Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe, G.R. No.

191431, March 13, 2013

FACTS:

On October 24, 1999, the mini bus owned and operated by Rodolfo G. Cruz collided with the Toyota
Corolla car of Atty. Delfin Gruspe. The next day, Cruz along with Leonardo Q. Ibias went to Gruspe’s
office, apologized for the incident, and executed a Joint Affidavit of Undertaking promising jointly and
severally to replace Gruspe’s car in 20 days, or until November 15, 1999, of the same model and of at
least the same quality; or alternatively, they would pay the cost of Gruspe’s car amounting to P
350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999, until
fully paid. When Cruz and Leonardo failed to comply with their undertaking, Gruspe filed a complaint for
collection of sum of money against them on November 19, 1999 before the RTC.

In their answer, Cruz and Leonardo denied Gruspe's allegation, claiming that Gruspe, a lawyer, prepared
the Joint Affidavit of Undertaking and forced them to affix their signatures thereon, without explaining
and informing them of its contents; Cruz affixed his signature so that his mini bus could be released as it
was his only means of income; Leonardo, a barangay official, accompanied Cruz to Gruspe's office for
the release of the mini bus, but was also deceived into signing the Joint Affidavit of Undertaking.

Leonardo died during the pendency of the case and was substituted by his widow, Esperanza.
Meanwhile, Gruspe sold the wrecked car for P130,000.00.

In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and ordered Cruz and
Leonardo to pay P220,000.00, plus 15% per annum from November 15, 1999 until fully paid, and the
cost of suit.

On appeal, the CA affirmed the RTC decision, but reduced the interest rate to 12% per annum pursuant
to the Joint Affidavit of Undertaking. It declared that despite its title, the Joint Affidavit of Undertaking is
a contract, as it has all the essential elements of consent, object certain, and consideration required
under Article 1318 of the Civil Code. The CA further said that Cruz and Leonardo failed to present
evidence to support their contention of vitiated consent. By signing the Joint Affidavit of Undertaking,
they voluntarily assumed the obligation for the damage they caused to Gruspe's car; Leonardo, who was
not a party to the incident, could have refused to sign the affidavit, but he did not.

ISSUE:

WON Cruz and Esperanza would not be considered in default pursuant to Art 1169 of the Civil
Code.

RULING:

The Court finds the petition partly meritorious and accordingly modifies the judgment of the CA.

Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their
validity are present. In determining whether a document is an affidavit or a contract, the Court looks
beyond the title of the document, since the denomination or title given by the parties in their document
is not conclusive of the nature of its contents. In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms of the document are clear and
leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall
control. If the words appear to be contrary to the parties' evident intention, the latter shall prevail over
the former.

A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains
stipulations characteristic of a contract. As quoted in the CA decision, the Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20
days from October 25, 1999 or up to November 15, 1999, of the same model and of at least the same
quality. In the event that they cannot replace the car within the same period, they would pay the cost of
Gruspe's car in the total amount of P350,000.00, with interest at 12% per month for any delayed
payment after November 15, 1999, until fully paid. These, as read by the CA, are very simple terms that
both Cruz and Leonardo could easily understand.
There is also no merit to the argument of vitiated consent. An allegation of vitiated consent must be
proven by preponderance of evidence; Cruz and Leonardo failed to support their allegation.

Although the undertaking in the affidavit appears to be onerous and lopsided, this does not necessarily
prove the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution of the
Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their
vehicle. If they truly believed that the vehicle had been illegally impounded, they could have refused to
sign the Joint Affidavit of Undertaking and filed a complaint, but they did not. That the release of their
mini bus was conditioned on their signing the Joint Affidavit of Undertaking does not, by itself, indicate
that their consent was forced they may have given it grudgingly, but it is not indicative of a vitiated
consent that is a ground for the annulment of a contract.

Thus, on the issue of the validity and enforceability of the Joint Affidavit of Undertaking, the CA did not
commit any legal error that merits the reversal of the assailed decision.

Nevertheless, the CA glossed over the issue of demand which is material in the computation of interest
on the amount due. The RTC ordered Cruz and Leonardo to pay Gruspe "P350,000.00 as cost of the car
xxx plus fifteen percent (15%) per annum from November 15, 1999 until fully paid."  The 15% interest
(later modified by the CA to be 12%) was computed from November 15, 1999 the date stipulated in the
Joint Affidavit of Undertaking for the payment of the value of Gruspe's car. In the absence of a finding by
the lower courts that Gruspe made a demand prior to the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a demand has been made, Cruz and Leonardo could
not be said to be in default. "In order that the debtor may be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially." Default generally begins from the moment the creditor demands the performance of
the obligation. In this case, demand could be considered to have been made upon the filing of the
complaint on November 19, 1999, and it is only from this date that the interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note that it imposed interest rate on a per
annum basis, instead of the per month basis that was stated in the Joint Affidavit of Undertaking
without explaining its reason for doing so. Neither party, however, questioned the change. Nonetheless,
the Court affirms the change in the interest rate from 12% per month to 12% per annum, as we find the
interest rate agreed upon in the Joint Affidavit of Undertaking excessive.

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution dated February 19, 2010 of
the Court of Appeals in CA-G.R. CV No. 86083, subject to the Modification that the twelve percent (12%)
per annum interest imposed on the amount due shall accrue only from November 19, 1999, when
judicial demand was made.
Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation, G.R. No. 176868, July 26, 2010

FACTS:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent,
Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically
designed for petitioner's business of exporting fresh bananas, at US$1.10 each. The agreement was not
reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998,
US$40,150.00 in respondent's US Dollar Savings Account with Westmont Bank, as full payment for the
ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement of the amount paid. On February 19, 2001,
respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner
failed to pick them up from the former's warehouse 30 days from completion, as agreed upon.  
Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which,
14,000 had been manufactured without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for
the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent.
The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from
payment but respondent failed to manufacture and deliver the boxes within such time. It further alleged

6. That repeated follow-up was made by the plaintiff for the immediate production of the ordered
boxes, but every time, defendant [would] only show samples of boxes and make repeated promises to
deliver the said ordered boxes.

7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff had  to cancel the
same and demand payment and/or refund from the defendant but the latter refused to pay and/or
refund the US$40,150.00 payment made by the former for the ordered boxes.

In its Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it had already
completed production of the 36,500 boxes, contrary to petitioner's allegation. According to respondent,
petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been completed
without waiting for petitioner's payment. Respondent stated that petitioner was to pick up the boxes at
the factory as agreed upon, but petitioner failed to do so. Respondent averred that, on October 8, 1998,
petitioner's representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for
pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell
the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioner's transaction to
ship bananas to China did not materialize.  Respondent claimed that the boxes were occupying
warehouse space and that petitioner should be made to pay storage fee at P60.00 per square meter for
every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering
petitioner to pay $15,400.00, plus interest, moral and exemplary damages, attorney's fees, and costs of
the suit.

In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and 14,000 boxes  out  of the  second order. It maintained
that respondent only manufactured a sample of the ordered boxes and that respondent could not have
produced 14,000 boxes without the required pre-payments.

During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes from
respondent and deposited the money in respondent's account. He specifically stated that, when he
visited respondent's factory, he saw that the boxes had no print of petitioner's logo. A few months later,
he followed-up the order and was told that the company had full production, and thus, was promised
that production of the order would be rushed. He told respondent that it should indeed rush production
because the need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the
order because it was already late for them to meet their commitment to ship the bananas to China. On
cross-examination, Que further testified that China Zero Food, the Chinese company that ordered the
bananas, was sending a ship to Davao to get the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas from Tagum Agricultural Development
Corporation (TADECO) were already there. He denied that petitioner made an additional order of 24,000
boxes. He explained that it took three years to refer the matter to counsel because respondent
promised to pay.

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998
to inspect the boxes and that the latter got samples of them.  In February 2000, they inspected the
boxes again and Que got more samples.  Estanislao said that petitioner did not pick up the boxes
because the ship did not arrive.  Jaime Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April 3, 1998 and that petitioner made a second
order of 24,000 boxes.  He said that the agreement was for respondent to produce the boxes and for
petitioner to pick them up from the warehouse.  He also said that the reason why petitioner did not pick
up the boxes was that the ship that was to carry the bananas did not arrive.  According to him, during the
last visit of Que and Estanislao, he asked them to withdraw the boxes immediately because they were
occupying a big space in his plant, but they, instead, told him to sell the cartons as rejects. He was able
to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to apply the said
amount to the unpaid balance.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not commit any
breach of faith that would justify rescission of the contract and the consequent reimbursement of the
amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but
petitioner failed to obtain possession thereof because its ship did not arrive. It thus dismissed the
complaint and respondent's counterclaims, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and against the
plaintiff and, accordingly, plaintiff's complaint is hereby ordered DISMISSED without pronouncement as
to cost. Defendant's counterclaims are similarly dismissed for lack of merit.

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit. The appellate court held that
petitioner failed to discharge its burden of proving what it claimed to be the parties' agreement with
respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more
than two years, petitioner did not even demand for the delivery of the boxes. The CA added that even
assuming that the agreement was for respondent to deliver the boxes, respondent would not be liable
for breach of contract as petitioner had not yet demanded from it the delivery of the boxes.

Petitioner moved for reconsideration, but the motion was denied by the CA in its Resolution of February
23, 2007.

In this petition, petitioner insists that respondent did not completely manufacture the boxes and that it
was respondent which was obliged to deliver the boxes to TADECO.

ISSUE:

WON the respondent incurred delay in the fulfillment of its obligation.

We find no reversible error in the assailed Decision that would justify the grant of this petition.

Petitioner's claim for reimbursement is actually one for rescission (or resolution) of contract under
Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case.  He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in the performance of his obligation.
In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same
law, which provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties'
respective obligations should be simultaneous.  Hence, no demand is generally necessary because, once
a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in
delay.  But when different dates for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first paragraph of the present article, that is, the
other party would incur in delay only from the moment the other party demands fulfillment of the
former's obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation
is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and
before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of demand by
petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however, would
not qualify as a demand for the fulfillment of the obligation. Petitioner's witness also testified that
they made a follow-up of the boxes, but not a demand.  Note is taken of the fact that, with respect to
their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter
was sent to respondent.  Without a previous demand for the fulfillment of the obligation, petitioner
would not have a cause of action for rescission against respondent as the latter would not yet be
considered in breach of its contractual obligation.

Even assuming that a demand had been previously made before filing the present case, petitioner's
claim for reimbursement would still fail, as the circumstances would show that respondent was not
guilty of breach of contract.

The existence of a breach of contract is a factual matter not usually reviewed in a petition for review
under Rule 45.  The Court, in petitions for review, limits its inquiry only to questions of law.  After all, it is
not a trier of facts, and findings of fact made by the trial court, especially when reiterated by the CA,
must be given great respect if not considered as final. In dealing with this petition, we will not veer away
from this doctrine and will thus sustain the factual findings of the CA, which we find to be adequately
supported by the evidence on record.

As correctly observed by the CA, aside from the pictures of the finished boxes and the production report
thereof, there is ample showing that the boxes had already been manufactured by respondent. There is
the testimony of Estanislao who accompanied Que to the factory, attesting that, during their first visit to
the company, they saw the pile of petitioner's boxes and Que took samples thereof.  Que, petitioner's
witness, himself confirmed this incident. He testified that Tan pointed the boxes to him and that he got
a sample and saw that it was blank. Que's absolute assertion that the boxes were not manufactured is,
therefore, implausible and suspicious.

In fact, we note that respondent's counsel manifested in court, during trial, that his client was willing to
shoulder expenses for a representative of the court to visit the plant and see the boxes. [22] Had it been
true that the boxes were not yet completed, respondent would not have been so bold as to challenge
the court to conduct an ocular inspection of their warehouse.  Even in its Comment to this petition,
respondent prays that petitioner be ordered to remove the boxes from its factory site, [23] which could
only mean that the boxes are, up to the present, still in respondent's premises.

We also believe that the agreement between the parties was for petitioner to pick up the boxes from
respondent's warehouse, contrary to petitioner's allegation. Thus, it was due to petitioner's fault that
the boxes were not delivered to TADECO.

Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the boxes
within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not even
competent to testify on the terms of the agreement and, therefore, we cannot give much credence to
his testimony. 

Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with
such obligation. Que, insisting that the boxes had not been manufactured, admitted that he did not give
respondent the authority to deliver the boxes to TADECO.

Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes within
its premises.

In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence
having shown that respondent did not commit any breach of its contractual obligation. As previously
stated, the subject boxes are still within respondent's premises.  To put a rest to this dispute, we
therefore relieve respondent from the burden of having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after petitioner is given a period of time within which
to remove them from the premises.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition, petitioner is
given a period of 30 days from notice within which to cause the removal of the 36,500 boxes from
respondent's warehouse. After the lapse of said period and petitioner fails to effect such removal,
respondent shall have the right to dispose of the boxes in any manner it may deem fit.
Lorenzo Shipping Corp. vs. BJ Marthel Int’l., Inc., 443 SCRA 163 (G.R. No. 145483, Nov.19, 2004)

FACTS:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading,
marketing, and selling of various industrial commodities. It is also an importer and distributor of
different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the
latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various
machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation.

Petitioner thereafter issued to respondent Purchase Order No. 13839, dated 02 November 1989, for the
procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The
purchase order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo.

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of
respondent ten postdated checks to be drawn against the former's account with Allied Banking
Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder
liner.

Subsequently, petitioner issued Purchase Order No. 14011, dated 15 January 1990, for yet another unit
of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance
payable in 5 bi-monthly equal installments." Like the purchase order of 02 November 1989, the second
purchase order did not state the date of the cylinder liner's delivery.

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990,
however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining
nine postdated checks were eventually returned by respondent to petitioner.

The parties presented disparate accounts of what happened to the check which was previously
dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were
applied to its other obligation to respondent. For its part, respondent insisted that it returned said
postdated check to petitioner.

Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei
Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First
Interstate Bank of Tokyo.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor,
Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation
"subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the
other items listed in said statement of account were fully paid by petitioner, the two cylinder liners
delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr.,
respondent's vice-president, sent a demand letter dated 02 January 1991 to petitioner requiring the
latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of
respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter
dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner
claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas
Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the
proceeds of said sale.

Shortly thereafter, another demand letter dated 27 March 1991  was furnished petitioner by
respondent's counsel requiring the former to settle its obligation to respondent together with accrued
interest and attorney's fees.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and
damages before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff
below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to
settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder
liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be
reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits;
exemplary damages; actual damages; and compensatory damages.

ISSUE:

WON respondent incurred delay in performing its obligation under the contract of sale.

RULING:

The Court hold that in the subject contracts, time was not of the essence. The delivery of the cylinder
liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to
place the order for the cylinder liners with its principal in Japan and that the latter was, at that time,
beset by heavy volume of work.

There having been no failure on the part of the respondent to perform its obligation, the power to
rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the other to
perform the obligation assumed thereunder. The right, however, is not an unbridled one. This Court in
the case of University of the Philippines v. De los Angeles, speaking through the eminent civilist Justice
J.B.L. Reyes, exhorts:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed,
and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages.

Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of
sale between them. Quite the contrary, respondent's act of proceeding with the opening of an
irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of
the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action
knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by
the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision
of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby
AFFIRMED. No costs.

Titan Construction Corp. vs. Uni-Field Enterprises, Inc., 517 SCRA 180

FACTS:

Petitioner Titan Construction Corporation (petitioner) is engaged in the construction business, while
respondent Uni-Field Enterprises, Inc. (respondent) is engaged in the business of selling various
construction materials.

From 1990 to 1993, petitioner purchased on credit various construction supplies and materials from
respondent. Petitioner’s purchases amounted to ₱7,620,433.12 but petitioner was only able to pay
₱6,215,795.70, leaving a balance of ₱1,404,637.42. On 19 October 1994, respondent sent a demand
letter to petitioner. But the balance remained unpaid.

On 26 June 1995, respondent filed with the trial court a complaint for collection of sum of money with
damages against petitioner.

In its Answer dated 18 August 1995, petitioner admitted the purchases but disputed the amount claimed
by respondent. Petitioner also interposed a counterclaim and sought to recover ₱204,527.99 from
respondent based on damaged vinyl tiles, non-delivery of materials, and advances for utility expenses,
dues, and insurance premiums on the condominium unit turned over by petitioner to respondent.

On 9 September 1997, the trial court rendered judgment in favor of respondent. The 9 September 1997
Decision provides:

Accordingly, therefore, judgment is hereby rendered for the plaintiff [respondent] as against the
defendant [petitioner] and ordering the latter to pay the plaintiff [respondent] the following:

1. The principal amount of ₱1,404,114.00;

2. Interest Charges in the amount of ₱504,114.00 plus accrued interest charges at 24% per annum
compounded yearly reckoned from July, 1995 up to the time of full payment;

3. Liquidated Damages in the amount of ₱324,147.94;

4. Attorney’s Fees equivalent to 25% of whatever amount is due and payable and accumulated
appearance fees at ₱1,000.00 per hearing; and

5. Costs of suits.

Petitioner appealed to the Court of Appeals. In its 7 January 2002 Decision, the Court of Appeals denied
the appeal for lack of merit and affirmed the trial court’s 9 September 1997 Decision.

In its 20 May 2002 Resolution, the Court of Appeals denied petitioner’s motion for reconsideration.
Hence, this petition.

ISSUE:

1. THE COURT OF APPEALS ERRED IN FINDING LEGAL BASIS FOR [AWARDING] LIQUIDATED DAMAGES,
ATTORNEY’S FEES AND INTEREST IN FAVOR OF RESPONDENT; and

2. THE COURT OF APPEALS ERRED BY OVERLOOKING CERTAIN FACTS OR CIRCUMSTANCES OF WEIGHT

On the Award of Interests, Liquidated Damages, and Attorney’s Fees

Petitioner insists that the trial court and the Court of Appeals had no legal basis to award interest,
liquidated damages, and attorney’s fees because the delivery receipts and sales invoices, which served
as the basis for the award, were not formally offered as evidence by respondent. Petitioner also alleges
that the delivery receipts and sales invoices were in the nature of contracts of adhesion and petitioner
had no option but to accept the conditions imposed by respondent.

While the delivery receipts and sales invoices did not form part of respondent’s formal offer of evidence,
records show that the delivery receipts and sales invoices formed part of petitioner’s formal offer of
evidence. The delivery receipts and sales invoices expressly stipulated the payment of interest,
liquidated damages, and attorney’s fees in case of overdue accounts and collection suits. Petitioner did
not only bind itself to pay the principal amount, it also promised to pay (1) interest of 24% per annum on
overdue accounts, compounded with the principal obligations as they accrue; (2) 25% liquidated
damages based on the outstanding total obligation; and (3) 25% attorney’s fees based on the total claim
including liquidated damages. Since petitioner freely entered into the contract, the stipulations in the
contract are binding on petitioner. Thus, the trial court and the Court of Appeals did not err in using the
delivery receipts and sales invoices as basis for the award of interest, liquidated damages, and attorney’s
fees.

On the allegation that the delivery receipts and sales invoices are in the nature of contracts of adhesion,
the Court has repeatedly held that contracts of adhesion are as binding as ordinary contracts. Those
who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their
consent. It is true that on some occasions the Court struck down such contract as void when the weaker
party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting
the contract or leaving it, completely deprived of the opportunity to bargain on equal footing.

Considering that petitioner and respondent have been doing business from 1990 to 1993 and that
petitioner is not a small-time construction company, petitioner is "presumed to have full knowledge and
to have acted with due care or, at the very least, to have been aware of the terms and conditions of the
contract." Petitioner was free to contract the services of another supplier if respondent’s terms were
not acceptable. Moreover, petitioner failed to show that in its transactions with respondent it was the
weaker party or that it was compelled to accept the terms imposed by the respondent. In fact,
petitioner only questioned the terms of the contract after the trial court issued its 9 September 1997
Decision. The Court, therefore, upholds the validity of the contract between petitioner and respondent.

However, the Court will reduce the amount of attorney’s fees awarded by the trial court and the Court
of Appeals. In this case, aside from the award of ₱324,147.94 as liquidated damages, the trial court and
the Court of Appeals also ordered petitioner to pay respondent attorney’s fees "equivalent to 25% of
whatever amount is due and payable."

The law allows a party to recover attorney’s fees under a written agreement. In Barons Marketing
Corporation v. Court of Appeals, the Court ruled that:

[T]he attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly
called a penal clause. It has been said that so long as such stipulation does not contravene law, morals,
or public order, it is strictly binding upon defendant. The attorney’s fees so provided are awarded in
favor of the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be
paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor
assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated
amount without need for proof on the existence and on the measure of damages caused by the breach.
Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or
unconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed
to the sound discretion of the court and depends on several factors such as the type, extent, and
purpose of the penalty, the nature of the obligation, the mode of breach and its consequences.

The Court notes that respondent had more than adequately protected itself from a possible breach of
contract because of the stipulations on the payment of interest, liquidated damages, and attorney’s
fees. The Court finds the award of attorney’s fees "equivalent to 25% of whatever amount is due and
payable" to be exorbitant because it includes (1) the principal of ₱1,404,114.00; (2) the interest charges
of ₱504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July
1995 up to the time of full payment; and (3) liquidated damages of ₱324,147.94. Moreover, the
liquidated damages and the attorney’s fees serve the same purpose, that is, as penalty for breach of the
contract. Therefore, we reduce the award of attorney’s fees to 25% of the principal obligation, or
₱351,028.50.

WHEREFORE, we AFFIRM the appealed Decision dated 7 January 2002 of the Court of Appeals in CA-G.R.
CV No. 56816 with MODIFICATION as regards the award of attorney’s fees. Petitioner Titan Construction
Corporation is ordered to pay respondent Uni-Field Enterprises, Inc. attorney’s fees of ₱351,028.50.
Titan-Ikeda Construction and Development Corporation vs. Primetown Property, Inc., 544 SCRA 466

FACTS:

In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works of its
32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development
Corporation. The parties formalized their agreement in a construction contract dated February 4, 1993.

Upon the completion of MPT's structural works, respondent awarded the P130,000,000 contract for the
tower's architectural works to petitioner. Thus, on January 31, 1994, the parties executed a
supplemental agreement.

Significantly, the supplemental agreement adopted those provisions of the construction contract which
it did not specifically discuss or provide for. Among those carried over was the designation of GEMM
Construction Corporation (GEMM) as the project's construction manager.

Petitioner started working on the project in February 1994.

On June 30, 1994, respondent executed a deed of sale (covering 114 condominium units and 20 parking
slots of the MPT collectively valued by the parties at P112,416,716.88) in favor of petitioner pursuant to
the "full-swapping" payment provision of the supplemental agreement.

Shortly thereafter, petitioner sold some of its units to third persons.

In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering
consultancy firm, to evaluate the progress of the project. In its September 7, 1995 report, ITI informed
respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11
months and six days behind schedule).

Meanwhile, petitioner and respondent were discussing the possibility of the latter’s takeover of the
project’s supervision. Despite ongoing negotiations, respondent did not obtain petitioner’s consent in
hiring ITI as the project’s construction manager. Neither did it inform petitioner of ITI’s September 7,
1995 report.

On October 12, 1995, petitioner sought to confirm respondent's plan to take over the project.

In its September 7, 1995 report, ITI estimated that petitioner should have accomplished 48.71% of the
project as of the October 12, 1995 takeover date. Petitioner repudiated this figure but qualifiedly
admitted that it did not finish the project. Records showed that respondent did not merely take over the
supervision of the project but took full control thereof.

Petitioner consequently conducted an inventory. On the basis thereof, petitioner demanded from
respondent the payment of its balance amounting to P1,779,744.85.

On February 19, 1996, petitioner sent a second letter to respondent demanding P2,023,876.25. This new
figure included the cost of materials (P244,331.40) petitioner advanced from December 5, 1995 to
January 26, 1996.

On November 22, 1996, petitioner demanded from respondent the delivery of MPT's management
certificate and the keys to the condominium units and the payment of its (respondent's) balance.
Because respondent ignored petitioner's demand, petitioner, on December 9, 1996, filed a complaint for
specific performance in the Housing and Land Use Regulatory Board (HLURB).

While the complaint for specific performance was pending in the HLURB, respondent sent a demand
letter to petitioner asking it to reimburse the actual costs incurred in finishing the project (or
P69,785,923.47). In view of the pendency of the HLURB case, petitioner did not heed respondent's
demands.

On April 29, 1997, the HLURB rendered a decision in favor of petitioner. It ruled that the instrument
executed on June 30, 1994 was a deed of absolute sale because the conveyance of the condominium
units and parking slots was not subject to any condition. Thus, it ordered respondent to issue MPT’s
management certificate and to deliver the keys to the condominium units to petitioner. Respondent did
not appeal this decision. Consequently, a writ of execution was issued upon its finality.

Undaunted by the finality of the HLURB decision, respondent filed a complaint for collection of sum of
money against petitioner in the Regional Trial Court (RTC) of Makati City, Branch 58 on July 2, 1997. It
prayed for the reimbursement of the value of the project’s unfinished portion amounting to
P66,677,000.

ISSUE:

WON there was delay on the petitioner in fulfilling its obligation.

RULING:

According to the Court, Mora or delay is the failure to perform the obligation in due time because of
dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor
from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or
delay.

The construction contract provided a procedure for protesting delay:

Article XIV

DELAYS AND ABANDONMENT

15.1. If at any time during the effectivity of this contract, [PETITIONER] shall incur unreasonable delay
or slippages of more than fifteen percent (15%) of the scheduled work program, [RESPONDENT]
should notify [PETITIONER] in writing to accelerate the work and reduce, if not erase, slippage. If after
the lapse of sixty (60) days from receipt of such notice, [PETITIONER] fails to rectify the delay or slippage,
[RESPONDENT] shall have the right to terminate this contract except in cases where the same was
caused by force majeure. "FORCE MAJEURE" as contemplated herein, and in determination of delay
includes, but is not limited to, typhoon, flood, earthquake, coup d'etat, rebellion, sedition, transport
strike, stoppage of work, mass public action that prevents workers from reporting for work, and such
other causes beyond [PETITIONER'S] control.

xxx       xxx       xxx

Respondent never sent petitioner a written demand asking it to accelerate work on the project and
reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the
project, it would have sent a written demand as required by the construction contract. Moreover,
according to the October 12, 1995 letter-agreement, respondent took over the project for the sole
reason that such move was part of its (respondent's) long-term plan.

Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction contract
named GEMM, not ITI, as construction manager. Because petitioner did not consent to the change of
the designated construction manager, ITI's September 7, 1995 report could not bind it.
In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation.

Crisostomo v. Court of Appeals, G.R. No. 138334, August 25, 2003

FACTS:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and
Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour
dubbed "Jewels of Europe". The package tour has a total cost of P74,322.70. Petitioner was given a 5%
discount on the amount, which included airfare, and the booking fee was also waived because
petitioner’s niece, Meriam Menor, was respondent company’s ticketing manager.

Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a Wednesday – to
deliver petitioner’s travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment
for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on
Saturday, two hours before her flight on board British Airways.

Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the
flight for the first leg of her journey from Manila to Hongkong. To petitioner’s dismay, she discovered
that the flight she was supposed to take had already departed the previous day. She learned that her
plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain.

Subsequently, Menor prevailed upon petitioner to take another tour – the "British Pageant" – which
included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew
to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent
US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.

Upon petitioner’s return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe" and the
amount she owed respondent for the "British Pageant" tour. Despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-refundable. Petitioner
was thus constrained to file a complaint against respondent for breach of contract of carriage and
damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial
Court of Makati City.

In her complaint, petitioner alleged that her failure to join "Jewels of Europe" was due to respondent’s
fault since it did not clearly indicate the departure date on the plane ticket. Respondent was also
negligent in informing her of the wrong flight schedule through its employee Menor. She insisted that
the "British Pageant" was merely a substitute for the "Jewels of Europe" tour, such that the cost of the
former should be properly set-off against the sum paid for the latter.

For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioner’s failure to join the first tour. Chipeco insisted that petitioner was informed
of the correct departure date, which was clearly and legibly printed on the plane ticket. The travel
documents were given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to
blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed on
the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe",
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the tour. Lotus’ European tour
organizer, Insight International Tours Ltd., determines the cost of a package tour based on a minimum
number of projected participants. For this reason, it is accepted industry practice to disallow refund for
individuals who failed to take a booked tour.

Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that
petitioner missed. This tour was independently procured by petitioner after realizing that she made a
mistake in missing her flight for "Jewels of Europe". Petitioner was allowed to make a partial payment of
only US$300.00 for the second tour because her niece was then an employee of the travel agency.
Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the
"British Pageant" package tour.

ISSUE:

WON the respondent was negligent in the performance of its obligation.

RULING:

Contrary to petitioner’s claim, the evidence on record shows that respondent exercised due diligence in
performing its obligations under the contract and followed standard procedure in rendering its services
to petitioner. As correctly observed by the lower court, the plane ticket issued to petitioner clearly
reflected the departure date and time, contrary to petitioner’s contention. The travel documents,
consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days
prior to the trip. Respondent also properly booked petitioner for the tour, prepared the necessary
documents and procured the plane tickets. It arranged petitioner’s hotel accommodation as well as
food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.

Therefore, it is clear that respondent performed its prestation under the contract as well as everything
else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after
the travel papers were delivered to petitioner, it became incumbent upon her to take ordinary care of
her concerns. This undoubtedly would require that she at least read the documents in order to assure
herself of the important details regarding the trip.

In the case at bar, the evidence on record shows that respondent company performed its duty diligently
and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own
damage.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-
G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of
P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the
finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall
be imposed until the obligation is fully settled, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
Yambao vs. Zuniga, 418 SCRA 266

FACTS:

At around 3:30 p.m. of May 6, 1992, the bus owned by the petitioner was being driven by her driver,
one Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA), within
the vicinity of Bagong Barrio, Kalookan City. With Venturina was the bus conductor, Fernando
Dumaliang. Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the
impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the
Quezon City General Hospital where he was given medical attention, but due to the massive injuries
sustained, he succumbed shortly thereafter.

Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver,
Venturina, for damages, docketed as Civil Case No. 581-M-92 at the RTC of Malolos City. The complaint
essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in
violation of traffic rules and regulations, without due regard to public safety, thus resulting in the
victim’s premature death.

In her Answer, the petitioner vehemently denied the material allegations of the complaint. She tried to
shift the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus,
while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable
for any damages because as an employer, she exercised the proper diligence of a good father of a
family, both in the selection and supervision of her bus driver.

ISSUE:

WON petitioner exercised proper diligence in its obligation.

RULING:

Petitioner’s claim that she exercised due diligence in the selection and supervision of her driver,
Venturina, deserves but scant consideration. Her allegation that before she hired Venturina she required
him to submit his driver’s license and clearances is worthless, in view of her failure to offer in evidence
certified true copies of said license and clearances. Bare allegations, unsubstantiated by evidence, are
not equivalent to proof under the rules of evidence. Moreover, as the court a quo aptly observed,
petitioner contradicts herself. She declared that Venturina applied with her sometime in January 1992
and she then required him to submit his license and clearances. However, the record likewise shows
that she did admit that Venturina submitted the said requirements only on May 6, 1992, or on the very
day of the fatal accident itself (italics for emphasis). In other words, petitioner’s own admissions clearly
and categorically show that she did not exercise due diligence in the selection of her bus driver.

In any case, assuming arguendo that Venturina did submit his license and clearances when he applied
with petitioner in January 1992, the latter still fails the test of due diligence in the selection of her bus
driver. Case law teaches that for an employer to have exercised the diligence of a good father of a
family, he should not be satisfied with the applicant’s mere possession of a professional driver’s license;
he must also carefully examine the applicant for employment as to his qualifications, his experience and
record of service. Petitioner failed to present convincing proof that she went to this extent of verifying
Venturina’s qualifications, safety record, and driving history. The presumption juris tantum that there
was negligence in the selection of her bus driver, thus, remains unrebutted.

Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as
pointed out by the Court of Appeals, petitioner did not present any proof that she drafted and
implemented training programs and guidelines on road safety for her employees. In fact, the record is
bare of any showing that petitioner required Venturina to attend periodic seminars on road safety and
traffic efficiency. Hence, petitioner cannot claim exemption from any liability arising from the
recklessness or negligence of Venturina.

In sum, petitioner’s liability to private respondents for the negligent and imprudent acts of her driver,
Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner, having failed to
rebut the legal presumption of negligence in the selection and supervision of her driver, is responsible
for damages, the basis of the liability being the relationship of pater familias or on the employer’s own
negligence. Thus, this Court has no option but to uphold the ruling of the appellate court.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated
September 8, 2000, in CA-G.R. CV No. 52275, as well as its resolution dated November 27, 2000, denying
petitioner Cecilia Yambao’s motion for reconsideration are hereby AFFIRMED. Costs against the
petitioner.
Eastern Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78

FACTS:

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal.

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same.

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants

ISSUE:

WON defendant(s) should be held liable for the losses/damages.

RULING:

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be
applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In  Fireman's Fund
Insurance vs.  Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%  per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6%  per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12%   per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from
the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of
SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment
thereof.