RECAP: This article refers to negative personal obligation.

The obligor is not supposed to do or is suppose to

Art. 1167 - Where there is obligation to do, and the refrain from doing a certain thing. If he does so, the law
debtor fails to do the same or does it in contravention says that it shall be undone at his expense.
with the tenor of the obligation, then the obligation can Kabaliktaran ng 1167 or kapag hindi niya ginawa or
be contracted out to another, in any expenses incurred ginawa niya but it is not at par with the expectations of
by the creditor for such contracting out will be charged the creditor, it will be ordered done at the debtor’s
to the debtor plus damages if any. expense. Dito, kapag ginawa niya ang hindi niya dapat
gawin it would be undone at his expense.
Art. 1168 - Speaks of a personal obligation. This time,
an obligation not to do.
Case: Fajardo Jr. vs. Freedom to Build
SUMMARY OF OBLIGATIONS
Finally, petitioners argue that for lack of a specific
In obligations to deliver a specific thing, the following provision, prescribing the penalty of demolition in the
are the rules: "Restrictive Covenant" in the event of a breach thereof,
the prayer of respondent to demolish the structure
● To deliver the thing. (Art. 1163) should fail. This argument has no merit; Article 1168 of
● To take care of the thing with the proper the New Civil Code states:
diligence of a good father of a family, unless the
"When the obligation consists in not doing and the
law or the stipulation of the parties requires
obligor does what has been forbidden him, it shall be
another standard of care (Art. 1163)
undone at his expense."
● To deliver the fruits of the thing (Art. 1164)
● To deliver all its accessions and accessories, This Court is not unaware of its ruling in Ayala
even though they may not have been Corporation vs. Ray Burton Development Corporation,
mentioned. which has merely adjudged the payment of damages in
lieu of demolition. In the aforementioned case,
In obligations to deliver a generic or indeterminate however, the elaborate mathematical formula for the
thing, the following are the rules: determination of compensatory damages which takes
● No obligation to observe due diligence because into account the current construction cost index during
the thing is capable of substitution the immediately preceding 5 years based on the
Video discussion: weighted average of wholesale price and wage indices
Genus never perishes. If you promise to deliver a car, of the National Census and Statistics Office and the
you can deliver any car. You would not run out of cars Bureau of Labor Statistics is explicitly provided for in
to deliver because we have too many cars in the world. the Deed of Restrictions entered into by the parties.
● No obligation to deliver the fruits, because This unique and peculiar circumstance, among other
before the delivery, the creditor does not know strong justifications therein mentioned, is not extant in
which property or thing must be delivered, so the case at bar.
he cannot demand for the fruits as well.
● No obligation to deliver its accessions and In sum, the Court holds that -
accessories.
1. The provisions of the Restrictive Covenant are
valid;
Art. 1168 2. Petitioners must be held to be bound thereby;
When the obligation consists in not and
doing, and the obligor does what has 3. Since the extension constructed exceeds the
been forbidden him, it shall also be
floor area limits of the Restrictive Covenant,
undone at his expense.
petitioner-spouses can be required to demolish

Video discussion:
 the structure to the extent that it exceeds the This case deals more with the issue on whether
prescribed floor area limits. restrictive covenants can be upheld by the Court at all
times. If you remember in Fajardo, one of the
Video discussion: contentions of the spouses was that the restrictive
covenant between them and FTBI was unreasonable.
Freedom to Build (FTBI) is an owner, developer and
seller of low-cost housing.It sold to the Sps. Fajardo a So, the same issue here. Rivera, then manager of
house and lot in Dela Costa Homes, Marikina. The SoldBank Corp. put up a poultry business in Cavite.
contract to sell executed between the parties contained Now, he chose to retire at age 45 and he accepted the
a restrictive covenant providing certain prohibitions. proceeds of his separation and retirement benefits
Particularly, for the Sps. Fajardo to respect the 2 meter promising that he would not at any time, in any manner
easement at the front of the house and for any second whatsoever directly or indirectly engage in an unlawful
story expansion to be placed above the back portion of activity prejudicial to the interest of SolidBank. Then he
the house and should not extend forward beyond the also executed an undertaking wherein he promised
apex of the building.Now, these restrictions were also that he would not seek employment with a competitor
contained in the title issued to the spouse. The issue bank or a financial institution within one year from 28
arose when the spouses extended the roof of their February 1995.
house to the property line and expanded the second
floor of their house to a point directly above the original However, in May 1995 he was employed with Equitable
front wall. Banking Corp. SolidBank called Rivera saying that he
violated his undertaking and they demanded the return
FTBI filed before the trial court an action to demolish of his benefits. One of the arguments of Rivera is that
the unauthorized structures. The Sps. Fajardo claim being a former bank employee, it was the only kind of
that instead of having them demolish the work he knew and that the ban practically was absolute
improvements, they should only be made to pay the since it applied to all financial institutions.
damages.
Was this restrictive covenant upheld by the SC?
Is their contention correct?
Here, the SC said that the trial court actually lacked in
The Supreme Court said NO. If you look at the terms of collecting evidence to determine whether the
conditions in the agreement and in the title, it actually contract was reasonable. The SC said that they had to
forms part of a restrictive covenant. The justification re-hear the case for the trial court to receive the
that they should only be made to pay damages, the SC necessary evidence and to proceed with the
said that the covenant is clear that in case of breach assessment of whether the negative covenant was
then FTBI has the liberty to demolish the structure. reasonable. Moreover, looking at the contract, the
Moreover, the complexity of the issue is not present in effect of violating the undertaking is not an automatic
this case because there was no mathematical formula entitlement to the restitution of the retirement money.
that had to be arrived at for the computation of Meaning, hindi automatic on the part of SolidBank that
damages unlike that in Ayala Corp vs. Ray Burton if the contract is violated, all the benefits it had given to
Development. The SC said that the restrictive covenant Rivera would be returned to it. It only entitled SoldBank
being valid and the Sps. Fajardo being bound thereby to a cause of action against Rivera, it did not require
then the same shall be demolished. So, this is a very Rivera to automatically return all the benefits that he
good example of an obligation to do and the received when he availed of his early retirement. So,
consequences if the individual/debtor who is bound not this case more or less discusses the propriety of the
to do the thing actually does the thing, it can be restrictive covenant although it does not make a
ordered undone at his expense. conclusion as to whether the restrictive covenant was
in fact reasonable.
Case: Rivera vs. SolidBank Corp.

Video discussion:
Summary of Remedies
 (3) When demand would be useless, as when
Specific or determinate thing to be delivered
the obligor has rendered it beyond his power
● Specific performance (Art. 1165) to perform.
● Rescission (Art. 1380)
● Resolution (Art. 1191) In reciprocal obligations, neither party incurs
● Indemnity for damages (Art. 1170) in delay if the other does not comply or is not
ready to comply in a proper manner with what
Generic or indeterminate thing to be delivered is incumbent upon him. From the moment one
● Same remedies that are available to a creditor of the parties fulfills his obligation, delay by
in obligations to deliver specific things but aside the other begins.
from specific performance, we can also have
substituted performance. Art. 1169 talks of default or extraordinary delay or
mora.
Personal obligations/ obligations to do
● Person obliged to do something fails to do it - Under Art. 1169, when does delay begin? The law says
obligation may be performed at the obligor’s form the time the obligee or the creditor judicially or
expense. (Art. 1167) extrajudicially demands the fulfillment of the obligation.
● If he does it in contravention of the tenor of the
obligation, or there is performance but not in GENERAL RULE: Default or extraordinary delay
accordance with what has been agreed upon - begins from the time of demand.
obligation may be performed at obligor’s
expense. (Art. 1167)
● If it is poorly done, or there has been
Kinds of Default
1. Mora Solvendi - default on the part of the
performance but it has been standard - it may
debtor or obligor
be decreed that what has been poorly done
It is when there is already a demand by the
may be undone (Art. 1168)
creditor, judicial or extrajudicial, but the debtor
If the obligor actually violated the obligation not to do fails to perform his obligations. The debtor is
then the same may be undone also at his expense. liable for damages, even in fortuitous events.
Additionally, the debtor will also be liable for
interest.
Art. 1169
Those obliged to deliver or to do something 2. Mora Accipiendi - default on the part of the
incur in delay from the time the obligee creditor or obligee.
judicially or extrajudicially demands from This presupposes however that the
them the fulfillment of their obligation. performance/payment made by the debtor is also
However, the demand by the creditor shall not proper.
be necessary in order that delay may exist: Again, the obligation must already be due and
demandable. We cannot go to the house of the
(1) When the obligation or the law expressly so creditor and demand to pay the obligation today
declare; or even if it is due next year. For the creditor to be in
delay, the obligation must already be due and
(2) When from the nature and the demandable.
circumstances of the obligation it appears that
the designation of the time when the thing is to ❖ For example: Your obligation is to pay
be delivered or the service is to be rendered 100,000 pesos but you only have 90,000
was a controlling motive for the establishment and you tell the creditor to accept the
of the contract; or 90,000 and the creditor accepts it. The
creditor is not in default because payment
would have to be in full. The debtor cannot
 both in default, the law provides that their
compel the creditor to accept partial
default neutralizes each other’s default.
payment.
In order that the debtor may be in default, it is
Notice the effect is the creditor is in delay. necessary that the following requisites be present:
The obligor of a crime is excused by reason a. Obligation must already be demandable and
of a fortuitous event. Generally, obligations liquidates (The obligation must already be due)
preceding from a crime is not extinguished b. Debtor delays in performance
by fortuitous event. c. The creditor requires the performance judicially
or extrajudicially.
❖ Example: A is convicted of theft. He has to
return the cell phone to the owner. This Example:
obligation remains even if the cellphone is
A promises B that he will deliver to B a car on January
lost in the meantime because of a
30, 2021. The obligation becomes demandable in 30
fortuitous event because it stems from a January 2021. If he fails to deliver the car by 30
crime. But the obligation is now converted January 2021, and the creditor requires performance,
into a monetary obligation. If A offered to then the debtor is considered in default.
give the cellphone but the creditor refused
without any justifiable reason to accept the RECIPROCAL OBLIGATIONS
cellphone, here the creditor is already in General Rules – The party who is ready, able and
MORA ACCIPIENDI. willing to comply with his own obligation is not required
to make a demand upon the other to place the other
· So another example, the thing is lost party in default.
due to a fortuitous event, then the
creditor will bear the lost.
Example: A and B enter into a contract of sale. A sold
3. Compensatio Morae - default in reciprocal his land to B for 20M, so A delivered the title of the land
obligations both on the part of the creditor to B. Supposedly B has to pay A 20M for the land. So,
and debtor. if A delivered the land and B does not pay the 20M at
the time of delivery, B is automatically in-default even
GENERAL RULE: THERE IS NO DELAY WHEN without demand of the part of A.
THERE IS NO DEMAND.
Exceptions to the Rule on Default

In RECIPROCAL OBLIOGATION – The performance (This exceptions apply to obligations in GENERAL)

of the parties is expected to be simultaneous. 1. Where the obligation expressly declares
· When one party is already able, ready, and a. The parties agree that the obligation will be
willing to comply with his own obligations demandable on a certain date.
and the other is not, then the other party b. Example: the contract says payment shall be
who is not ready is already considered in made on or before Feb 12, 2021.
delay. There is no need for demand for one (There is no need for demand, because the obligation
to be in delay. Automatically, when one already states that it will de demandable on the said
party is ready and the other is not, then the date)
one who is not ready is deemed in default.
· If BOTH parties are NOT ready, able, and 2. When the law expressly so declares
willing to comply with their respective a. The law itself fixes a date or condition for the
obligations, technically, they are both in obligation to be demandable.
default. But the default of one party b. Example: Payment of income taxes and
neutralizes the other. That’s why we have a submission of your income Tax Return every
concept of COMPENSATIO MORAE and April.
the parties do not have a cause of action (It is only the law that can only amend the date of
against each other because even if they are submission as you have seen probably in 2020. The
ITR was moved constantly because of the pandemic.
Gen rule, law fixes the payment and submission of the In the case at bar, respondent Fernando performed his
ITR every April) part of the obligation by allowing petitioner Leaño to
continue in possession and use of the property. Clearly,
3. When from the nature and circumstances of when petitioner Leaño did not pay the monthly
the obligation, it appears that the designation of amortizations in accordance with the terms of the
the time when the thing is to be delivered, or when contract, she was in delay and liable for damages.
the service is to be rendered was the controlling However, we agree with the trial court that the default
motive for the establishment of the contract
committed by petitioner Leaño in respect of the
a. Time is a controlling factor for the obligation.
obligation could be compensated by the interest and
Without explicitly agreeing to a time, the debtor
surcharges imposed upon her under the contract in
knows when the obligation is due.
question.
b. Example: Birthday cake

4. When the demand would be useless. It is a cardinal rule in the interpretation of contracts that
if the terms of a contract are clear and leave no doubt
5. When the debtor expressly admits that he has upon the intention of the contracting parties, the literal
been in default. meaning of its stipulation shall control. Thus, as there
is no ambiguity in the language of the contract, there is
In case of doubt whether the debtor is already in
no room for construction, only compliance.
default, meaning the construction or interpretation of
the obligation could produce the conclusion that the
DISCUSSION:
debtor could be in default but it could also produce the
So the first case is the case of Leaño vs. Court of
conclusion that the debtor is not yet in default. How do
we construe this doubt? The doubt is construed in the Appeals, here you have Leaño and Fernando who
favor of the debtor because of the GENERAL RULE is executed a contract to sell whereby Leaño bound
that THERE IS NO DELAY WHEN THERE IS NO herself to pay Fernando the sum of 107,750.00 for a
DEMAND. piece of land in Bulcan.

Under the contract, Leaño would pay 10,000.000 his

ART. 1168-1178 PART 2: downpayment and the balance would be paid by her
Labrador, Ligahon, Mamon, Mondano within a period of ten years amortization to begin from
December 1985. Now Leaño made several lump sum
CASE: Leaño vs. Court of Appeals payment until 1988 but stopped there.

On the issue of whether petitioner Leaño was in delay So Fernando filed an ejectment case against her which
in paying the amortizations, we rule that while the was granted by the court. Leaño Asked for an
contract provided that the total purchase price was injunction to stay the execution of the ejectment ruling
payable within a ten-year period, the same contract which was granted by the trial court on the ground that
specified that the purchase price shall be paid in the contract to SELL was a contract of SALE.
monthly installments for which the corresponding
penalty shall be imposed in case of default. Petitioner Now part of the ruling of the trial court said however
Leaño cannot ignore the provision on the payment of that she was in delay with respect to her payments.
monthly installments by claiming that the ten-year This is correct. Supreme Court said on the the issue of
period within which to pay has not elapsed. whether Leaño was in delay: “we ruled that while the
contract provided that the total purchase price was
Article 1169 of the Civil Code provides that in reciprocal payable within a 10-year period, the sam contract
obligations, neither party incurs in delay if the other specified that the purchase price shall be paid in
does not comply or is not ready to comply in a proper monthly installments for which the corresponding
manner with what is incumbent upon him. From the penalty shall be imposed in case of default.”
moment one of the parties fulfills his obligation, delay
by the other begins.
Leaño cannot ignore the provision and the payment of generally requires a prior tender of payment. In
monthly installments by claiming the 10-year period instances, where no debt is due and owing,
within which to pay has not elapsed. In the case at bar, consignation is not proper. Therefore, petitioners'
Fernando performed his part of the obligation by contention that private respondents failed to comply
allowing petitioner Leaño to continue in possession and with their obligation under the option to buy because
use of the property. Clearly, when petitioner Leaño did they failed to actually deliver the purchase price or
not pay the monthly amortizations in accordance with consign it in court before the contract expired and
the terms of the contract, she was in delay and liable before they execute a deed, has no leg to stand on.
for damages. However, we agree with the trial court
that the default committed by petitioner Leaño in Corollary, private respondents did not incur in delay
respect of the obligation could be compensated by the when they did not yet deliver payment nor make a
interest and surcharges imposed upon her under the consignation before the expiration of the contract. In
contract in question. reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in
So in this case, Supreme Court said because the a proper manner with what is incumbent upon him.
contract clearly stated that she had to pay her Only from the moment one of the parties fulfills his
amortizations monthly, so the contract fixed the time obligation, does delay by the other begin.
that the obligation was due and therefore it made
demand unnecessary. In this case, Leaño was already In this case, private respondents, as early as March 15,
in default with respect to her monthly payments. 1990, communicated to petitioners their intention to
——————————————————— buy the property and they were at that time undertaking
to meet their obligation before the expiration of the
CASE: Heirs of Bacus vs. Court of Appeals contract on May 31, 1990. However, petitioners refused
to execute the deed of sale and it was their demand to
Obligations under an option to buy are reciprocal private respondents to first deliver the money before
obligations. The performance of one obligation is they would execute the same which prompted private
conditioned on the simultaneous fulfillment of the other respondents to institute a case for specific performance
obligation. In other words, in an option to buy, the in the Lupong Tagapamayapa and then in the RTC. On
payment of the purchase price by the creditor is October 30, 1990, after the case had been submitted
contingent upon the execution and delivery of a deed for decision but before the trial court rendered its
of sale by the debtor. In this case, when private decision, private respondents issued a cashier's check
respondents opted to buy the property, their obligation in petitioners' favor purportedly to bolster their claim
was to advise petitioners of their decision and their that they were ready to pay the purchase price. The
readiness to pay the price. They were not yet obliged trial court considered this in private respondents' favor
to make actual payment. Only upon petitioners' actual and we believe that it rightly did so, because at the
execution and delivery of the deed of sale were they time the check was issued, petitioners had not yet
required to pay. As earlier stated, the latter was executed a deed of sale nor expressed readiness to do
contingent upon the former. In Nietes vs. Court of so. Accordingly, as there was no compliance yet with
Appeals, 46 SCRA 654 (1972), we held that notice of what was incumbent upon petitioners under the option
the creditor's decision to exercise his option to buy to buy, private respondents had not incurred in delay
need not be coupled with actual payment of the price, when the cashier's check was issued even after the
so long as this is delivered to the owner of the property contract expired.
upon performance of his part of the agreement.
Consequently, since the obligation was not yet due, DISCUSSION:
consignation in court of the purchase price was not yet So Bacus leased to Duray a piece of land in Cebu for 6
required. years under the agreement Duray had the exclusive
irrevocable right to buy a portion of the property within
Consignation is the act of depositing the thing due with five years from a year of the effectivity of the contract
the court or judicial authorities whenever the creditor and the rate would be proportionately adjusted
cannot accept or refuses to accept payment and it depending on the rate of the peso against the dollar.
However, close to the expiration of the contract, Bacus Art. 1169. Those obliged to deliver or to do something
died and shortly after his death, Duray manifested to incur in delay from the time the obligee judicially or
the heirs of Bacus that they were willing and ready to extrajudicially demands from them the fulfillment of
purchase the property under the option to buy clause. their obligation.
But the heirs of Bacus refused, so Duray was
compelled to file a complaint for specific performance However, the demand by the creditor shall not be
against the heirs of Bacus. necessary in order that delay may exist:

Now one of the defenses of the heirs was that Duray 1. When the obligation or the law expressly so
failed to pay the full purchase price upon demand, declares; or
which according to them was the condition under the 2. When from the nature and the circumstances of the
option to buy. So was this contention correct? The obligation it appears that the designation of the time
Supreme Court said NO. when the thing is to be delivered or the service is to
be rendered was a controlling motive for the
In this case, first it discussed the nature of the option to establishment of the contract; or
buy and said that this is a reciprocal obligation. So the 3. When demand would be useless, as when the
performance of one obligation is conditioned on the obligor has rendered it beyond his power to
simultaneous fulfillment of the other obligation. This is perform.
in reference to reciprocal obligations. In other words, in
an option to buy, the payment of the purchase price by In reciprocal obligations, neither party incurs in delay if
the creditor is contingent upon the execution and the other does not comply or is not ready to comply in
delivery of a deed of sale by the debtor. In this case, a proper manner with what is incumbent upon him.
when Duray opted to buy the property, the obligation of From the moment one of the parties fulfills his
Duray was to advise the heirs of their decision and obligation, delay by the other begins.
their readiness to pay the price. But they were not yet
obliged to make the actual payment. It would only be The Contract to Buy and Sell of the parties contains
when the heirs already executed the deed of sale and reciprocal obligations, i.e., to complete and deliver the
delivered the same that Duray would be required to condominium unit on October 31, 1998 or six months
pay. thereafter on the part of Megaworld, and to pay the
balance of the purchase price at or about the time of
In this case, it was actually the heirs of Bacus who did delivery on the part of Tanseco. Compliance by
not perform their obligation because the obligation only Megaworld with its obligation is determinative of
of Duray was to advise the heirs that he would already compliance by Tanseco with her obligation to pay the
be buying the property. As early as March 1990, Duray balance of the purchase price. Megaworld having failed
already communicated to the heirs his intention to buy to comply with its obligation under the contract, it is
the property. However, it was the heirs who refused to liable therefor.
execute their deed of sale because they wanted Duray
to first deliver the money before they would execute the That Megaworld’s sending of a notice of turnover
deed of sale. preceded Tanseco’s demand for refund does not abate
her cause. For demand would have been useless,
In this case, the Supreme Court said that Duray did not Megaworld admittedly having failed in its obligation to
incur in delay even when the check was issued even deliver the unit on the agreed date.
after the contract expired.
——————————————————— DISCUSSION:
In this case you have Megaworld and Mila Tanseco
CASE: Megaworld vs. Tanseco who entered into a contract to buy and sell a condo
unit. The unit price was at 16 million to be paid by
Article 1169 of the Civil Code provides: Tanseco through 30 equal monthly installments from
August 195 to January 1998. Tanseco paid all the
installment but she left balance of 2.5 million.
Megaworld however failed to deliver the unit within the the mortgage. So, the spouses Ramos filed a
agreed period. It was only in 2002 or 3 years from the complaint for the annulment of the foreclosure sale.
date of agreement that Megaworld was able to show
the unit to Tanseco. Tanseco argued that since The issue relevant to our discussion is if the Spouses
Megaworld had failed to deliver the unit on time, the 14 Ramos defaulted in their obligation to General Milling.
million which she paid should be returned to her. But
In this case, the Supreme Court said that according to
Megaworld failed to do so, so she filed a case against
the Court of Appeals, General Millings did not make a
Megaworld. The HLURB ruled against Tanseco saying
demand on the Spouses Ramos, but merely requested
that she had not made a demand to Megaworld.
them to go to GMC’s office to discuss the settlement of
Therefore Megaworld was not in delay and therefore
their account.
could not be made liable to return the 14 million. This
was however reversed by the Court of Appeals.
In spite of the lack of demand, GMC proceeded with
the foreclosure proceedings. Neither was there any
So which court ruled correctly? The Supreme Court
provision in the Dead of Real Estate Mortgage allowing
said that it was in fact the Court of Appeals that ruled.
GMC to extrajudicially foreclose the mortgage without
So it said that the Contract to buy and sell contains
need of demand.
reciprocal obligations. And the obligation of Megaworld
was to deliver the condominium unit at the particular It cited Article 1169 and said that the contract in the
date agreed upon. Megaworld sent a notice of turnover instant case carries no provision of demand not being
which was already late actually indicated that it had necessary for the delay to exist.
failed in its obligation to deliver the unit. So it does not
matter that, kasi ang argument ni Megaworld is that So, in this case the Supreme Court said there was no
nauna ang Notice of Turnover namin bago yung demand. GMC should have first made a demand on
demand for refund ni Tanseco. So sabi ni Supreme the spouses before proceeding to foreclose the real
Court, that does not matter because in the agreement it estate mortgage.
is already fixed that the obligation of Megaword was to
deliver the condominium unit on 31 October 1998. Again, the spouses Ramos were not in delay for there
was no demand.
Upon delivery, Tanseco would pay the balance of the
purchase price. However, because Megaworld failed to
deliver the unit on that day, even as Tanseco was
Case: Maybank Philippines vs. Spouses Tarrosa
already prepared to pay her balance, then Megaworld
was in fact in delay. There was no need for demand for
The issue in this case with respect to this topic is
Megaworld to be in delay because this is an example
whether the lower court correctly ruled that demand
of an exemption where a contract already stipulates
was no longer necessary before the Spouses Tarrosa
when the obligation would be due and demandable.
could be put in default.
Case: General Milling vs. Ramos
The answer in this case is No. While there was indeed
a maturity on the loan, it did not mean that there was
General Milling entered into a grower’s contract with
no need for a demand under Article 1169. The
Spouses Ramos. Under this contract, GMC was to
Supreme Court said that the provision “in the event that
supply Ramos with broiler chickens for the latter to
the mortgagor herein should fail or refuse to pay any of
raise on their land in Batangas. To guarantee
the sums of money secured by this mortgage, or any
compliance, the spouses executed a real estate
part thereof…” does not mean that you van already
mortgage over their conjugal home and agreed to put
dispense with demand in order for the debtor to be in
up a surety bond. Eventually however, they failed to
default.
settle their account with General Milling, alleging that
they suffered from business losses because of the
It merely articulated Maybank’s right to elect
negligence of General Milling and its violation of the
foreclosure upon the failure of the Spouses Tarrosa to
grower’s contract. Still, General Milling foreclosed on
comply with the obligation secured. In no way did it
affect the general parameters of default, particularly the Stated simply, the Contract of Sale between petitioner
need for prior demand, under Article 1169, considering Ching, as buyer, and respondent Manas, as seller,
that it did not expressly declare that demand shall not gave rise to a reciprocal obligation, wherein petitioner
be necessary in order that the mortgagor may be in Ching was obliged to pay the balance of the purchase
default or that default shall commence upon mere price while respondent Manas was obliged to make
failure to pay on the maturity date of the loan. complete delivery of the objects of the sale on or
before January 15, 1998 and ensure complete
In this case, because of the wording of the contract, as installation, dry run-testing, and satisfactory operations
it did not explicitly say that demand shall not be of all the equipment installed.
necessary, then the construction accorded to the
mortgage contract was that there was a need for prior In a reciprocal obligation, the performance of one is
demand before the debtors can be held in default. conditioned on the simultaneous fulfillment of the other
obligation.17 Neither party incurs in delay if the other
Ironically, in this case, it was still the creditor who
does not comply or is not ready to comply in a manner
benefited because it was related to the issue on
with what is incumbent upon him.18 As explained by
prescription, because Maybank made an extrajudicial
recognized Civil Law Commentator, former CA Justice
demand then the prescription period for Maybank was
Eduardo P. Caguioa, a reciprocal obligation has been
interrupted.
defined as that "where each of the parties is a
promissee of a prestation and promises another in
return as a counterpart of equivalent of the other. x x x
CHUA PING HIAN VS. MANAS
The most salient feature of this obligation is
reciprocity."
FACTS: Ching and Manas who entered into an
agreement whereby Manas would deliver Movie
Simply stated, respondent Manas covenanted that the
projectors for the Cinemas that soon would open.
payment of the remaining balance by petitioner Ching
Because the units delivered were not to the satisfaction
was made contingent on the latter's satisfactory
of Ching, he refused to pay for them. Manas suid him
assessment that respondent Manas completely
to collect the costs of the projector. Manas was
delivered and installed all of the movie projector units.
awarded the cost plus interest. So the issue in this
Obviously, petitioner Ching did not find the delivery,
case is whether Ching defaulted in the payment of his
installation, and operation of the movie projector
obligation does warranting the award of interest in
systems satisfactory on account of respondent Manas'
favor of Manas.
failure to deliver the fifth Simplex XL movie projector,
the failure of respondent Manas to ensure the complete
HELD:
installation of the movie projector systems, and
Based on the established facts of the instant case,
respondent Manas' delivery of defective components.
petitioner Ching was not in delay when he failed to pay
the balance of the purchase price.
In fact, very telling is the unequivocal pronouncement
of the CA that "[petitioner] Ching had a valid reason for
To recall, based on paragraph 2 of the Contract of
refusing payment until the issue of recoupement (sic)
Sale, petitioner Ching obligated himself to make three
for breach of warranty was resolved."28
installment payments as regards the objects of the
sale: (a) the down payment of 30% or P945,000.00
Therefore, with petitioner Ching being justified in
upon the signing of the Contract of Sale, which
withholding the payment of the balance of the purchase
petitioner Ching did; (b) a second payment of 40% or
price on account of the several breaches of contract
P1,260,000.00 upon full and complete delivery of all
committed by respondent Manas,29 it cannot be said
the items indicated in the Contract of Sale, provided
that petitioner Ching was in delay. Necessarily,
the complete delivery is effected on or before January
respondent Manas is not entitled to the stipulated
15, 1998; and (c) the balance of 30% or P945,000.00
interest as provided in the Contract of Sale. And
after the complete installation, dry run/testing and
considering that petitioner Ching cannot be deemed in
satisfactory operations of all the units/sets installed.
delay in accordance with the Contract of Sale, the legal
interest shall accrue only from the finality of this
Decision until full payment. No fraud was employed to obtain the consent of the
other party, but during the performance of the
*The SC said here that there was no delay, because in obligation, fraud is committed.
Fact Ching had a valid reason for refusing the
payment. Even if it was a reciprocal obligation and you Also known as dolo incidente (incidental fraud)
know that in reciprocal obligations, the simultaneous
fulfillment of both obligations must be made neither *For example, A offered to B to sell his Samsung
party incurs in delay if the other does not comply or is Galaxy S21. A showed B a warranty card to prove that
not ready to comply in a manner with what is Samsung S21 was legitimate. So B agreed thinking
incumbent upon him. In this case Manas in fact had not that the price was cheap and super worth it. But he
been able to comply with his obligation the Ching was later on realized that it wasn't the real thing. But
also not in default because Manas obviously was not because of the warranty card, He was convinced of A's
able to complete his own obligation. So in this case, reputation as a legitimate seller and choose to trust in
Ching cannot be deemed in delay in accordance with A. But it turns out later that the warranty card was fake.
the contract of sale. So this is an example of fraud in the execution because
the consent of B was obtained by making him believe
Article 1170. Those who in the performance of their that the thing was in fact legitimate.
obligation are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof, On the other hand there was fraud in the performance
are liable for damages. where the phone and the warranty card is totoo sila
lahat and nakita ni B na authentic yung phone and
Grounds for liability under 1170: warranty card. But when the day of delivery arives A
gives B a fake phone instead. So this is fraud in the
1. Fraud (deceit or dolo) (intentional evasion of performance because where the consent is validly
fulfillment) obtained that was during the delivery of the thing that A
2. Negligence committed the fraud.
3. Default
4. Violation of the terms of the obligation Article 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
*1170 speaks on the consequences on the part of the for future fraud is void.
debtor whenever he performs his obligation with fraud,
negligence, delay or in any manner contrary to the Liability for fraud already committed may be waived.
tenor thereof. Now when any of the grounds in 1170 But liability for future fraud cannot be waived because it
exist the creditor is entitled to damages from the would render the obligation illusory.
debtor.

FRAUD *Article 1171 talks about liability with respect to fraud,

so any liability arising from fraud is demandable in all
Fraud in the execution obligations and any waiver of an action for future fraud
is void.
Committed in the execution of the contract; fraud is Illusory meaning as a creditor you can renounce the
committed by the party to secure the consent of the right to sue the debtor for fraud already committed but
other party to the contract; remedy of the creditor is as a creditor you cannot enter into an obligation and
annulment of contract without prejudice to his claim for say Kahit na lokohin ako ng debtor okay lang hindi ko
damages. sya kakasuhan, bakit? love mo ba sya? ganon hindi.
Anyways you cannot waive an action for future fraud.
Also known as dolo causante (casual fraud) That is not allowed because if you do that how else
would you expect the debtor to fulfill his obligation if he
Fraud in the performance. already knows that he will get a way with not
performing it or in performing the obligation the non performance of the obligation then the same
fraudulently. can be a source of liability for damages.

Article 1172. Responsibility arising from negligence in Take note: The law does not mention here foreseen or
the performance of every kind of obligation is also reasonably foreseen as long as the damages are
demandable, but such liability may be regulated by the reasonably attributed to the non-performance of the
courts, according to the circumstances. obligation.

Article 1173. The fault or negligence of the obligor So how do we distinguish negligence from fraud?
consists in the omission of that diligence which is
required by the nature of the obligation and Dolo (Fraud) Culpa (Negligence)
corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad 1. There is a 1.Although the act is
faith, the provision of Article 1171 and 2201 paragraph deliberate intention to voluntary, still there is no
2, shall apply. cause damage or deliberate intention to
prejudice. cause damage.
If the law or contract does not state the diligence which
2. Liability arising 2.Liability due to
is to be observed in the performance, that which is
from fraud cannot be negligence may be
expected of a good father of a family shall be required.
mitigated or reduced by reduced in certain cases
the courts.
*Another source of liability aside from fraud is when the
performance of the obligation is attended with 3. Waiver of an 3.Waiver of an action to
negligence. Now we know that as a general rule the action to enforce liability enforce liability due to
diligence required in the performance of an obligation due to future fraud is future negligence may be
is that a good father of the family or Bonus pater void. allowed in certain cases.
familias. When the debtor fails in the degree of
diligence required then he is liable for negligence, this
is provided in 1173. 1. You are holding a knife, so if you want to
murder someone, you use that knife. that is a
1173 tells us that there is a difference in the liability of a deliberate act of using a knife to kill someone.
debtor when he is negligent and he is in good faith or But if you are only holding a knife because you
bad faith. What is the consequence if the debtor is in are cooking, then you carry it out of the kitchen.
good faith or bad faith? If the debtor is in good faith, he And because you are negligent, you ended up
is responsible for the natural and probable cutting someone else while you were turning or
consequences of the breach of contract and which the moving around. In the former, there was intent
parties have foreseen or could have personally to kill but in the latter, while you intended to
foreseen at the time of the constitution of the bring the knife with you, you did not intend to
obligation. So the breach of the contract must be the hurt anyone.
proximate cause of the damages suffered and the 2. Liability arising from fraud cannot be
guilty party can be liable also for the consequences mitigated or reduced by the courts. If the
which can be foreseen. consequences can be reasonably attributed to
fraudulent act, then it has to be or rather the
But if the debtor is in bad faith, like he is guilty of fraud damages be reimbursed or paid by the debtor.
or he acted maliciously or with wanton attitude. So he But in negligence, liability may be reduced in
had bad intentions and he deliberately wanted to fraud certain cases especially if it can be shown that
someone. So he shall be responsible for all damages there was contributory negligence. For
which would be reasonably attributed to the non example, on the part of the creditor or the
performance of the obligation even if not foreseen. So respondent.
that's the key difference. Even if it is not foreseeable if 3. In dolo, waiver of an action to enforce
the debtor is bad faith so long as it can be attributed to liability due to future fraud is void. For
 negligence, waiver of an action to enforce by the defendant, may be vindicated or
liability due to future negligence may be allowed recognized, and not for the purpose of
in certain cases. Naalala nyo dati, when we talk indemnifying the plaintiff for any loss suffered
about common carriers like jeep, buses, by him.
airplanes. They are expected to observe
extraordinary diligence and the passenger There is no loss that can be measured economically
cannot agree to a diligence lower than that even if you did not suffered sleepless nights, like under
because it would then be contrary to law. For moral injuries or you did not suffer a physical injury,
private charter, not a common carrier, just like then nominal loss addresses the fact that your right
friends and he agreed to drive you somewhere. was violated. You are also compensated for the fact
In that case, the passenger can agree to waive your right was violated even if it not cost you…
liability for future negligence because it is a
private charter party agreement. It does not Temperate
involve the general public unlike if it were a Article 2224. Temperate or moderate
common carrier. That is a stipulation limiting damages, which are more than nominal but
liability for future negligence. less than compensatory damages, may be
recovered when the court finds that some
(review of delay: see previous delay discussion) pecuniary loss has been suffered but its
amount can not, from the nature of the case,
KINDS OF DAMAGES be provided with certainty.

Moral Refers to a situation where the court knows that you

Article 2217. Moral damages include suffered damages. Problem is that the mean time we
physical suffering, mental anguish, fright, cannot prove it because probably you lost the receipts,
serious anxiety, besmirched reputation, lost the documents to prove your loss. But you were
wounded feelings, moral shock, social really hospitalized, you had to take therapy after the
humiliation, and similar injury. Though incident. And there is no direct proof of expenses but
incapable of pecuniary computation, moral temperate damages are more or less an estimate of
damages may be recovered if they are the how much losses you suffered.
proximate result of the defendant's wrongful
act for omission. Actual
Article 2199. Except as provided by law or by
If you suffered physically, you agonized mentally, had stipulation, one is entitled to an adequate
anxiety or your reputation was ruined, then you can compensation only for such pecuniary loss
recover moral damages. suffered by him as he has duly proved. Such
compensation is referred to as actual or
Exemplary compensatory damages.
Article 2229. Exemplary or corrective
damages are imposed, by way of example or Actual damages that you have everything documented,
correction for the public good, in addition to cost of hospitalization, cost of therapy, loss of ability to
the moral, temperate, liquidated or earn all of that will be computed as an actual loss.
compensatory damages.

There is public good to be upheld, which public good Liquidated

must be vindicated or affirmed. Article 2226. Liquidated damages are those
agreed upon by the parties to a contract, to
Nominal be paid in case of breach thereof.
Article 2221. Nominal damages are
adjudicated in order that a right of the There are times that is difficult to prove the amount of
plaintiff, which has been violated or invaded damages. Parties will just put in the contract “in case of
breach of contract, this is the amount of damages that with negligence which is why there is a breach of
the other party will be entitled to”. So para madali na contract.
lang mamaya, may liquidated damages. Ituturo na lang ● For Culpa aquiliana and culpa criminal, on the
sa court na ito yung contract. “Ito yung contract namin other hand, negligence is the foundation of the
Judge, and ito yung nakalagay na amount sa contract cause of action without which the case would not
prosper. Particularly, negligence in culpa contractual
namin” So this is our agreement and I am enforcing the
is merely incidental, it’s obviously not the main
agreement demanding liquidated damages.
cause of action but because negligence attended the
performance of the obligation then there is ground
Distinctions bet. Three Kinds of Culpa for breach of contract.
Culpa Culpa Aquiliana Culpa Criminal
Contractual (tort or (crime or delict) Now as to the second set of distinctions:
(breach of quasi-delict) ● Under culpa contractual obviously there is a pre
contract) existing obligation because again, there is a
contract between the parties be it express or
Negligence is Negligence is Negligence is implied.
merely incidental direct, direct, ● But in culpa aquiliana and culpa criminal, it
to the substantive and substantive and
requires no pre-existing obligation.
performance of independent independent of a
an obligation contract
Now as to the third distinction:
already existing
This is self explanatory because the first two, culpa
because of a
contractual and culpa aquiliana are civil cases
contract
therefore they only need preponderance of
There is a No pre-existing No pre-existing evidence.
pre-existing obligation obligation
obligation (a Now on the last distinction:
contract, either ● We saw these in the previous cases, where the
express or liability of the employer in culpa aquiliana v culpa
implied) criminal was compared.
● But pano pag breach of contract? Diligence in the
Proof needed Proof needed of Proof needed in a
selection and supervision of employee is not a
preponderance preponderance crime of proof of
proper and complete defense. Why? Because the
evidence evidence guilt beyond
cause of action is predicated on the breach of the
reasonable doubt
contract itself. A defense of good faith at best will
only help mitigate damages but it will not completely
Defense of a Defense of a Employee's guilt
eliminate liability of the employer. So remember
good father of a good father of a is automatically
these distinctions.
family in the family is a proper the
selection and and complete of employer's civil
supervision defense guilt if the former CASES
employees is not is insolvent
a proper Prudential Bank vs Courtof Appeals
complete defense
Here, you have Leticia who opened a savings account and
current account with Prudential Bank with automatic
Previously we defined the different kinds of culpa, if you
transferof funds from the savings account to current account.
remember and we saw how these different kinds of culpa
So one time, she issued a check to Belen Legaspi,who in
were compared in the cases already but let’s summarize
turn endorsed the check to Lhuiller. But this was later on
these distinctions.
dishonored for insufficient funds. Now it was found out that
the check was dishonored because of the bank’s failure to
So for your first row of distinctions:
file the suit on time. So, Leticia filed a suit for damages
● For contracts, there is already an obligation existing
against prudential bank. Now, the court granted moral
which obligation is defined in the contract, its just
damages.
that the performance of that obligation was attended
Was this ruling correct? expected of the former in handling the accounts entrusted to its
care, thus:
The SC said, in every case the depositor expects the bank to
treat his account with utmost fidelity, whether such account In every case, the depositor expects the bank to treat
consists only of a few hundred pesos or of millions. The his account with the utmost fidelity, whether such
bank must record every single transaction accurately, down account consists only of a few hundred pesos or of
millions. The bank must record every single transaction
to the last centavo, and as promptly as possible. This has to
accurately, down to the last centavo, and as promptly as
be done if the account is to reflect at any given time the
possible. This has to be done if the account is to reflect
amount of money the depositor can dispose of as he sees fit,
at any given time the amount of money the depositor
confident that the bank will deliver it as and to whomever he
can dispose of as he sees fit, confident that the bank
directs. A blunder on the part of bank, such as the dishonor
will deliver it as and to whomever he directs. A blunder
of a check without good reason, can cause the depositor not on the part of bank, such as the dishonor of a check
a little embarrassment if not also financial loss and perhaps without good reason, can cause the depositor not a little
even civil and criminal litigation. embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public interest
and because of the nature of its functions, the bank is under The paint is that as a business affected with public
obligation to treat the accounts of its depositors with interest and because of the nature of its functions, the
meticulous care, always having in mind the fiduciary nature bank is under obligation to treat the accounts of its
of their relationship. . . . depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. . . .
So even if malice or bad faith was not sufficiently proved
proved in the instant case, the fact remains that petitioner In the recent case of Philippine National Bank vs. Court of
Appeals,8 we held that "a bank is under obligation to treat the
has committed a serious mistake. It dishonored the check
accounts of its depositors with meticulous care whether such
issued by the private respondent who turned out to have
account consists only of a few hundred pesos or of millions of
sufficient funds with petitioner. The bank's negligence was
pesos. Responsibility arising from negligence in the performance
the result of lack of due care and caution required of
of every kind of obligation is demandable. While petitioner's
managers and employees of a firm engaged in so sensitive
negligence in this case may not have been attended with malice
and demanding business as banking. Accordingly, the award and bad faith, nevertheless, it caused serious anxiety,
of moral damages by the respondent Court of Appeals could embarrassment and humiliation". Hence we ruled that the
not be said to be in error nor in grave abuse of its discretion. offended party in said case was entitled to recover reasonable
moral damages.
From the slide:
Admittedly, as found by both the respondent appellate court and Even if malice or bad faith was not sufficiently proved in the
the trial court, petitioner bank had committed a instant case, the fact remains that petitioner has committed a
mistake.1âwphi1.nêt It misposted private respondent's check serious mistake. It dishonored the check issued by the private
deposit to another account and delayed the posting of the same respondent who turned out to have sufficient funds with
to the proper account of the private respondent. The mistake petitioner. The bank's negligence was the result of lack of due
resulted to the dishonor of the private respondent's check. The care and caution required of managers and employees of a firm
trial court found "that the misposting of plaintiff's check deposit to engaged in so sensitive and demanding business as banking.
another account and the delayed posting of the same to the Accordingly, the award of moral damages by the respondent
account of the plaintiff is a clear proof of lack of supervision on Court of Appeals could not be said to be in error nor in grave
the part of the defendant bank."6 Similarly, the appellate court abuse of its discretion.
also found that "while it may be true that the bank's negligence in
dishonoring the properly funded check of appellant might not
have been attended with malice and bad faith, as appellee [bank]
submits, nevertheless, it is the result of lack of due care and
caution expected of an employee of a firm engaged in so
Okay, because prudential bank is in a very sensitive and
sensitive and accurately demanding task as banking."7 
meticulous business. So the degree of care that is expected
of it is higher than the normal diligence or the normal degree
In Simex International (Manila), Inc. vs. Court of Appeals, 183
of care that is expected of other entities which are not
SCRA 360, 367 (1990), and Bank of Philippine Islands vs.
engaged in a similar indistry. So just remember, that when it
IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had
comes to banks, under Prudential Bank V CA, a higher
occasion to stress the fiduciary nature of the relationship
between a bank and its depositors and the extent of diligence diligence is required of them.

 
Prudential Bank v Rapanot of Philippine National Bank v. Vila,63 thus:
chanRoblesvirtualLawlibrary
In Land Bank of the Philippines v. Belle Corporation, the
Prudential Bank extended a loan to Golden Dragon to be Court exhorted banks to exercise the highest degree of
used as capital by Golden Dragon for its business venture. diligence in its dealing with properties offered as securities
for the loan obligation:
Now as security for the loan, Golden Dragon executed a
chanRoblesvirtualLawlibrary
mortgage agreement over condominium units under Golden When the purchaser or the mortgagee is a bank, the rule on
Dragons name. Later, Rapanot and Golden Dragon entered innocent purchasers or mortgagees for value is applied more
into a contract to sell covering one of the units under the strictly. Being in the business of extending loans secured by
real estate mortgage, banks are presumed to be familiar with
mortgage agreement. Rapanot completed payment and the rules on land registration. Since the banking business is
a Deed Of Absolute Sale was executed in his favor. Rapanot impressed with public interest, they are expected to be more
then prompted golden dragon to send a notice to Prudential cautious, to exercise a higher degree of diligence, care and
prudence, than private individuals in their dealings, even
Bank so his unit could be substituted with another collateral
those involving registered lands. Banks may not simply rely
in favor of Prudential Bank but Prudential bank refused. So on the face of the certificate of title. Hence, they cannot
Rapanot filed a complaint against Golden Dragon and assume that, x x x the title offered as security is on its face
Prudential Bank, one of the issues in this case is whether free of any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title and
Prudential Bank can be considered a mortgagee in good inspect the properties to be mortgaged. As expected, the
faith. ascertainment of the status or condition of a property offered
to it as security for a loan must be a standard and
indispensable part of the bank's operations. x x x (Citations
The Supreme Court said in this case that banks are required
omitted)ChanRoblesVirtualawlibrary
to exercise the highest degree of diligence in the conduct of We never fail to stress the remarkable significance of a
their affairs. In Land Bank Versus Bell Corporation the banking institution to commercial transactions, in
court exhorted banks to exercise the highest degree of particular, and to the country's economy in general. The
banking system is an indispensable institution in the
diligence in its dealing with properties offered as securities modern world and plays a vital role in the economic life
for the loan obligation. of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks
When the purchaser or the mortgage is a bank the rule on
have become an ubiquitous presence among the people,
innocent purchasers or mortgages for value is applied more who have come to regard them with respect and even
strictly being in the business of extending loan secured by gratitude and, most of all, confidence. Consequently, the
real estate mortgage banks are presumed to be familiar with highest degree of diligence is expected, and high
standards of integrity and performance are even
their rules on land registration since the banking business is required, of it.64 (Emphasis and underscoring
impressed with public interest they are expected to be more supplied)ChanRoblesVirtualawlibrary
cautious to exercise a higher degree of diligence care and In loan transactions, banks have the particular obligation of
ensuring that clients comply with all the documentary
prudence in private individuals in their dealings even those
requirements pertaining to the approval of their loan
involving registered lands. Banks may not simply rely on the applications and the subsequent release of their proceeds.65
face of these certificate of title.
If only the Bank exercised the highest degree of diligence
required by the nature of its business as a financial
In loan transactions, banks have the particular obligation of institution, it would have discovered that (i) Golden Dragon
ensuring that clients comply with all the documentary did not comply with the approval requirement imposed by
requirements pertaining to the approval of their loan Section 18 of PD 957, and (ii) that Rapanot already paid a
reservation fee and had made several installment payments
applications and the subsequent releases of their proceeds.
in favor of Golden Dragon, with a view of acquiring Unit
If only the bank exercise the highest degree of diligence 2308-B2.66
required by the nature of its financial institution it would have
discovered that Golden Dragon did not comply with the The Bank's failure to exercise the diligence required of it
constitutes negligence, and negates its assertion that it is a
approval requirement imposed by the law and that Rapanot mortgagee in good faith.
had already paid the reservation fee and had made several
installment payments in favor of Golden Dragon with a view
of acquiring unit 230832 . The bank's failure to exercise the
diligence required of it constitutes negligence and negates So, in this case, since a higher diligence is expected of
its assertion that it is a mortgagee in good faith.  banks they cannot be expected to merely rely on the face of
the title of the property. So, it would behoove these banks to
also exercise the highest duty of diligence whenever dealing
From the slide: with real properties that are offered as securities for their
It bears stressing that banks are required to exercise the loan obligation because of their business so it's expected
highest degree of diligence in the conduct of their affairs. The
that they exercise the highest degree of diligence in
Court explained this exacting requirement in the recent case
examining whether the property mortgaged to them has
already claims to it or has already been annotated with the pier and to transprt and deliver this cargo to its
another claim by someone else. warehouse in laguna binan. In turn, kehin eereit had an
accrediation aggreemet with sunfreight forwarders whereby
China Trust Vs Turner sunfreifhg undertook to render common carrieer services for
keihin and to transport these in land goods within the
Philippines. Honda shipment arrived and was accordingly
Next we have the case of China Trust Vs Turner , Turner offloaded from the ocean liner and temporary stored in the
initiated via China Trust Ayala Branch the telegraphic area of the manila international airport pending release by
transfer of 430 U.S. dollars to the account of Min customs. 
Travel/ESMAT AZMY in Cairo Egypt so this was supposed
to represent payment for their travel in Egypt for 11 days. So In November 8, the shipment was causedto be
on the same day that Turner asked china trust to remit the releeasedfrom the pier by keihin Everett and was 
funds, china trust remitted the funds through the Union Bank Tunredove to sunfreight foreaawders for delivery tohonda
of California which in turn remitted the funds through the trading. However on the way to the warehouse of Honda
trading, the truck carriying the containets was hijacked and
Citibank New York so that it would be transferred to Min
the container van wareportely tkane away. Now they found
Travel/ESMET AZMY in Citibank Cairo Egypt. Now on
the container van but ultimately the contents of the container
September 17, 2004 China trust received Citibank van were already gone so they were no longer retrived.

cairoteelex notice about the latter’s inability to credit the Now hnonda tradinig suffered losses in the amount of 2m
funds it received because the beneficiary name did not representing the los of 40 bundlesof aluiminim alloy ingots.
match their books. In other words, yung beneficiary name na Now the defence of keihin everet, it’s not our fault that the
Min Travel/Esmat Azmy did not match the account in the materials were lost because there was in fact a hijacking that
filename of the citibank cairo. So Chinatrust relayed this is a fortuitous event. There was no nglience on our part for it
information to turner on the following business day. to be a source of liability for damages.
Chinatrust claimed that it related discrepancy to turner and
request him to verify from his beneficiary the correct bank
So is this correct? No.
account name. 5 days later, turner allegedly informed
chinatrust that he was able to contact ezmat aszym who
acknowledged receipt of the transferred funds. Turner It bears to stress that xxxx
however had to cancel his travel tour because his wife got ill
and requested to chinatrust the refund of his money. So that’s why even if there was a robbery or hijacking, SC
Chinatrist said that it could no longer give back the amout still held keihin everett liable as a common carrier because
because it already had been remitted to the travl agenyc, but itsaid in this instance, that kehin everett adopted the role of a
since turner was insistentsochinatrust adviced himto seek common carrier by hiring sunfreight forwrders to delvier the
the refund directly from the travel agency or the alternative, cabels from the prot to the warehouse of Honda trading.
hae the travelagency that they did not receive the unds.
However turner still demanded the funds from chinatrust and Orient Freight vs. Keihin-Everett
sued them for refund and damages. 
In this light, Keihin-Everett, as a common carrier, is
Now this is also a bank, was there negligence on the part of mandated to observe, under Article 1733 of the Civil Code,
the bank? extraordinary diligence in the vigilance over the goods it
transports according to all the circumstances of each case.
Aftersecond par. So in this case, the sc said the ower courts In the event that the goods are lost, destroyed or
overlooked he fact that turner knew all a;ong xxxx deteriorated, it is presumed to have been at fault or to have
acted negligently, unless it proves that it observed
So, if you look at it, the reason why probably turner insisted extraordinary diligence.29 To be sure, under Article 1736 of
that the funds be returnedto him was because the travel
the Civil Code, a common carrier's extraordinary
agency would not refund him for it na. So dumaan siya sa
bank. But in thi case, chinatrust was also not negligent when responsibility over the shipper's goods lasts from the time
it performed its oblgation because it was merely acting only these goods are unconditionally placed in the possession of,
inder the instructions of turner. And it was turner itself who and received by, the carrier for transportation, until they are
everified that the name of the agency was also min travel. delivered, actually or constructively, by the carrier to the
SO IN this case, there was no negligence on the prt of consignee, or to the person who has a right to receive them.
chinatrutst and therefore could not be held liable for Hence, at the time Keihin-Everett turned over the custody of
damaeges and for the refund of course. the cargoes to Sunfreight Forwarders for inland
transportation, it is still required to observe extraordinary
Next case, diligence in the vigilance of the goods. Failure to
successfully establish this carries with it the presumption of
fault or negligence, thus, rendering
In this case, you have Honda trading whihc engaged the
Keihin-Everett liable to Honda Trading for breach of contract.
services of jehin Everett to clear and withadraw cargo from
 Demand may be judicial if the creditor files a complaint
It bears to stress that the hijacking of the goods is not against the debtor for the fulfillment of the obligation - or
considered a fortuitous event or a force majeure. extrajudicial - if the creditor demands from the debtor the
Nevertheless, a common carrier may absolve itself of liability fulfilment of the obligation either orally or in writing. Whether
for a resulting loss caused by robbery or hijacked if it is the demand is judicial or extrajudicial, if the obligor or debtor
proven that the robbery or hijacking was attended by grave fails to fulfil or perform his obligations, like payment of a
or irresistible threat, violence or force. In this case, loan, as in this case, he is in mora solvendi, and, thus, liable
Keihin-Everett failed to prove the existence of the for damages.
aforementioned instances.
While delay on the part of respondent was not triggered by
The last case for this article. an extrajudicial demand because petitioner had failed to so
establish receipt of her demandletter, this delay was
De Vega borrowed money from Pineda and to secure the triggered when petitioner judicially demanded the payment
loan, De Vega executed the real estate mortgage over a of respondent's loan from petitioner. While the CA was
parcel of land in favour of Pineda. Pineda however failed to correct in observing that default generally begins from the
pay the loans. The trial court found De Vega defaulted while moment the creditor demands the performance of the
the CA found that pineda failed to make a demand upon De obligation, and without such demand, judicial or extrajudicial,
Vega for the full payment of the loan. the effects of default will not arise, it failed to acknowledge
that when petitioner filed her complaint dated June 10, 2005,
Now was there delay on the part of De Vega considering that such filing constituted the judicial demand upon respondent
there was no demand on the prt of pineda?  to pay the latter's principal obligation and the interest
thereon. Respondent, having thus incurred in delay (counted
CA ruled that Pineda failed to prove that they made an from the filing of the complaint), is liable for damages
extrajudicial demand upon De Vega pursuant to Article 1170 of the Civil Code.

The SC said, what Pineda seeks to enforce against De Vega IN THIS CASE, while delay on the part of de vga was not
is a contract of loan xxx tirggered by an extrrajudicial demand because De Vega has
failed to establihs the reeipt of her demand letter this dealy
was triggered when pineda djudicially demanded payment of
Pineda vs. De Vega the loan from De Vega. Diba you remember delay can be
triggered judicially or extra judicially. In this case, there was a
After the CA found that petitioner failed to prove that judicial demand when pineda filed the case. This delay was
extrajudicial demand was made upon respondent as in fact trigered and therefore De Vega was actually
considered delay from the time the case was already filed
required by law and after it had observed that petitioner had
against her. 
not asserted any of the exceptions to the requisite demand
under Article 1169 of the Civil Code, the CA concluded that
respondent could not be considered in default. Necessarily, Art 1174- Except in cases expressly specified by the
petitioner's case should fail law, or when it is otherwise declared by stipulation, or
While the CA is correct on its factual finding, its legal when the nature of the obligation requires the
conclusion is, however, flawed. assumption of risk, no person shall be responsible for
What petitioner seeks to enforce against respondent is a those events which could not be foreseen, or which,
contract of loan, which is secured by a real estate mortgage.
through foreseen, were inevitable.
Based on the sources of obligations enumerated under
Article 1157 of the Civil Code, the obligation that petitioner
seeks to make respondent liable for is one which arises from
2 types of fortuitous events
contract. Liability for damages arises pursuant to Article 1170 Casa Fortuito- refers to an event which is absolutely
of the Civil Code against "Who in the performance of their independent of human intervention.
obligations are guilty of fraud, negligence, or delay, and Example, typhoons, volcanic erruptions,
those who in any manner contravene the tenor thereof." earthquakes, all examples of human intervention
Delay or mora is governed by Article 1169 of the Civil Code, Force Majeure- event caused by the legitimate or
which provides: xxx illegitimate acts of persons other than the obligor.
Default or mord, which is a kind of voluntary breach of an
Example, robbery, arson, war.
obligation, signifies the idea of delay in the fulfilment of an
obligation with respect to time." In positive obligations, like
an obligation to give, the obligor or debtor incurs in delay in this case the distinction is quite academic but in
from the time the obligee or creditor demands from him the reality there is no difference how we treat these two
fulfilment of the obligation. events for as long as they meet the characteristics of a
fortuitous event.
Characteristic of a fortuitous event: The steps taken by PAL however has not been put in
1. The cause must be independent of the will of the evidence, especially for those 7 others who were not
obligor accommodated in the return to Cebu, only 6 of the 21
a. Obligor should not have participated in having been accommodated. It appears that Zapatos
the event that happened and like in had to leave on the next flight 2 days later. If the cause
number 4 in this list, obligor should not of non-fulfillment of the contract is due to a fortuitous
have aggravated the event. event, it has to be the sole and only cause. Since part of
2. Impossibility of foreseeing or impossibility of the failure to comply with the obligation of common
avoiding it even if it is foreseen. carrier to deliver its passengers safely to their
a. If for example, the obligation becomes destination lay in the defendant’s failure to provide
too difficult to perform comfort and convenience to its stranded passengers
3. The occurrence must be such as to render using extra- ordinary diligence, the cause of
impossible for the obligor to fulfill his non-fulfillment is not solely and exclusively due to
obligation in a normal manner fortuitous event, but due to something which defendant
4. The obligor must be free from any participation airline could have prevented, defendant becomes liable
in, or aggravation of the injury to the obligee. to plaintiff.

To further understand, lets discuss this case of: PAL vs. So, in this case because the fact of rerouting was not
Court of Appeals something the court took against PAL, but the fact that
In this case, PAL had a flight from Cebu to travel to PAL did not assist Zapatos and other passengers to be
Ozamis but because of heavy rain had to be rerouted to able to reach their destination that is where PAL failed
Cotabato. Upon arrival, they informed the passengers its obligation as a common carrier. In this case even if
that their option was to return to Cebu and then take the there was a fortuitous event, failure to perform the
next flight to Osamis. Zapatos was one of the obligation was not merely a result of the fortuitous
passengers who availed of the option to head back to event in fact PAL also contributed to the failure of the
Cebu, however since there was already an excessive obligation when it did not adequately respond to the
amount of passengers, he was not able to avail of that
flight. His things however we’re left on the plane so the PAL vs COURT OF APPEALS
plane left without him and he lost those things. Now
PAL only gave Zapatos a free ticket to Iligan and not a The position taken by PAL in this case clearly
flight to Ozamis. Zapatos now files for damages against illustrates the failure to the exacting standard required
PAL. by law. Undisputably, PAL’S diversion of its flight due
PAL defended that they could not have put Zapatos in to inclement weather was a fortuitous event.
that flight because they were told that such flight back Nonetheless, such occurance t=did not terminate PAL’S
is limited already due to an excessive number of contract with its passengers. Being the bsiness of air
passengers. Is this tenable? carriage and the sole one to operate in the country, PAL
is deemed equipped to deal with situations as in the
The supreme court held that as to the issue whether they case at bar. The realation of carrier and passenger must
could put Zapatos back flight to Cebu, found it unfair continue until the latter has been landed at the port of
because there were a manifest of passengers and the destination and has left the carrier’s premises. Hence,
passengers had to be prioritized due to that manifest PAL necessarily would still have to exercise
and that complaint of Zapatos was unreasonable extraordinary diligence in safeguarding the comfort,
however, the SC still found that PAL was negligent in convenience and safety of its stranded passengers until
this case because while the failure of PAL of the first they have reached their final destination. On this score,
instance to reach his destination in accordance with the PAL grossly failed considering the then ongoing battle
contract of carriage was due to the closure of the airport between government forces and Muslim rebels in
due to the bad weather which was radioed to PAL 15 Cotabato City and the fact that the private respondent
mins before landing and it has not been disputed by was a stranger to the place. As the appellate court
PAL. Knowing this fact it becomes the duty of PAL to correctly ruled-
exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded While the failure of the plaintiff in the first instance to
passengers until they have reached their final reach his destination at Ozamis City in accordance with
destination. the contract of carriage was due to the closure of the
airport on account of the rain and inclement weather There is no question that a typhoon or storm is a
which was radioed to the defendant 15 minutes before fortuitous event, a natural occurrence which maybe
landing, it has not been disputed by the defendant foreseen but is unavoidable despite any amount of
airline that Ozamis City has no all -weather airport and foresight, diligence or case. In order to be exempt from
has to cancel its flight to Ozamis City or by-pass it in liability arising from any adverse consequence
the comfort and convenience to its passengers when engendered thereby, there should have been no human
they would have to be left in a strange place in case of participation amounting to a negligent act. In other
such by-passing. The steps taken by the company words, the person seeking exoneration from liability
airline towards this end has not been been put in must not be guilty of negligence. Negligence as
evidence, especially for those 7 others who were not commonly understood is conduct which naturally or
accommodated in the return trip to Cebu, only 6 of the reasonably creates undue risk or harm to others. It may
21 having been so accommodated. It appears that be the failure to observe that degree of case, precaution,
plaintiff had to leave on the next flight 2 days later. If and vigilance which the circumstances justify demand
the cause of non-fulfillment of the contract is due to a or the omission to do something which a prudent and
fortuitous event, it has to be the sole and only cause reasonable man guided by considerations which
(Art. 1755 cc., Art 1733 CC). Since part of the failure ordinarily regulate the conduct of human affairs would
to comply with the obligation of common carrier to do. From these premises, we proceed to determine
deliver its passengers safely to their destination lay in whether petitioner was negligent, such that if it were
the defendants failure to provide comfort and not, the damage caused to private respondent’s house
convenience to its stranded passengers using could have been avoided?xxx
extra-ordinary diligence, the cause of the
noon-fulfillment is not solely and exclusively due to In light of the foregoing, we find no clear and
fortuitous event, but due to something which defendant convincing evidence to sustain the judgment of the
airline could have prevented, defendant becomes liable appellate court. We thus hold that petitioner has not
to plaintiff. been shown negligent or at fault regarding the
construction and maintenance of its school building in
SOUTHEASTERN COLLEGE VS COURT OF question and that typhoon “Saling” was the proximate
APPEALS cause of the damage suffered by private respondent’s
house.
The pivot of inquiry here, determinative of the other
issues, is whether the damage on the roof of the DISCUSSION
building of private respondents resulting from the We have here the Dimaanos who are the owners of a
impact of the falling portions of the school building’s house in Pasay. Now near their house is Southeastern
roof ripped off by the strong winds of typhoon College. It owns a school building in the same road.
“Saling”, was, within legal contemplation, due to During the typhoon Saling, the roof of Southeastern
fortuitous event? If so, petitioner cannot be held liable was partly ripped off and blown away, landing on and
for the damages suffered by the private respondents.xxx destroying portions of the house of the Dimaanos. Of
course, the Dimaanos claimed that Southeastern
In order that a fortuitous event may exempt a person College was negligent which was why their house was
from liability, it is necessary that he be free from any damaged.
previous negligence or misconduct by reason of which Was there negligence here?
the loss may have been occasioned. An act of God Supreme Court said no because Southeastern was able
cannot be invoked for the protection of a person who to prove that they've complied all the directives of the
has been guilty of gross negligence in not trying to concerned government agencies with respect to how the
forestall its possible adverse consequences. When a repairs and renovations on its building should be done.
person’s negligence concurs with an act of God in Because there was lack of proof as to the negligence of
producing damage or injury was a fortuitous event. Southeastern, the damage that was caused to the house
When the effect is found to be partly the result of the of the Dimaanos was considered as a consequence of
participation of man – whether it be from active caso fortiuto and therefore Southeastern could not be
intervention or neglect or failure to act – the whole made liable for damages with respect to what happened
occurrence is hereby humanized and removed from the to the house of the Dimaanos.
rules applicable to acts of God.
PHILCOMSAT VS GLOBE TELECOM
 DISCUSSION
The Court agrees with the Court of Appeals and the Next case is the case of Philcomsat vs Globe Telecom.
trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had I think this is particularly interesting because it answers
no control over the non-renewal of the term of the the question of whether a governmental political
RP-US Military Bases Agreement when the same agreement can be considered a force majeure or a
expired in 1991, because the prerogative to ratify the fortiutous event that would extinguish the obligation of
treaty extending the life thereof belong to the Senate. a party.
Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel In this case we have Philcomsat and Globe which
from Cubi Point in December 1992. entered into an agreement whereby Philcomsat
obligated itself to establish, operate and provide an IBS
Obviously the non-ratification by the Senate of the standard B earth station within Cubi point for the
RP-US Military Bases Agreement (and its exclusive use of
Supplemental Agreements) under its Resolution No. USDCA. The term of the contract was for 60 months or
141 (Exhibit 2) on September 16, 1991 is beyond the 5 years. In turn, Globe promised to pay Philcomsat
control of the parties. This resolution was followed by monthly rentals for each leased circuit involved. At the
the sending on December 31,1991 of a Note Verbale time of the execution of the agreement, both parties
(Exhibit 3) by the Philippine Government to the US knew that the military bases agreement between the
Government notifying the latter of the former’s Philippines and the US were just the basis for the
termination of the RP-US Military Bases Agreement (as occupancy of Clark Airbase and Subic Naval base in
amended) on 31 December 1992 and the accordingly, Cubi point would expire in 1991.
the withdrawal of all US military forces from Subic
Naval Base should be completed by said date. Inexecute nila yung contract in 1991 pero alam nila na
Subsequently, defendant (Globe) received a formal yung military contract agreement would also expire in
order from Cdr. Walter F. Corliss II Commander USN 1991.
dated July 31, 1992 and a notification from ATT dated
July 29, 1992 to terminate the provision of T1s services Now your know under your Constitution that foreign
(via IBS Standard B Earth Station) effective November military bases, troops or facilities, including those
08, 1992. Plaintiff (Philconsat) was furnished with located at the US naval facility in Cubi point shall not
copies of the said order and letter by the defendant on be allowed in the Philippines unless a new treaty is duly
August 06, 1992. concurred by the Senate and ratified by majority of the
votes cast by people in the National referendum, and
Resolution No. 141 of the Philippine Senate and the such new treaty must also be recognized by the US
Note Verbale of the Philippine Government to the US Government.
Government are acts, direction or request of the
Government of the Philippines and circumstances Unfortunately, the US-RP Military bases agreement
beyond the control of the defendant. The formal order was not renewed, so can this be considered a fortuitous
from Cdr. Walter Corliss of the USN, the letter event with respect to the lease agreement between
notification from ATT and the complete withdrawal of Philcomsat and Globe?
all the military forces and personnel from Cubi Point in
the year-end 1992 are also acts and circumstances The Supreme Court said yes. It said that Philcomsat and
beyond the control of the defendant. Globe had no control over the nonrenewal of the term
of the RP-US Military bases agreement when the same
Considering the foregoing, the Court finds and so holds had expired in 1991 because the prerogative to ratify
that the afore-narrated circumstances constitute force the treaty extending the life thereof belong to the
majeure or fortuitous event(s) as defined under Senate. Neither did the parties have control over the
paragraph 8 of the Agreement. subsequent withdrawal of the US Military forces and
personnel from Cubi point in 1992. Obviously the
From the foregoing, the Court finds that the defendant nonratification of the military basis agreement is
is exempted from paying the rentals for the facility for beyond the control of the parties.
the remaining term of the contract. The resolution was followed by the sending in 1991 of
a Note Verbale by the Philippine Government to the US
Government, notifying the latter of the former negligent are matters immaterial to this case. What is
termination of the basis’s agreement. Considering the relevant here is whether it has been established that
foregoing, the Supreme Court said that the petitioner has outstanding accounts with IMC and LSPI.
aforementioned circumstances
constitute force majeure or fortuitous event as defined DISCUSSION
in the agreement between Philcomsat and Globe. Next, you have the case of Gaisano Cagayan vs
In this case, Glove Telecom was exempted from paying Insurance Company of North America which is the
the rentals for the facility for the remaining term of the maker of Wrangler Blue Jeans, you also have Levi
contract because both of them were not at fault for what Strauss which is the local distributor of products
happened to the lease contract. bearing the trademarks owned by Levi Strauss Corp.
IMC and LSPI separately obtained from the Ins Co of
North America fire insurance policies and the insurance
GAISANO CAGAYAN VS INS. CO. OF NORTH policies provided for coverage on book debts in
AMERICA connection with ready-made clothing materials which
have been sold or delivered to the various customers
Petitioner’s argument that it is not liable because the and dealers of the insured anywhere in the Philippines.
fire is a fortuitous event under Article 1174 of the Civil Later on, Ins Co filed a complaint for damages against
Code is misplaced. As held earlier, petitioner bears the Gaisano alleging that it had already reimbursed the
loss under Article 1504 (1) of the Civil Code. insurance claims of IMC and Levi Strauss for the loss
of the ready-to-wear products. Gaisano's defense is that
Moreover, it must be stressed that the insurance in this because the property covered by the insurance policy
case is not for loss of goods by fire but for petitioner’s were destroyed due to a fortuitous event or force
accounts with IMC and LSPI that remained unpaid 45 majeure that the right to be reimbursed for the damage
days after the fire. Accordingly, petitioner’s obligation had no basis.
is for the payment of money. As correctly stated by the
CA where the obligation consists in the payment of In this case the Supeme Court said Gaisano's argument
money, the failure of the debtor to make the payment is not tenable because while the fire is a fortiutous event
even by reason of a fortuitous even shall not relieve him under Article 1174, the reliance on Article 1174 to
of his liability. The rationale for this is that the rule that exempt it from liability is misplaced. It must be stressed
an obligor should be held exempt from liability when that the insurance in this case is not for loss of goods by
the loss occurs thru a fortuitous event only holds true fire but for petitioner's account with IMC and LSPI that
when the obligation consists in the delivery of a remained unpaid 45 days after the fire. Accordingly, the
determinate thing and there is no stipulation holding obligation is for the payment of money, so when the
him liable even in the case of fortuitous event. It does obligation, kasi ano bang i-shellout ni Gaisano?
not apply when the obligation is pecuniary in nature. Kailangan niya lang magshellout ng pero equivalent to
what was burned or what was lost. It's not a return of
Under Article 1263 of the Civil Code, “in an obligation something specific but rather the payment of something
to deliver a generic thing, the loss or destruction of generic. So, even if we assume that there was in fact a
anything of the same kind does not extinguish the fortuitous event in this case, it does not exempt Gaisano
obligation.” If the obligation is generic in the sense that from performing its obligation because obligation to
the object thereof is designated merely by its class or pay money is never a specific obligation. It's obviously
genus without any particular designation or physical an indeterminate obligation capable of substitution.
segregation from all others of the same class, the loss or
destruction of anything of the same kind even without SICAM VS JORGE
the debtor’s fault and before he has incurred in delay
will not have the effect of extinguishing the obligation. Robbery per se, just like carnapping, is not a fortuitous
This rule is based on the principle that the genus of a event. It does not foreclose the possibility of negligence
thing can never perish. Genus nunquan perit. An on the part of herein petitioners. In Co v. CA, the Court
obligation to pay money is generic; therefore, it is not held:
excused by fortuitous loss of any specific property of
the debtor. It is not a defense for a repair shop of motor vehicle to
escape liability simple because the damge or loss of a
Thus, whether fire is a fortuitous event or petitioner was thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered a Fortuitous events by definition are
fortuitous event. The fact that a thing was forcefully extraordinary events not foreseeable or
and unlawfully taken from another’s rightful
avoidable. It is therefore, not enough that the
possession, as in cases of carnapping entails more than event should not have been foreseen or
the mere forceful taking of anther’s event. To be anticipated, as is commonly believed but it
considered as such, carnapping entails more than the must be one impossible to foresee or to avoid.
mere forceful taking of another’s property. It must be The mere difficulty to foresee the happening
proved and established that the event was an act of God is not impossibility to foresee the same, to
or was done solely by third parties and that neither the constitute a fortuitous event, the following
claimant nor the person alleged to be negligent has any elements must concur: (a) the cause of the
participation. unforeseen and unexpected occurrence or of
the failure of the debtor to comply with
In accordance with the rules of evidence, the burden of obligations must be independent of human
proof that the loss was due to a fortuitous event rests on will; (b) it must be impossible to foresee the
him who invokes it- which is in this case is the private event that constitutes the caso fortuito or, if it
respondent. However, other than the police report of the can be foreseen, it must be impossible to
carnapping incident, no other evidence was presented avoid; (c) the occurrence must be such as to
by the private respondent to that effect the incident was render it impossible for the debtor to fulfill
not due to its fault. A police report of an alleged crime, obligations in a normal manner; and (d) the
to which only private respondent is privy, does not obligor must be free from any participation in
suffice to establish the carnapping. Neither does it the aggravation of the injury or loss.
prove that there was no fault on the part of private
respondent notwithstanding the parties’ agreement at While it may be argued that Peakstar’s breach
the pre-trial that the car was carnapped. Carnapping of the MoA was unforeseen by petitioners, the
does not foreclose the possibility of fault or negligence same is clearly not “impossible to foresee or
on the part o the private respondent. even an event which is independent of human
will.” Neither has it been shown that said
Just like in Co, petitioners only presented the police occurrence rendered it impossible for
report of the Parañaque Police Station on the robbery petitioners to pay their loan obligations to
committed based on the petitioners’ employees which is Allied Bank and thus, negates the former’s
not sufficient to establish robbery. Such report also does force majeure theory altogether. In any case,
not prove that petitioners were not at fault. as earlier stated, the performance where
breached of the MoA bears no relation to the
On the contrary, by the very evidence of petitioners, the performance or breach of a subject loan
CA did not err in finding that petitioners are guilty of transactions, they being separate and distinct
concurrent or contributory negligence. sources of obligations. The fact of the matter
is that petitioner’s loan obligations to Allied
DISCUSSION bank remain subsisting for the basic reason
Robbery is not a fortuitous event just like carnapping. that Metro Concast has not been able to prove
Howver, if you can prove that grave threat and force that the same had already been paid or in any
attended the robbery. The one who is bound to perform way extinguished. In this regard, Metro
the obligation can be excused from its performance. Concast’s liability, as adjudged by the Court
The common carrier must prove that there was grave or of Appeals, must perforce stand. Considering,
irresistible threat in order to absolve itself of liability however, that Allied Bank’s extra-judicial
for a resulting law. In this case there was no proof of demand on petitioners appears to have been
robbery or hijacking being attended by grave or made only on December 10, 1998, the
irresistible threat. So, the Supreme Court said that computation of the applicable interests and
Sicam could not be liable found for damages. penalty charges should be reckoned only from
such date
Metro Concast Vs. Allied Banking
DISCUSSION
Next, we have the case of Metro Concast. Now Metro
Concast obtains several loans from Allied Bank. When it is expressly declared by law like in cases
Unfortunately, they failed to settle their loan obligations where there is bad faith, default or delay, or when the
so Allied bank filed a complaint for sum of money obligations results from a crime. The bad faith, default
against them. Metro Concast argued that they suffered or delay, we have already discussed.
economic reverses brought about by the economy and
this caused also the downfall of this steel industry In stipulation, you already know that the parties can
which directly affected the business of Metro Concast agree to waive the benefit afforded to him by the law
and eventually led to its cessation. Peakstar, another when it comes to a fortuitous event. So the debtor and
corporation, offered to buy the equipment of Metro creditor can agree that even with the fortuitous event,
Concast but Peakstar renege the knowledge of the the debtor will still be obliged to perform his obligation,
obligations of Metro Concast. So, would Peakstar’s that is allowed.
breach be considered a fortuitous event so as to exempt
Metro Concast from its obligation to pay back the loan? Now, the third exception is what we call the Doctrine of
The Supreme Court said, “No”. While it may be argued Created Risk. The exception is based on social justice
that the Peakstar’s breach of the agreement was that if a person, for his convenience or profit, creates
unforeseen by Metro Concast, the same is clearly not risks for the public which formerly did not exist.
impossible to foresee or even an event which is Although, morally, his fault or negligence may not be
independent of human will. Neither has it been shown the cause of damages resulting therefrom, he should
that said occurrence rendered it impossible for Metro nevertheless, be held liable for such, if he benefits from
Concast to pay their loan obligations to Allied Bank the means that have produced the laws. It is only
and thus, negates the argument on force majeure equitable that he should bear the consequences of such
altogether. In any case, as earlier stated, the loss. Halimbawa, you’re a vendor of firecrackers, it is
performance where breached of the agreement bears no highly dangerous so it is likely required to observe
relation to the performance or breach of a subject loan extraordinary diligence in the handling of such
transactions. They being separate and distinct sources products. Since he benefits from that business, when
of obligation. The fact of the matter is that Metro force majeure happens, and you lose the firecrackers,
Concast’s loan obligations to Allied bank remain you must prove that you were not negligent otherwise
subsisting for the basic reason that Metro Concast has you will be held liable for damages despite the
not been able to prove that the same had already been fortuitous event precisely because of the Doctrine of
paid or in any way extinguished. In this regard, Metro Assumption of Risk or the Doctrine of Created Risk.
Concast’s liability, as adjudged by the Court of
Appeals, must stand. Considering, however, that Allied Let skip Article 1175 because the Usury Law has
Bank’s extrajudicial demand on Metro Concast appears already been suspended. Now let’s go to Article 1176.
to have been made only on 1998, the computation of
the applicable interests and penalty charges should be Article 1176. The receipt of the principal by the creditor
reckoned only from such date. In this case, the without reservation with respect to the interest, shall
cancellation of the contract was not considered a give to the presumption that said interest has been paid.
fortuitous event.
The receipt of a later installment of a debt without
EXEMPTIONS reservation as to prior installment shall likewise raise
● When expressly declared by law the presumption that such installments have been paid.
o Bad faith
o Default or delay So 1176 provides us with presumptions with respect to
o When the obligation results from a crime the acceptance of payment on the part of a creditor.
● When expressly decalred by stipulation or Take note, however, that the presumptions in 1176 are
contract just that presumptions. They can be disproven through
● When the nature of the obligation requires the actual evidence. But this upon the person who says
assumption of risk otherwise to prove that either the interest has not yet
been paid or that such installments have not yet been
Now, what are the exemptions to the rule that no person paid.
shall be responsible for the consequences of a fortuitous
event.
Article 1177. The creditor after having pursued the creditor due to that obligation cannot be
property in possession of the debtor to satisfy their transferred to anyone
claims, may exercise all the rights and bring all the 2. The second exception is if the law provides
actions of the latter for the same purpose, save those otherwise – so there are obligations that only the
which are inherent in his person; they may also impugn debtor can do or there also an obligation where
the acts which the debtor may have done to defraud only the creditor can benefit from. In that
them. instance, the creditor cannot assign his or her
right to another individual;
Rights of Creditors: 3. And finally, if the obligation is purely personal
1. Exact payment in nature. So this is evident in obligations to do.
2. Exhaust debtor’s properties generally by Like for example, nagbayad ka ng make-up
attachment artist kasi ikaw yung magpapamake up.
3. Subrogatory action – exercise all rights and Although pwede mo namang ituro sa iba kung
actions except existing rights gusto mong ma-make-upan yung iba but
4. Impugn/rescind acts or contarcts done by debtor precisely you hire the make-up artist for your
to defraud them own pictorial. So it wouldn’t make sense why
you transmit the right to someone else when you
were the one who supposed to have your picture
Article 1177 lists all the rights of the creditors. So under taken for your yearbook pictorial.
this article, the rights of the creditors are to begin of
course the exact payment; to have the debtor’s Next week, we will cover the all kinds of obligations
properties exhausted by attachment if the debtor refuses and we will cover until Article 1191 which will all form
to pay him upright; to institute a subrogatory action, part of your first exam.
and by such subrogatory action, the creditor may
exercise all rights and actions except existing rights; or
the creditor may impugn or rescind acts or contracts
done by the debtor to defraud them. So the creditors can
ask for rescission.

Article 1178. Subject to the laws, all rights acquired in

virtue of an obligation are transmissible if there has
been no stipulation to the contrary.

The exceptions are;

1. If the contract provides otherwise;
2. If the law provides otherwise;
3. If the obligation is purely personal in nature.

Article 1178 provides the rule that all rights acquired in

virtue of an obligation are transmissible provided there
has no been stipulation to the contrary. So pag sinabi
nating transmissible, that means, we can transfer it from
one person to another. Meaning as a creditor, you can
assign your credit or any right that you may acquire by
virtue of an obligation to another person. Like if
someone is obliged to pay back money, then you can
tell the debtor to give it to someone else as payment for
your own debt to that person. So that is what is meant
by Article 1178.

Now what are the exceptions? The exceptions are:

1. If the contract provides otherwise – so may
agreement kayo that the rights acquired by the