jan 11, 2023)

The principle of autonomy in contracts, which is the idea that parties are generally free to enter
into agreements on their own terms. However, this principle is not absolute and is subject to
limitations outlined in Article 1306.

Ramon S. Viroomal and Anita S. Viroomal obtained a loan from Manila Credit
Corporation (MCC) in September 2009 under Promissory Note (PN) No. 7155. This loan
was secured by a real estate mortgage over Ramon's property in Parafiaque City. Due to
difficulties in making payments, the respondents requested a loan restructuring, which
resulted in the execution of a second promissory note, PN No. 8351. This restructuring
included the unpaid balance from PN No. 7155, interest, and penalty charges.

Despite claims by the respondents that they had already paid a total of PHP
1,175,638.12, MCC demanded full payment of the outstanding obligation, leading to the
commencement of a legal dispute. Respondents argued that the interest rate and
charges imposed by MCC were unconscionable and should be declared void. MCC
countered by stating that respondents willingly consented to the terms of the loan
contract and are therefore estopped from challenging its validity. Additionally, MCC was
declared the highest bidder in the foreclosure sale and eventually obtained the title to
the mortgaged property. In March 2020, the Regional Trial Court (RTC), Branch 258,
rendered a decision in favor of the respondents.

The Court of Appeals (CA) affirmed the trial court's judgment in favor of the
respondents. In its decision dated July 6, 2021, the CA determined that Manila Credit
Corporation (MCC) had imposed an exorbitant and unconscionable effective interest
rate (EIR) of 36% per annum, which, when combined with other charges, totaled to
77.36% interest per annum. The CA declared these compounded interests and penalty
charges void.

After recalculating the amounts owed by the respondents and deducting the total
payments made, the CA ruled that the first loan under Promissory Note (PN) No. 7155
was fully paid. Additionally, the second loan under PN No. 8351, which was meant to
cover the unpaid balance of PN No. 7155, was also declared void.

Manila Credit Corporation (MCC) disputes the Court of Appeals' (CA) ruling that
invalidated the stipulated interests, penalty charges, and the 36% per annum effective
interest rate (EIR). MCC argues that the terms of the loans were not open-ended and the
interest rates were imposed for a definite period. Even if the EIR was nullified, MCC
contends that the stipulated interests, penalty charges, and compounding of interests
must be upheld as they were clearly expressed in the contract, which is binding between
the parties.

Furthermore, MCC challenges the CA's declaration that the first promissory note, PN No.
7155, has been fully settled. MCC asserts that since there is a remaining balance under
PN No. 7155, the execution of the second promissory note (PN No. 8351) is based on
valid consideration. MCC argues that due to the respondents' default, the foreclosure
proceedings initiated by MCC and the consolidation of the title in its name are valid.

On the other hand, the respondents argue that MCC is engaged in a predatory lending
scheme, enticing borrowers with instant cash and easy payment terms, only to trap
them into deeper debt due to unconscionable interest rates and hidden charges.
Issue: Whether the interests, penalty charges, and effective interest rate (EIR) imposed
by Manila Credit Corporation (MCC) on the loans obtained by the respondents are valid
or if they are grossly excessive and unconscionable, rendering them void

Court’s reasoning &ruling: Yes, While MCC and the respondents agreed on a monetary
interest rate of 23.36% per annum for the loan under the first promissory note,
additional charges such as a 3% monthly effective interest rate (EIR) were unilaterally
imposed by MCC. The court found this additional EIR invalid as it was not indicated in
the promissory note and violated the mutuality of contracts, as per Article 1308 of the
Civil Code states that the validity or compliance to the contract cannot be left to the wil l of one
of the parties.

When Manila Credit Corporation (MCC) and the respondents executed Promissory Note
(PN) No. 7155 in September 2009, the legal interest rate was fixed at 12% per annum,
which was considered the reasonable compensation for the forbearance of money. The
court emphasized that while parties to a contract may agree on an interest rate that
deviates from the legal rate, any deviation must be reasonable and fair. If the stipulated
interest for a loan exceeds twice the prevailing legal rate of interest, the burden falls on
the creditor to prove that this rate is justified under prevailing market conditions. In this
case, MCC failed to provide any justification for the excessive interest rates imposed,
which were significantly higher than the prevailing legal rate.

Although the effective interest rate (EIR) and stipulated interest rates and penalties were declared
void for being unconscionable, Manila Credit Corporation (MCC) is still entitled to recover the
principal amount and payment of monetary interest from the respondents, but as correctly
calculated by the RTC AND CA, the obligation has been fully paid. Petition denied.
DKC Holdings Corp. vs. CA 329 SCRA 666

This is a petition for review on certiorari seeking to reverse the Court of Appeals' decision in a
case titled "DKC Holdings Corporation vs. Victor U. Bartolome, et al." The case involves a dispute
over a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila, originally
owned by Encarnacion Bartolome, the deceased mother of private respondent Victor U.
Bartolome.

The petitioner, DKC Holdings Corporation, entered into a contract of lease with an option to buy
with Encarnacion Bartolome, allowing DKC the option to lease or lease with purchase the subject
land. After Encarnacion's death, petitioner continued to make payments to Victor Bartolome,
Encarnacion's sole heir. However, Victor refused to accept these payments.

Despite the contract, Victor refused to surrender possession of the property to petitioner and also
rejected petitioner's attempts to register and annotate the contract on the title of the property.

Petitioner filed a complaint for specific performance and damages against Victor and the Register
of Deeds. The case was referred to the Department of Agrarian Reform and then to Branch 172 of
the Regional Trial Court of Valenzuela, which eventually dismissed the complaint and ordered
petitioner to pay Victor P30,000.00 as attorney's fees. The Court of Appeals affirmed this decision.

Hence the petition.

Issue: whether the Contract of Lease with Option to Buy entered into by Encarnacion Bartolome
with DKC Holdings Corporation (DKC) was terminated upon her death?

Ruling: No. The court ruled that the contract was not terminated upon Encarnacion Bartolome's
death and was binding on her heir, Victor Bartolome. The court reasoned that according to Article
1311 of the Civil Code, contracts take effect between the parties, their assigns, and heirs, unless
the rights and obligations arising from the contract are not transmissible by nature, stipulation, or
provision of law. In this case, there were no contractual stipulations or legal provisions rendering
the rights and obligations under the contract intransmissible. Furthermore, the nature of the rights
and obligations in the contract was found to be transmissible. The court applied the principle that
heirs are bound by contracts entered into by their predecessors-in-interest, except when the rights
and obligations arising therefrom are not transmissible.

In determining whether a contract terminates upon the death of one of the parties, a key
consideration is whether the contract involves personal acts that cannot be performed by anyone
else. If the contract requires such personal acts, it typically terminates upon the death of the
promissor. However, if the contract can be performed by another person or if the contract itself
indicates that performance by others was contemplated, the contract does not terminate upon
the death of a party.

In the case under consideration, the contract between Encarnacion Bartolome and the petitioner
did not involve personal acts that only Encarnacion could perform. Specifically, Encarnacion's
obligation to deliver possession of the property to the petitioner upon the exercise of its option
to lease could be fulfilled by her heir, Victor. Therefore, the contract was not terminated by
Encarnacion's death.
Arturo Tolentino: Contracts that are purely personal in nature, such as those involving partnerships
or agency, or those requiring special personal qualifications of the obligor, are generally
considered intransmissible. Additionally, contracts for the payment of money debts are not
typically transferred to the heirs of a party but are treated as a charge against the estate. For
example, if a client dies leaving minor heirs and had a contract for legal services with a lawyer, the
contract cannot be enforced against the minors. Instead, the lawyer would be limited to recovering
on the basis of quantum meruit, which means the reasonable value of the services rendered.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED.